Letter to the Editor – Broken Economic Promises
I find myself agreeing with Les MacPherson of the Saskatoon StarPhoenix when he stated that “Fragile as pretzel sticks are Liberal campaign promises”. Since October 19th, this Government has had a steady record of broken promises. Having already broken at least 4 promises in less than 2 months in office, this Government is on pace to pass the McGuinty-Wynne Ontario Government for overall broken promises while in office. From faulty promises on Syrian refugees to a now steady stream of economic miscalculation, this Government owes all Canadians an explanation on why their campaign promises were so fundamentally flawed.
I would like to focus on two recent issues that have come to light about economic promises that the Government made during the campaign. The first promise was a “Middle-class tax cut”. I put this in quotation marks because to this date we are still unclear on what the Prime Minister defines as middle-class. We do know that his Parliamentary Secretaries who earn $180,400 annually will be receiving the full benefit. I’m not entirely sure that all Canadians would define the “middle class” as someone who makes more than double the median national household income.
Furthermore, the Government promised that this tax-cut would be revenue-neutral. Their rationale was that a tax increase on those making more than $200,000 would create enough new revenue to offset a tax cut for those making less than $200,000. What we have now learned is that the Government made some very serious calculation errors when drawing up this plan. We have learned that the tax hike will bring in about $800 million less than the Government expected and the tax cut is going to cost about $600 million more than was originally expected. Therefore, this plan has gone from being revenue-neutral to costing about $1.4 billion. This is not the plan that was promised.
Another core economic promise made during the campaign was that while the Government would run deficits for 3 consecutive years, these deficits would not exceed $10 billion/year. This was the economic standard that the Government set for itself during the campaign and should be the standard it holds itself to moving forward. Unfortunately, what we are now seeing is that the Government is shifting its rhetoric to a focus on net debt-to-GDP – a fundamentally different economic measuring stick. Net debt-to-GDP is calculated by dividing the overall national debt by the size of the economy (GDP). The Government is now stating that their new standard will be to have the net debt-to-GDP lowered on a year to year basis rather than their original goal of keeping deficits under $10 billion.
However, several economists have stated that by moving to this economic standard, the Government could run annual deficits of up to $25 billion and still lower the net debt-to-GDP ratio. Simply lowering the net debt-to-GDP is a much easier financial objective and could still be achieved by running large deficits. Therefore, it is advantageous for the Government to use this as their financial anchor as they know their deficit spending is spiraling out of control. Don Drummond, a former senior official in Finance stated that: “There’s nothing in the economic literature that drives you towards the notion of an optimal debt-to-GDP ratio… I think it’s a second choice on their part when they can’t produce the deficit target they want. This is kind of a defensive mechanism.” Furthermore, economists have also noted that to return to balanced budgets by the year 2019-20, the Government will have to drastically cut spending or hike taxes – paving the way for even more broken promises and higher taxes. With the Honourable Bill Morneau, Minister of Finance, stating that the Government will not be backing down on some costly campaign promises, it is clear that we are in for deficits much greater than $10 billion/year. The Government is changing its tune simply because they know they will not keep true to their original promise.
In conclusion, Canadians expect more, and most certainly deserve more than what they’ve been given by this Government so far. A string of broken promises and miscalculations has proven that this Government simply said what it needed to say in the election with no regard for actually following through in a responsible manner.