The 2000 Federal
Budget: Retrospect and Prospect
Paul A.R. Hobson and Thomas A. Wilson (eds.),
2001 (Paper ISBN: 0-88911-816-7
$18.95) (Cloth ISBN: 0-88911-814-0 $49.95)
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| Contents | |
| Introduction | |
| Acknowledgement | . . . | vii |
| Introduction | . . . |
1 |
| Session I: The 2000 Federal Budget: Impications for Canadian Federalism | ||
| The Social Union Framework Agreement and the Federal Budgetary Process Harvey Lazar |
|
|
| Taxation, Fiscal Federalism and the 2000 Federal and Provincial Budgets Thomas J. Courchene |
. . . |
|
| Session II: The Budget and its Macroeconomic Effects | ||
| Macroeconomic Effects of Budget 2000 Thomas A. Wilson, Peter Dungan and Steve Murphy |
. . . |
53 |
| Macroeconomic Effects of the 2000 Federal Budget Rick Egelton |
. . . |
71 |
| Macroeconomic Forecasts and the Budget Gregor Smith |
. . . | 78 |
| Session III: The Taxation Dimension | ||
| Counting Chickens and Unhatched Eggs: The Post-Budget Outlook for Canadian Taxes William B.P. Robson |
. . . |
83 |
| How Do Recent Tax Reforms Affect the Behaviour and Welfare of Families? Michael Smart |
. . . |
102 |
| Tax Changes in the 2000 Federal Budget Robin Boadway |
. . . |
113 |
| Session IV: The Expenditure Dimension | ||
| Federal Expenditures in Canada: The Millennial Vision and its Tensions Lars Osberg |
. . . |
123 |
| Federal Budget 2000: The Expenditure Dimension from a Provincial Perspective Lise Bastarache |
. . . |
137 |
| Session V: The Social Policy Dimension | ||
| Budget 2000: A Children's Budget? Frances Woolley |
. . . |
149 |
| Do We Know Where We Are Going? Keith Banting |
. . . |
160 |
| Session VI: Assessment and Perspectives | ||
| Paul Martin's Tax Revolt Jim Stanford |
. . . |
167 |
| Fiscal Stabilization and the Allocation of Fiscal Dividend: An Assessment Pierre Fortin |
. . . |
181 |
| Session VII: Budgeting in the New Millennium | ||
| Some Reflections on the Budget Process and the Fiscal Issues Confronting Canada Jack M. Mintz |
. . . |
195 |
| Contributors |
| Return to Top |
INTRODUCTION
The John Deutsch Institute for the Study of Economic Policy (JDI) was
fortunate to once again team up with the University of Toronto's
Institute
for Policy Analysis (IPA) in sponsoring this conference volume, The
2000
Federal Budget: Retrospect and Prospect.
The JDI has, since its inception, provided periodic assessments and
evaluations of federal budgets. The 2000 federal budget was, of course,
special as it marked the transition from the first to the second
millennium. It was also special in that it was the first budget to deal
with large potential future surpluses. Moreover, following previous
budgets directed at planned deficit reduction and control, the focus at
this forum, as in the recent public debate, shifted to the question of
how
to allocate the potential surplus.
The budget forum, held on March 30-31, 2000 at Queen's University, was a
project in which David Smith took a personal interest during his term as
Acting Director of the JDI. Typically, David was particularly interested
in continuing the collaboration between JDI and IPA in hosting the forum
and publishing its proceedings. He opened the forum and chaired its
first
session. His untimely death in May following the forum underscored for
both of us the privilege of working with him to promote a tradition of
strong policy analysis in Canada, surely part of his legacy to Canadian
society.
It was a great pleasure to welcome Mrs. Stephanie Deutsch as an honorary
participant at the conference. It was Harvey Lazar who noted that all
the
panellists in the first session had at some point worked at the Economic
Council of Canada, once chaired by John Deutsch.
Session I: The 2000 Federal Budget: Implications
for Canadian Federalism
The first session was a panel discussion, chaired by David Smith
(Queen's). Panellists were Pierre Fortin (UQAM), Harvey Lazar (Queen's)
and Tom Courchene (Queen's). Fortin focused his remarks on the
interaction
of fiscal and monetary policies under the inflation-targeting regime;
his
remarks are expanded in his presentation in Session VI. Lazar focused on
the Social Union Framework Agreement (SUFA) between Ottawa and the
provinces and its implications for the federal budgetary process. His
argument was that there is a potential tension between the SUFA and the
federal budgetary process - that the joint planning provisions of the
SUFA
will complicate the federal budget-making process, or that this process
will undermine the joint planning provisions of the SUFA, or both.
Courchene reviewed the provinces' reactions to federal tax cuts in light
of provisions allowing the provinces to move to a tax on income (TONI)
system rather than the tax-on-tax system.
Session II: The Budget and Its Macroeconomic Effects
The second session continued the tradition of JDI budget forums of
looking
at the macroeconomic effects of the budget. Chaired by Allan Gregory
(Queen's), presentations were made by Thomas Wilson, Peter Dungan and
Steve Murphy (IPA and University of Toronto) and Rick Egelton (Bank of
Montreal). Gregor Smith (Queen's) served as commentator. Wilson, Dungan
and Murphy underscored the point that much of what would traditionally
have been included in the budget now occurs outside the budget process.
They provided two sets of estimates, one for measures contained within
the
budget and one for what they term the "augmented budget", which combines
measures contained within the budget itself with tax and spending
initiatives implemented prior to the budget as well as prospective
Employment Insurance (EI) payroll tax cuts over the next three years.
They
argued that the budget provides a very modest stimulus to real output
under the inflation-targeting regime. They also argued that, over the
medium term, the proposed tax changes are conducive to efficiency and
economic growth. Egelton argued that while the federal budget provides
some fiscal stimulus over the next two years, its impact on economic
growth will be minimal in light of an anticipated tighter, offsetting
monetary stance by the Bank of Canada. Smith explored the potential
impacts of a decision to choose a faster pace of debt reduction, the
changing composition of federal spending, and the role and quality of
private sector forecasts (including those from IPA!) as a key element of
the budgetary process.
Session III: The Taxation Dimension
The third session focused on the taxation dimension of the budget.
Chaired
by Ian Cromb (Queen's), presentations were made by Bill Robson (C.D.
Howe
Institute), Michael Smart (University of Toronto) and Robin Boadway
(Queen's). Robson's presentation highlighted the time-release nature of
the tax reductions announced in the budget. He argued that, in the
course
of the next couple of fiscal years, spending hikes dominate tax
reductions, making lower marginal rates and greater fairness elusive
policy goals. Smart explored the effect of tax reforms contained in the
budget on the behaviour and welfare of families. He emphasized the
importance of understanding the impact on economic efficiency through
changes in effective marginal tax rates of measures such as changes to
family benefits and the softening of foreign content restrictions for
retirement savings. Boadway scrutinized the structural changes in the
tax
system contained in the budget against criteria for the design of a good
tax system. He made a plea for increased emphasis on the use of
refundable
tax credits within the income tax system and for some consideration of
the
long-term implications of the ongoing shift of income tax room in favour
of the provinces, especially in regard to the sustainability of the tax
collection agreements.
Session IV: The Expenditure Dimension
The fourth session focused on the expenditure dimension of the budget.
Chaired by France St-Hilaire (IRPP), presentations were made by Lars
Osberg (Dalhousie) and Lise Bastarache (Royal Bank). Osberg picked up on
what he perceives to be a discordance between the level and allocation
of
rhetorical and financial emphasis that runs through the budget. He
argued
that, if the budget is to lay out a plan for the new millennium, it must
be both credible and sustainable, yet, in his view, there is a gulf
between popular preferences (for the welfare state) and elite opinion
(smaller government) which will continue to dog the budget-making
process.
Bastarache discussed the impact of supplements to the Canada Health and
Social Transfer (CHST), including those contained in the 2000 federal
budget, on the federal share in provincial revenues. She argued that
federal cash transfer payments to the provinces through CHST and
Equalization will continue to decline as a share of provincial revenues,
notwithstanding the recent supplements. In that light, she argued that
the
provinces have done well to embrace TONI, since they will be forced to
increasingly rely on own-source revenues for financing burgeoning social
expenditures. Tom Courchene provided some remarks in the context of the
information economy which are not reproduced in this volume, but see his
book, A State of Minds: Toward a Human Capital Future for
Canadians
(Montreal: IRPP, 2001).
Session V: The Social Policy Dimension
An important aspect of the budget debate has been the future direction
of
social policy. Chaired by Kate Cuff (now at McMaster), presentations
were
made by Frances Woolley (Carleton), Michael Mendelson (Caledon
Institute)
and Keith Banting (Queen's). Woolley described the 2000 budget as a
missed
opportunity to deliver a coherent approach to family policy in Canada.
She
argued why a "children's budget" was wanted, needed, but not delivered.
Mendelson's presentation is not reproduced in this volume, but see his
Caledon Institute publication, The Payback Budget of 2000,
co-authored
with Ken Battle and Sherri Torjman. Banting took a broad perspective on
the process of change in policy delivery over the past two decades - the
reshaping of social Canada. He asked whether the myriad of incremental
changes at the federal and provincial levels are adding up to a model of
social policy that is internally coherent and politically sustainable
and
argued that we should not be sanguine if the answer is "no".
Session VI: Assessment and Perspectives
Assessments and perspectives were provided by Jim Stanford (CAW) and
Pierre Fortin (UQAM), in the session ably chaired by Hugh Segal (IRPP).
Fortin argued that fiscal stabilization policy is meaningless given
flexible exchange rates and inflation targeting by the Bank of Canada.
Rather, fiscal policy has implications for the composition of demand and
output through its effect on the real rate of interest and the real
exchange rate. Thus, the focus should be on the allocation of the fiscal
dividend rather than on stabilization policy. In this regard, he argued,
even more emphasis on debt reduction might have been appropriate.
Stanford
dubbed the 2000 budget the "tax cut" budget. He argued that the end
result
will be a lopsided society typical of the purely private economy and
that
the federal liberals have clearly indicated, through the 2000 budget,
that
this is how they want Canadian society to evolve.
Session VII: Budgeting in the New Millennium
Jack Mintz closed the forum with some remarks on the budget process and
the fiscal issues confronting Canada in the new millennium.
Appropriately,
Mintz's remarks were completed following the October 2000 pre-election,
mini-budget. While he gave high marks to the Martin budget process, he
was
critical of the lack of clarity and transparency (especially since the
surplus is undefined), incremental decision-making, pro-cyclical rather
than anti-cyclical fiscal policy, and a lack of clear fiscal objectives
for planning. He called for an economic plan, complementary to the
budget
process. Elements of such a plan would include identifying the objects,
debt reduction, a review of expenditure priorities, the need for tax
reform rather than simply tax cutting, and some closure on
federal-provincial fiscal relations.
Our Parting Remarks
As it turned out, the February 28, 2000 federal budget was followed by
the
mini-budget on October 18, 2000, which represented the Liberal economic
platform in the subsequent general election. With the re-election of the
Liberal government, the measures proposed in both budgets will be
implemented as planned. Indeed, as of the time of writing, there is no
plan for a 2001 federal budget.
We would like to express our sincere thanks to the authors and
commentators for their cooperation in finalizing their papers. We would
also like to thank the session chairs and participants from the floor
for
their contributions. It has always been the position of the JDI that it
is
the discussion from the floor that is central to the success of the
Institute's conference activities. Marilyn Banting once again provided
her
editing skills in preparing this volume for publication and we thank her
for a job well done. Finally, we wish to thank Sharon Sullivan for her
superb work in keeping the project on track, taking care of all the
administrative details, and in shepherding the authors and editors so as
to bring about a most successful forum and the completion of this
volume.
Simply put, without Sharon there would have been no forum and no
volume.
It is a pleasure for the JDI and IPA to have sponsored the forum and now
to sponsor and publish this volume of retrospective and prospective
assess-ments of the 2000 federal budget. We trust that it will
contribute
to the record of public policy development and analysis that was such an
important thrust for both John Deutsch and David Smith.