Wednesday, January 07, 2009

Rush to the Trough

The Canadian Federal Government is planning a huge amount of deficit spending to try to jolt the economy back to life. Unfortunately the prospect of money has every special interest group salivating and putting flurries of press releases explaining that they should get some of that windfall. And you can bet the day after the budget, reporters will be seeking out anyone who didn't get any money to ask them their opinion of the Harper budget. Likewise, the Opposition Parties will be asked their opinion. I assume they will say "Not enough. Wrong priorities. No plan. No hope. Hard right ideology" no matter what Harper does.

So let's see. A student federation is calling for $2.4 billion to be spent on educational infrastructure. Perhaps a worthy cause, but is it likely to jolt the economy? There are calls for more spending on healthcare. Indeed a worthy cause, but is more spending going to put more people to work? Others are calling for Harper to go ahead with the Kelowna Accords with Canada's aboriginal people. Perhaps Kelowna is a good thing, but will it really put more people to work, or is the Left jumping at the opportunity to spend money on their priorities under the guise of helping the economy?

A lot of people share my belief that tax cuts are a good thing for the economy. It puts more money in people's pockets, which has two benefits. First, people can choose to spend that money directly and that is good for the economy. Second, if they use the money to pay down debt or save for the future, it makes them feel better about their overall economic situation, which helps address the confidence problem (when people lose confidence about the future they stop spending, and no amount of government stimulus can overcome this problem). So tax cuts are a good thing.

But tax cuts are not enough. For a number of years I was of the opinion that tax cuts should be focused on the people earning the least. I have (currently) a good job and don't need tax cuts. But then I realized that the people at the bottom of the income scale don't need tax cuts so much as they need opportunity. A guy who is making $20K a year doesn't need a $200 tax cut; what he needs is the economic opportunity to get a job that pays $35K a year.

So, across the board tax cuts can help (provided they don't reintroduce structural deficits). We also need to keep lowering corporate taxes so that companies will set up in Canada. The guy earning $20K a year needs job training so that he can move into a better paying job. And the guy making $100K a year needs more new companies starting up with venture capital to use his existing skills to build world-beating products here in Canada.

A final note on infrastructure. Infrastructure spending is often touted as the panacea. But it won't help if the money is given the projects that will be kicking off 18 months from now. If we are going to deficit spend on infrastructure projects to jolt the economy, the newly available funds need to be applied quickly. Any funding must be applied to projects that can start immediately. Yes, there are some roads that could start immediately, and this sort of spending brings long term benefits to the economy. But in addition, to my way of thinking, money could be spent on repairing social housing. Most of it is falling apart and most municipalities have a list of projects they would like to tackle. A lot of repair companies and small contractors could be put to work within a couple of weeks of additional moneies being provided.

Anyway, that's my 2 cents at 4:02am. 8-)


Blogger Rileysowner said...

While my preference is infrastructure spending, and we have lots of planned infrastructure programs that could probably start within a couple of months, the problem is they will all be held back by "environmental assessments." Those can take years. So, unless the government will pass a bill removing the need for those assessments for the infrastructure programs they put money into, it won't help for years.

Either way, it will be interesting to see how things pan out.

Just a thought, should a person making only $20000 a year pay any income taxes at all. I would figure we should have a taxation system where below a certain reasonable point, no income taxes are levied.

8:52 a.m.  

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