Jeffrey Simpson of the Globe on Flaherty's "post facto policy rationale" mindset

Thank you Jeffrey Simpson.

"post facto policy rationale"

This is exactly the point we have been making since November 1, 2006 ever since I read the study by HLB Decision Economics entitled Tax Revenue Implications of Income Trusts which made it clear that Flaherty and his sorcerer’s apprentice Mark Carney had deliberately left out the 38% of taxes paid by income trusts held in RRSPs, and turned around and then implemented a policy to double tax RRSPs at rates as high as 64%, meanwhile leaving the pension funds with a special carve out exemption.

Jeffrey Simpson may be an impressive journalist, but let’s see how intellectually vigilant he is in “outing” Flaherty’s first example of “post facto policy rationale” as it pertain to the fraudulent concept known as tax leakage. Since the Globe and Mail has a truly pathetic record when it comes to covering the fraud known as the income trust story, ever since Eric Reguly got on the wrong side of reality with his very erudite piece in 2005 entitled “Capitalism for slobs".

Evidently that’s who they think their readership is at the Slob and Mail.

Time for Jeffrey Simpson to redeem his colleagues in the ROB. (Report on Business), since Eric Reguly’s recanting didn’t receive quite the same profile at ROB, as his endless and factless diatribe against income trusts did in print.

Someone, please, put an end to Mr. Flaherty's voodoo economics
The Globe and Mail
JEFFREY SIMPSON
February 13, 2008

Finance Minister Jim Flaherty says he won't "throw money around" in the Feb. 26 budget. That would be a change.

Mr. Flaherty, working for Prime Minister Stephen Harper, has been a big thrower-around of money. Now that the economy is slowing, and having all but emptied the federal cupboard with foolish tax cuts and provincial transfers, Mr. Flaherty is warning everyone not to expect much.

In Mr. Flaherty's 2006 budget, he sliced the GST by one point. Last November, he announced another one-point reduction. These two points will cost $10-billion to $12-billion a year in revenue, or perhaps $70-billion to $84-billion over seven years.

In that same time frame, the government will be shifting an additional $39-billion to the provinces to solve the mythical "fiscal imbalance," a measure announced in last March's budget.

Together, the GST cut and the "fiscal imbalance" will cost Ottawa in the broad range of $110-billion to $120-billion over the next seven years. To say, therefore, that money is tight is true only because of the Harper-Flaherty policy of the last two years.

The tragedy - no, the scandal - of these measures is that they did so little for the long-term competitiveness and productivity of the Canadian economy, on which, more than anything else, the country's long-term prosperity depends.

Years ago, a Progressive Conservative government led by Joe Clark promised "long-term gain for short-term" pain, and was defeated for its efforts. The Harperites stand the slogan on its head: short-term gain for long-term pain, and hope to be re-elected for their efforts.

Mr. Flaherty has been bragging that the second GST cut was clairvoyant, because it added stimulus for an economy now slowing.

This observation is laughably bogus. The government did not see the slowdown coming. The second one-point cut was entirely political. To link it to today's slowdown is to rewrite recent events, ascribe motivation where none existed, and create a post facto policy rationale for a move denounced by almost every economist in Canada, then and since.

Yes, the slowing economy, a phenomenon centered in the United States, will cause a tightening of Canada's fiscal position. Ottawa's fiscal position will be more stringent than Mr. Flaherty might have anticipated just a few months ago.

This recent tightening pales by comparison with Messrs. Harper and Flaherty's actions in their first two budgets. Those efforts also featured tax incentives (or political bribes) to small slices of the electorate (transit users, kids' athletics) and almost no restraint on the government's operational spending.

Last November, after the GST announcement, the government still anticipated $7-billion in surpluses over the next three years, plus $3-billion per year for debt reduction. This $7-billion will now be squeezed by lower-than-anticipated revenues.

Since this budget might precipitate an election nobody wants, the opposition parties would be doing the country a favour if they focused on what the Harper-Flaherty team have done to the country's finances, rather than offer a series of costly promises built on surpluses that may or may not exist many years from now.

A serious opposition party would point out the Harper-Flaherty hole in federal finances. They would then promise to replace at least half, if not all, of the GST giveaway with more productive, targeted personal income-tax reductions for moderate-income people. Other money should be used for spending on infrastructure and human capital development.

The NDP ought to lead this charge, but they are scared of their shadow when it comes to calling for "higher taxes," which is how the Harperites would label any restoration of the GST. All the NDP can think of on the tax side is to call for an end to corporate tax reductions.

The Liberals, whose leader keeps braying for an election, should be judged more than anything else on their courage.

If they promise to rescind the GST cut and do something more sensible with the money, they will merit confidence as a serious alternative. If they call for more spending hither and yon (Stéphane Dion has a list of six big-ticket items) but leave the GST cut intact, they will be no more worthy of confidence than the Conservatives.