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What happens next?

By Adam Taylor
web posted October 27, 2008

What can taxpayers take away from the federal election and what lies ahead for the new new Conservative government in these topsy-turvy times?

Let's start with the election. Many have suggested the result was a flat rejection of carbon taxes. Indeed, the Liberal party's Green Shift would have imposed a hefty new tax on most energy sources driving up the cost of natural gas, home heating fuels and diesel.

Despite Stephane Dion's assurances of "revenue neutrality"-- through offsetting income taxes -- it was not. Only $9.5-billion of the $15-billion raised by the carbon tax would have been returned in income tax relief. The remainder was earmarked for new spending. Moreover, the trickle down effect of these taxes impacts transportation, businesses, and other levels of government that simply pass the higher cost down to end users.

The experience with these taxes in Europe are lower household incomes, loss of manufacturing jobs, costly government programs to address "fuel poverty" and mixed results at best on C02 reductions.

To be sure, no election is about a single issue, but to the extent a carbon tax was the central plank of the Liberal's platform heading into the campaign, their dismal showing -- 26.2% of the vote – casts a welcome verdict on the policy.

But here's a rich irony:

For all the Conservative party advertising warning of a "tax on everything" and "risky schemes and unproven theories" there was absolutely zero scrutiny of the Tory proposal -- carbon taxes' evil twin -- cap-and-trade.

In fact, if implemented, the Conservative plan could well be as costly and assuredly will be more convoluted. Under cap-and-trade the government will set a limit or a "cap" on the amount of carbon that can be emitted by a producer. Producers that exceed their allotted emissions will have to buy credits from those who emit less, hence cap and trade.

Obviously, costs are passed onto to consumers; but worse, is the bureaucratic morass it creates. Imagine the lobbying of various sectors for favourable cap levels, the bureaucracy necessary to measure compliance, the plight of new businesses without a carbon allotment, and exporters who can't pass costs along as easily. It's madness and regrettable the Conservatives got a free ride.

Or, perhaps many Canadians tacitly see Harper and Co. as reluctant converts; more likely to follow the Chretien model of empty rhetoric with no serious application of the costly policies necessary to curb C02. Indeed, as the unpopularity of British Columbia's carbon tax and Mr. Dion's proposal suggests; political actors are calculating that the public may not be buying into the global warming hype to the degree predicted.

But there may be another reason policies aimed at a fractional change in the Earth's temperature a hundred or so years from now may take a back seat. The economy is more pressing.

Over the past decade, vast revenues and a strong economy have made it easy for Ottawa to balance the books. Yet, massive surpluses piling up were largely interpreted as a sign of strong fiscal management rather than what they really are: overtaxation. Public pressure led both the Conservatives and their Liberal predecessors to pass various broad-based tax reductions – albeit modest -- starting in 2000 and have inched the federal debt down to $457.6-billion.

Yet today, economic conditions have changed so quickly that the chattering classes are now using the "D" word. And while Messrs Harper and Flaherty have pledged to balance the books in the upcoming budget, they make no promises for the future. It would be a mistake to return to deficit spending.

In a slowing economy, households must live within their means and so should governments. If that means cutting program spending, so be it. Second, deficit spending is a hard pattern to break, hence why Canada ran deficits for almost thirty consecutive years prior to Paul Martin balancing the books in 1998. Third, if freeing up credit markets are such a concern, does it make sense for government to add to the problem by overspending? Finally, deficit spending saddles the taxpayers of tomorrow with even more debt which will swallow up more tax dollars in interest payments down the road.

Yet in order to achieve a balanced budget the Harper government – the biggest spending in Canadian history -- will have to do something it has been loathe to do for two-and-a-half years: control spending.

It's one of the great ironies of Canadian federal politics. Since 1993, Liberals and Conservatives have governed differently than they campaigned. The Liberals tend to govern more conservatively than they promise and the Conservatives govern … well … more liberally than they promise. This election was no exception with the Conservatives presenting a platform more modest than the other parties. Yet, as the Canadian Taxpayers Federation said in a commentary published during the campaign: "Unlike the other party platforms where the danger lies in them being implemented; the danger in the Tory platform lies in it not being implemented."

A slowing economy coupled with a weak opposition provides the government an opportunity to define itself going forward. They should start by meeting the commendable 3.4% spending target laid out in the current budget, shelve their "risky" cap-and-trade scheme and resolve to keep Canada's books in the black. ESR

Adam Taylor is Acting Federal Director and Troy Lanigan is National Communications Director of the Canadian Taxpayers Federation.

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