Fiscal and Tax Policy - Op Eds

Governments in the advanced economies mounted a massive fiscal response to the COVID crisis. They ramped up spending, mainly on income supports to individuals and businesses, and financed it by borrowing. Central banks also responded on a massive scale. They dropped their policy interest rates close to zero, and their balance sheets ballooned as they bought securities — mainly government debt — and flooded the global financial system with liquidity.

These responses undoubtedly cushioned the COVID blow to our economies. But, more than a year later, especially in the United States and Canada, both fiscal and monetary policy are still in overdrive. It is reasonable to worry that they are going too far.

On the fiscal side, the…

In its budget statement, the federal government announced that it would introduce a special excise levy on vaping products in 2022. At the present time no such levy is imposed, even though several provincial governments have introduced levies on each millilitre sold (e.g. Nova Scotia) or special sales taxes (e.g. British Columbia).

Tobacco and nicotine are viewed by society as sin goods. We lump them loosely with alcohol, cannabis, gambling and so forth. We call them sin goods because they can cause damage to our health if consumed to excess and sometimes if consumed just in small amounts.

Vaping products form the largest component of what we now call alternative nicotine delivery systems (AND systems). Other AND systems…

In the C.D. Howe Institute’s shadow federal budget, released 12 days before Finance Minister Chrystia Freeland delivered the real thing this week, I and my coauthors, Don Drummond and Alexandre Laurin, recommended raising the GST back to seven per cent in 2023. This idea got attention — mostly about how a two-point hike in the GST was too politically painful to be realistic. Over time, though, even in the big-borrowing, low-interest-rate future described in the budget, every dollar spent on programs requires close to 100 cents of revenue. Painful or not, the permanently bigger federal government that this budget anticipates will require Canadians to pay for it.

Since the pandemic struck, the federal government has…

In 1990, then-prime minister Brian Mulroney infamously quipped that a first ministers’ meeting about the Meech Lake Accord was “the day I’m going to roll all the dice.”

The 2021 federal budget rolls Canada’s dice again, by burdening a generation with more debt. One hopes the result is more positive than what befell the accord and the Mulroney government.

Some of us were hoping the budget would introduce a fiscal anchor to return us to the pre-pandemic net debt-to-GDP ratio of around 30 per cent. And it’s there — in 2055.

In the intervening 34 years, Canadians will shoulder a higher debt burden — around 50 per cent until 2025-26. A graph depicts it declining ever so slowly after that.

The projection presumably…

The housing market is hot, and has been for several years, especially in Canada’s largest cities. Many policy attempts and proposals have been made to slow it down, with the focus almost always on trying to reduce demand. The most recent proposal along these lines is a capital gains tax on principal residences.

The argument for taxing capital gains on the sale of owner-occupied principal residences is twofold. First, the argument goes, the tax will decrease demand for houses and condos, putting a stopper on illogical price appreciations. Second, governments are starved for tax revenues, and taxing these gains would help fill that gap.

In practice, however, neither of these is likely to play out as expected.

In some…