New Shoes, New Spending?

Sometime this weekend, Jim Flaherty will go shoe shopping so as to be perfectly ready Monday’s Budget. You can read speculation as to its contents elsewhere, but it is safe to assume that there will be gifts for the provinces and tax cuts for everyone else. Canada’s New Government, after all, certainly has learned how to pander to an electorate.

So, with Billions in surplus, what’s Flaherty to do? Well, this is what our “non-partisan” friends at the Canadian Taxpayers Federation would have us do:

Budget ’07 affords the finance minister an opportunity to deliver tax relief to Canadians. Thanks to Mr. Flaherty’s sound decision to use last year’s budget surplus of $13.2-billion to pay down debt, Ottawa will save $700-million a year on interest payments. The surplus in the current fiscal year is projected to be $7.2-billion and despite rampant public spending, many observers expect it will top $10-billion when the books close on March 31st. If this surplus is also applied against the debt, the combined interest savings will permit Ottawa to cut taxes annually by $1.2-billion. That’s a good start.

The bolding is, obviously mine. It’s an important question to ask whether or not we actually have rampant public spending. For this, it’s worth looking at the last two graphs in this post by the ever-useful gentleman over at Worthwhile Canadian Initiative. The two say somewhat different things- In the first, we see that we are spending (after adjusting for inflation) about the same as we did in the early 1980s, despite an ability to pay that hasn’t been seen in 50 years. In the latter, the suggestion is that expenditure is at its lowest point in more than 50 years.

So what is my point? Well, the government is in a fiscal position where it can make the kind of investments that will make Canada a substantially better, and more competitive, place to live. No longer are we bound by the financial pressures of a deficit, nor should we be bound to think that the best way of spending surpluses is cutting taxes. Go crazy? Obviously not. But in a time where people campaign on tying some budget items, like defence spending, more or less to GDP, I have a hard time seeing why it is a difficult or controversial proposal to extend that same concept to other areas of the ledger sheet.

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