Jay Currie

There is a good deal of excitement/hysteria over the prospect of the defeat of the CPC and the installation of an NDP/Liberal coalition.

The trigger for this was the CPC’s announcement, since retracted, that in its economic plan it was going to cut the $1.95 a vote/year public subsidy Canada’s main political parties now enjoy. But rather than being seen as pigs annoyed that the trough is might be torn away, the Opposition insists its real issue is tha absence of economic stimulus in the Tory economic plan.

After all, every nation on the planet is pumping ever more money – and I use the term loosely – into its financial sector and, potentially, any sector of its economy which looks like it might be hit by the current credit crisis. The NDP and, more or less, the Liberals are demanding that Canada get on with flooding the marketplace with “money”.

Er, why? The main features of the credit contraction in Canada have been

• a retrenchment in stock prices,


• a reduction in the amount that oil and other energy products can be sold for,


• the collapse of the auto industry


• a collapse of commodity prices


• a reduction in housing prices

None of which is good. However, there is next to nothing we can do about any of these issues by spending more money. Energy prices reflect world demand as do commodity prices. The collapse of the big three car companies reflects conditions in the US about which we can do very little. Housing prices in urban Canada were absurdly inflated and their decline, given the general prudence of Canadian bank mortgage practices, poses no threat to the banks and may grant some relief to house buyers. Stock prices reflect the decline in world markets and the dependence of many quoted Canadian companies on commodity prices.

Would spending more money help? Well, to a certain extent, spending money on infrastructure would make sense. The CPC already has 30 billion earmarked to infrastructure and spending that money quickly and perhaps adding a bit more would make economic sense in that we would have actual assets to show for the money spent.

But, as for the rest there is little or nothing the government spending money will do save create inflation. We might look at some tax expenditures – eliminating capital gains tax altogether would help the stock market and firm up the real estate market a bit.

The reality in the energy and commodity sector is that the government can do very little to effect the price of the commodities. It might reduce direct taxes on commodity producers; but their tax rate is already pretty low.

The one thing which the government can do is encourage consumer demand. There are really only two ways of doing this – increasing transfers to individuals or reducing taxes. These are not mutually exclusive. And these sorts of measures can be tilted towards the less well off.

Were the federal government to make an addition 2 billion a year available to increase the Child Tax Benefit for lower income people that would have an immediate stimulatory effect where it could do the most good. Raising the income upon which federal income tax must be paid would also help.

For the middle income earners moving toward eliminating the marriage penalty would be a big step forward. A start on real income splitting would benefit stay at home parents and seniors.

None of these programs would require spending a great deal of new spending; however the implied tax relief would reduce government revenues and likely lead to a deficit in the near term. Because none of these programs will create additional government services or workers and may in fact reduce the need for such workers, there will be no permanent program costs associated with this tax relief.

The federal government will tighten its belt to leave more money in the hands of the only people who can bring Canada out of recession: Canadians. There would be a deficit for a couple of years until the growth in Canada’s economy caught up. The stimulus would come from millions of Canadians having more money after tax to spend and invest.

I suspect the NDP/Liberal coalition would not like this; but the CPC should be out banging the drums and demanding that Canadians be left more of their own money to weather the economic storm ahead.