Thursday December 10, 2015

Who could have predicted these problems for the Liberals? Absolutely everyone

(By John Ivison) Who could have predicted the Liberal plan to raise taxes on top earners would not pay for a $3.4-billion cut for the middle class?

Who could have forecast that the Liberal pledge to withdraw fighter jets from Iraq would rupture relations with the Americans?

Apart from absolutely everyone, that is.

Justin Trudeau’s first Question Period as prime minister was a miserable affair for the government, so exposed is it on two policy positions that never made any sense – beyond being blatant political bait for voters so hungry for change they were prepared to swallow any mendacity.

Bill Morneau, the finance minister, conceded in a late afternoon press conference that reducing the middle income bracket tax rate for nine million Canadians, while simultaneously raising the rate for the 319,000 taxpayers earning more than $200,000, would not be “revenue neutral,” as the election platform had claimed.

The tax cut will amount to an average cut of $330 for individuals and $540 for couples — which is welcome relief. But there must be serious doubts about the affordability of the measure — something the Liberals would have known, even as they sold it as a wash financially.

The day the proposal was released in early May, the CD Howe Institute’s research director, Alexandre Laurin, told me the tax package would never pay for itself. Experience in other jurisdictions such as the U.K. showed that tax receipts fall because people find ways to reduce their taxable income.

He released a paper to that effect last week, suggesting the new income tax rate of 33% would yield less new revenue than the Liberals had suggested.

The government admitted as much Monday, saying the new tax changes would cost a net amount of $1.2 billion a year for the next five years.

Morneau has already given a fiscal update suggesting that slower than expected growth has turned a forecast surplus this fiscal year into a deficit of $3 billion, before any Liberal campaign promises are factored in.

The new government had pledged that it would rack up deficits of $25 billion over three years, before returning to surplus in 2019-20. (Continued: National Post)

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