Arithmetic for finance ministers

Remedial work for a finance minster who can’t divide

By: Jim Stanford

  When you're choosing someone to oversee a $160 billion annual budget, it's usually a good idea to pick somebody who'd pretty good with numbers. After all, it can be tricky keeping track of all those zeros and decimal places.
 

Lesson #1: If you split something 50-50, that means you divide it in half. Liberals promised half of any surplus for health care, education and social programs. On Monday, they gave these programs 25%. Lesson #2: The "middle" is a point halfway between two extremes. It was supposed to be a middle-class budget. But average two-job families ($60,000/year) get only $333 in tax break. The top three percent get $2,150. Lesson #3: A balanced budget is what happens when revenues equal expenditures. Martin’s budget hides a bigger surplus reserved for political slush funds like the HRDC mess.

  Cabinet ministers who suffer from math phobia should be assigned to other portfolios - perhaps to oversee the latest grant program at HRDC. But for Finance Minister, you definitely want someone who is handy with a pocket calculator.
  After Monday's federal budget, however, I'm starting to worry that Paul Martin - despite his competent, businesslike demeanor - may actually be deficient in certain basic concepts of addition, subtraction, and geometry. As a public service, therefore, I offer forthwith the following syllabus in elementary arithmetic for the education of current and future Finance Ministers.

Lesson #1: If you split something 50-50, that means you divide it in half.

  The Liberals were elected in 1997 with a crystal-clear promise to spend 50 percent of future surpluses on health care, education, and other public programs. The other 50 percent would be allocated to tax cuts and debt reduction.
  Martin's 2000 budget pledges to reduce taxes by at least $58 billion over the next five years. The true figure will probably be higher: following tried-and-true practice, Martin's deliberately cautious timetable will allow future tax cuts to be implemented ahead of schedule, thus earning him another gold star for phony overachievement.
  The Finance Department now believes the federal surplus will total $100 billion over those same five years. That means Martin is allocating about 60 percent of the surplus to tax cuts alone, probably more. Throw in $15-$25 billion for debt reduction (depending on how much of his contingency, back-up contingency, and super-contingency reserves are actually used for this purpose), and the 50-50 rule has suddenly become a 25-75 rule.
  If you're ever dining with Paul Martin and he offers to give you half of his dessert, watch out.

Lesson #2: The "middle" is a point halfway between two extremes.

  Several measures bundled as a "middle-income" tax package account for fully half of the total tax savings announced in the budget. The middle and high-income bracket thresholds will increase, the middle tax rate will be cut, and the 5 percent surtax will disappear on income below $85,000.
  These four changes could save an individual taxpayer some $2150 per year. But to get the full amount, that taxpayer must earn $85,000 or more - a status enjoyed only by the richest 3 percent of taxpayers in Canada.
  A genuinely "middle-income" Canadian, however, doesn't fare quite so well. The average income of the 21 million Canadians who filed tax returns in 1996 (last data available) was well below $30,000. Two-thirds of taxfilers either pay tax at the lowest marginal rate, or else pay no tax at all. All these Canadians, including those who are "average" or "middle" by any conventional theory of mathematics, are bypassed by these expensive "middle-income" tax cuts.
  Martin's attempt to spin the phased elimination of the surtax as a "middle-class" tax cut is especially bizarre. Someone earning between $65,000 and $85,000 per year is hardly rich - but they are nevertheless better off than about 95 percent of their fellow Canadians. Calling the surtax elimination a "middle-class" tax cut is the fiscal equivalent of painting the centre-ice line on a hockey rink about 10 feet in front of the opponent's net. Or placing "middle C" on a piano keyboard five keys from the top.

Lesson #3: A balanced budget is what happens when revenues equal expenditures.

  Martin trumpeted that his government will be the first in a half-century to bring in five consecutive balanced budgets. He thus maintains the polite but increasingly implausible fiction that Ottawa is spending just as much money as it takes in.
  The government's official surplus is a relatively modest $3 billion per year. The true surplus, however, is much larger. In the last three years alone, Ottawa has accumulated cash surpluses exceeding $32 billion. Martin's projected budgetary balances hide growing cushions of wiggle-room, reaching $7 billion per year by 2004.
  Worst of all, with his one-time $2.5 billion payout to the provinces, Martin perpetuates the strange practice of funding future expenditures out of current budgets. As with past boondoggles (like the Millenium Scholarship fund), this sleight-of-hand merits a sharp smack on the wrist with the Auditor-General's yardstick.
  The practice of building up hidden stockpiles of cash through the year, and then pretending to spend it at the last minute on whatever projects seem to offer maximum political advantage, is the macroeconomic equivalent of the HRDC jobs scandal. It satisfies neither the advocates of tax cuts, nor the partisans of social spending. Martin should cease and desist.
  In sum, it seems the Finance Minister should go back to school for some remedial math lessons. Then one day we might be lucky enough to see future budgets which actually add up - and which provide an honest depiction of this government's real policy intentions.

Jim Stanford is an economist with the CAW.

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