I want to consider only one question with my five minutes: does the federal government have enough money for further tax cuts?
After many years of large budget surpluses, many Canadians may assume that Ottawa has no problem finding extra cash. In our opinion, the days of large budget surpluses are over. As a result, we believe that if Ottawa embarks on new tax cuts, it will be setting the stage for very large spending cuts down the road.
Last year, of course, the federal government had a surplus of $13.2 billion, but since that time the Conservative government has implemented, by their own calculation, $9.9 billion in tax cuts, as well as further spending for defence and for cash in lieu of child care. As well, they have set aside $3 billion for debt repayment. By their own tally, in the May budget Ottawa would run a surplus of only $600 million.
More recently, we have re-examined Ottawa's finances. I believe our report is being circulated to you now. “Can Ottawa Afford More Conservative Promises?” is the title of the report.
We project that the federal government will have surpluses that are higher than in the May budget. By our projections, the 2006-07 surplus is around $4.2 billion. Remember that in addition there's an extra $3 billion set aside for debt repayment, but there's $4.2 billion available for use. A word of caution: some folks, in describing the surplus, are adding in that additional $3 billion set aside for debt repayment. We leave it out, as did the federal government in the May budget, because we're concerned about how much flexibility there is to fund new tax cuts or, of course, spending measures.
By our projection, the government has about $4.2 billion to work with this year, about $4 billion the following year, and maybe $5.3 billion in the third year. This is factoring in the fact that the forecasts for economic growth are far more pessimistic than they were in May. Of course, if they deteriorate further, then there will be less surplus than we have suggested.
Let's just look. Assuming they have somewhere around $4 billion to $5 billion in surplus to play with for the next three years, is that enough leeway to cut taxes further? Before the government can make new promises, it has to pay for the promises it has already made, promises that were not costed in the 2006 federal budget--nor are they factored into our projections of $4 billion to $5 billion of surplus over the next three years.
What is still on the government's to-do list that it still has to find money to pay for?
Number one, the Conservatives promised to address the fiscal imbalance. While they haven't told us how or when they will do that, this is potentially a very pricey item.
Number two, the Conservatives promised to reduce health care waiting times, yet no additional money was budgeted for that in the last budget.
Number three, the Conservatives promised more defence spending in their election platform than was accounted for in the May budget, so we should expect further defence spending of perhaps $4 billion between now and 2010-11.
Number four, the Conservatives promised to eliminate the capital gains tax on reinvestment. This is potentially very costly. I wouldn't be surprised at $2 billion per year, but we could debate that, depending on the specifics of the actual proposal.
Number five, the Conservatives promised to cut the GST rate by a further percentage point. Again, this is very costly; it is more than $5 billion per year, depending on when it's implemented.
We don't precisely know when the Conservative government plans to implement these measures. They don't have to do them all in the next budget, but the fact is that they could not afford to do all their promises in the next budget even if they wanted to. By our calculations, the GST cut alone would put them in deficit if they did it right now.
Under these circumstances, we don't think it's responsible for the federal government to make further tax cuts. If they make further tax cuts, they're going to have to find more money. There are two possibilities we would like to highlight for you: they could privatize assets, or they could cut spending more dramatically than they have so far.
In the last election platform they promised $22.5 billion in spending cuts over five years. Our concern is that a further tax cut now will set the stage for deep spending cuts in the future and will generate a straitjacket for any future government, of whatever party, which will be forced to radically downsize government to pay for these tax cuts as they hemorrhage money out of the treasury for years to come.