Article content continued
Without a plan to deal with its annual deficits and rising debt, workers, investors, businesses and entrepreneurs were left guessing about whether taxes might be raised, and by how much.
Of course, the Trudeau government did raise taxes, with a new federal carbon tax, a new top tax rate for professionals, entrepreneurs, skilled labour and business owners, and by eliminating a host of tax credits utilized by the middle class. They also failed to address uncertainty about future taxes, aiding rumours of potential increases to capital gains taxes and limits on interest-deductibility for business.
The higher taxes and borrowing were all used to finance more spending. Federal spending on programs between 2015 and 2018, the latest year of detailed data, increased by nearly $70 billion or 27%.
In 2015, the Liberals, including Morneau and Freeland, argued that higher taxes, more borrowing and much more spending would produce a stronger economy. In reality, these policies contributed to the slowdown in overall economic and income growth prior to the COVID shutdown and recession.
Hopefully the new finance minister changes direction, based on actual evidence. Key reforms would include a robust plan to reduce the nearly $350 billion deficit and balance the budget, improve tax competitiveness for individuals and businesses, and ease the regulatory burden to get the conditions right for investment and entrepreneurship.
Given what we’ve witnessed over the past five years, perhaps that’s too much to ask. But at least let’s hope Finance Minister Freeland understands we have an investment crisis in this country. As the old saying goes, the first step in solving a problem is recognizing the problem.
Niels Veldhuis and Milagros Palacios are economists at the Fraser Institute.
