Economy
Federal government could balance budget and reduce tax rates with 2.3% spending reduction over two years
![](https://www.todayville.com/edmonton/wp-content/uploads/sites/2/2024/07/tvrd-new-federal-fiscal-framework-for-canada-infographic-2024-07-16.jpg)
From the Fraser Institute
By Jake Fuss and Grady Munro
If the federal government reduced program spending by only 2.3 per cent over two years and eliminated a host of tax expenditures, it could balance the budget and reduce personal income tax rates affecting most Canadians, finds a new
study published today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
“With modest spending reductions and tax reform, the federal government can create the fiscal room to provide tax rate reductions that would benefit most Canadians,” said Jake Fuss, director of fiscal studies at the Fraser Institute and co-author of A New Federal Fiscal Framework for Canada.
Specifically, if the government implemented this spending reduction—and eliminated 49 federal personal income tax expenditures (tax credits, tax exemptions, etc.), which do little to improve economic growth yet reduce government revenue—it could eliminate the three middle federal personal income tax rates (20.5 per cent, 26.0 per cent, 29.0 per cent) and reduce the top rate from 33.0 per cent to its previous level of 29.0 per cent.
As a result, with only two remaining rates, nearly all Canadians would pay a marginal personal income tax rate of 15 per cent. And the federal government could balance the budget by 2026/27.
“In light of Canada’s dim economic prospects and lack of tax competitiveness, the federal government should move away from the status quo and pursue a pro-growth fiscal strategy,” Fuss said.
“At a time when affordability is top of mind, it’s time for Ottawa to reduce tax rates and restore discipline to federal finances.”
- Poor government policy has led to a significant deterioration in Canada’s federal finances over the last decade. The introduction of new and expanded government programs has caused federal spending to increase substantially, resulting in persistent deficits and rising debt.
- Canada also maintains markedly uncompetitive personal income taxes relative to many other advanced economy jurisdictions. This hinders Canada’s ability to attract and retain highly skilled workers, entrepreneurs, and business owners.
- Canada must make meaningful policy reforms by pursuing reductions in both federal spending and tax rates to address the current fiscal and economic challenges.
- The federal government should eliminate 49 federal PIT tax expenditures and remove the three middle income tax rates of 20.5, 26.0, and 29.0 percent while reducing the top marginal PIT rate from 33.0 to 29.0 percent.
- The federal government can introduce a comprehensive tax reform package and achieve a balanced budget by 2026/27 through reducing nominal annual program spending by 2.3 percent over a two-year period.
- Returning to balanced budgets should be viewed as a starting point rather than the end goal.
- Imposing a Tax and Expenditure Limitation (TEL) rule that caps growth in program spending at the rate of inflation plus population growth would be the next step for federal finances over the long-term.
- This would allow for budget surpluses in subsequent years after achieving the initial balanced budget and ensure discipline in government spending for the foreseeable future.
Authors:
Economy
Historic decline in Canadian living standards officially reaches five-year mark
![](https://www.todayville.com/edmonton/wp-content/uploads/sites/2/2024/04/tvrd-fi-people-taxpayers-canadians-image-2024-04-12.jpg)
From the Fraser Institute
By Jake Fuss and Grady Munro
Indeed, according to a recent study, from the middle of 2019 to the end of 2023, GDP per person fell from $59,905 to $58,134—a 3.0 per cent drop over four and a half years.
On Friday, Statistics Canada released its estimate of gross domestic product (GDP) for the second quarter of 2024, which confirmed that despite growth in the overall economy, individual living standards for Canadians declined once again. As a result, the ongoing decline in Canadian living standards has officially reached the five-year mark.
GDP—the final value of all goods and services produced in the economy and the most widely used measure of overall economic activity—grew by 0.5 per cent from April to June of 2024 (after adjusting for inflation). But while the economy continues to grow in the aggregate, inflation-adjusted GDP per person—a broad measure of individual living standards that adjusts for population—actually fell by 0.1 per cent during the second quarter of 2024, down to $58,005.
In other words, while the overall economy is growing, individual living standards are falling. This apparent disconnect is due to Canada’s growing population, and the fact that the rate of economic growth is not fast enough to account for the amount the population has increased. Specifically, while the economy grew by 0.5 per cent from April to June of 2024, the total population grew by 0.6 per cent (or 242,673 people).
These data confirm that Canadians are still suffering a historic decline in living standards.
Indeed, according to a recent study, from the middle of 2019 to the end of 2023, GDP per person fell from $59,905 to $58,134—a 3.0 per cent drop over four and a half years. This was the second-longest and third-deepest decline in living standards since 1985, and was only exceeded in both respects by a decline that lasted more than five years (from June 1989 to September 1994).
Unfortunately for Canadians, this recent decline in living standards persisted through the first three months of 2024, and now the newest data show the decline has continued into the second quarter of 2024. Therefore, as of June 2024, inflation-adjusted GDP per person stood 3.2 per cent below the level it was in the middle of 2019. Again, despite a few brief quarters of positive per-person economic growth since 2019, the general decline in inflation-adjusted GDP has officially reached the five-year mark.
Due to the continued persistence of weak economic growth combined with remarkable population increases, Canadians have suffered a marked and prolonged decrease in living standards over the last five years. This puts Canada just six months away from experiencing the longest decline in individual living standards of the last 40 years—a milestone no one should be eager to reach.
Authors:
Economy
British Columbia’s finances go from bad to worse during Eby’s first full year
![](https://www.todayville.com/edmonton/wp-content/uploads/sites/2/2024/08/tvrd-fi-bc-premier-david-eby-image-2024-08-30.jpg)
From the Fraser Institute
By Tegan Hill and Grady Munro
You might be able to justify higher spending if it improved programs and services for British Columbians—but it hasn’t. In fact, despite substantial increases in spending in recent years, the province’s health-care wait times have increased and student test scores have declined.
The recent move by BC United to suspend its campaign, essentially clearing the way for a two-party race in this fall’s provincial election, made headlines across British Columbia. But another recent event, which failed to garner much media attention, included some jaw-dropping numbers that will impact provincial finances for years to come.
Last week, the Eby government recently released its year-end report for the 2023/24 fiscal year—this government’s first full year in office. Unfortunately for British Columbians, provincial finances went from bad to worse as the government ran a larger-than-projected budget deficit and accumulated significant debt.
First, let’s take a closer look at the government’s budget—David Eby’s first official budget as premier—which projected a $4.2 billion operating deficit for the 2023/24 fiscal year (the government expected to spend $81.2 billion while only bringing in $77.7 billion in total revenues). For context, in its last budget the Horgan government had also planned to run a $4.2 billion deficit in 2023/24, but expected to take in $7.5 billion less in revenues. Put differently, the Eby government could have ran a budget surplus if it stuck to Horgan’s spending plan. Instead, the Eby government chose to spend away that $7.5 billion.
Given that per-person (inflation-adjusted) program spending was already at its highest level since 1965 (the earliest year of available data) under the Horgan government in 2021 (even excluding COVID-related spending), that’s a massive influx of new spending.
Now, the year-end report shows that the Eby government increased spending even further—$3.5 billion more than its original plan in the 2023 budget. Overall, it ran a $5.0 billion operating deficit in 2023/24, despite once again taking in more revenues ($1.9 billion) than it had originally planned. Again, the government chose to spend away every single dollar of extra revenue, and then some.
And the eye-popping deficit is only part of the picture as longer-term spending on things such as schools, highways and bridges, isn’t included. After accounting for long-term spending on capital projects, the B.C. government accumulated $11.3 billion in net debt (total debt minus financial assets) in a single year from 2022/23 to 2023/24. Government debt must ultimately be financed by taxpayers who spent $3.3 billion in debt interest payments in 2023/24. That’s money no longer available for programs such as health care or education.
According to the Eby government, “with a slower world economy and a growing population, we cannot afford to have a deficit of services. When we provide the services and support people need to have a good life, it makes our economy stronger and more resilient.”
You might be able to justify higher spending if it improved programs and services for British Columbians—but it hasn’t. In fact, despite substantial increases in spending in recent years, the province’s health-care wait times have increased and student test scores have declined. Put differently, according to key indicators, B.C.’s performance on health care and education—the two largest areas of government spending—have worsened despite higher spending.
Higher spending also hasn’t paid off for the B.C. economy, which is stagnating. The province’s per-person GDP, a broad measure of living standards, is expected to be lower this year than in 2018. And the Eby government expects negative growth in per-person GDP this fiscal year.
Unfortunately for British Columbians, the latest year-end report on B.C.’s finances shows the Eby government took a bad fiscal situation and made it worse with higher spending and an even larger budget deficit. The next government, whoever that may be, must deal will this fiscal mess.
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