The Budget 2013, Post-Coitus

It’s been about a week now since the federal budget was released and those media figures who have stuck around for the details instead of high-tailing it out the window, pants in hand, are having a sudden clarity in thought and vision.

If you followed any of the mailbox headlines, the general gist of the budget seemed to deflate all the hype that proceeded it. “No frills” read the headline on the Ottawa Citizen, Calgary Herald, and The Gazette. “It’s hard to hate this budget” opened the National Post. The StarPhoenix called the budget “Like Christmas” and the Globe and Mail took an optimist’s path, saying Flaherty was “Buying Time” and that the budget was made up of “Modest spending, minor cuts and a big bet on a rebound.”. And there was certainly a fair share of jumping on the hockey tariff bandwagon, the exact kind of personal interest story needed to make this budget something your average Canadian could dish about around the water cooler. For this you cannot blame many media vanguards, they needed a headline and there were really only a few angles to choose from, thanks in part to the tight messaging and heavy fog employed by the federal government.

However, sober second thought can do wonders for our understanding of this budget and a few pieces posted online really nail some important details that would have otherwise passed unnoticed.

Senior National Post Dog Commentator Andrew Coyne wrote a breakdown analysis of some of the budget’s trickier wording and is well worth a read.

Andrew Coyne on decoding the budget: What Jim Flaherty didn’t want you to know

That is to say, the budget document itself has become a kind of coded palimpsest, written with the intent of disclosing as little as possible. Everything is in the ellipses. Whole passages are included for no purpose but to distract attention from other passages; others, seemingly innocuous, are later discovered to contain the government’s entire fall agenda. Everything else is just left out.

Over the years we’ve grown used to seeing finance ministers shuffle spending forward and back in time, or claim that a spending program is really a tax cut, or a re-announce old programs as if they were new. But I don’t think I’ve ever seen a budget quite as opaque as this one.

It isn’t just the many significant details it omits — for example, the content of the government’s spending plans. It’s that what is included is so maddeningly misleading, not to say vexingly vague.

Coyne hits at two important points we’d like to highlight.

Modernizing Canada’s General Preferential Tariff Regime for Developing Countries.

Chances are you head about the tariff cut on imported sporting equipment and baby clothes: estimated to save consumers a cool $76-million a year. Chances are you didn’t hear about this: an increase in tariffs on imports from 72 countries, mostly in emerging economies, some of whom have grown quite wealthy. Previously they were eligible for a special lower tariff, as a form of aid. Now they’ll be charged – that is to say, you’ll pay – the regular rate. Estimated revenue yield: $333-million, nearly five times what you’ll save on skates.

ULaval economist Stephen Gordon talked about this in a bit more detail.

The anti-trade budget

Yes, there were those 37 tariff reductions, but there was also the measure to ‘modernize’ Canada’s General Preferential Tariff (GPT) regime by ‘graduating’ 72 countries from the GPT; imports from these countries will now face higher tariffs. Mike Moffatt estimates those 37 tariff reductions will be accompanied by 1,290 tariff increases.  By my count, there are 84 GPT countries, but I still haven’t been able to track down a list of which countries will be removed from the GPT (Update: Mike Moffatt informs me 12 of these already have separate agreements with Canada, so that brings it to 72). The budget does name some examples: Korea, China (second-most important source of imports to Canada), Korea (seventh) and Brazil (twelfth), and the GPT countries as a group account for more than 20 per cent of imports. This measure is expected to generate some $300 million in extra revenues, on top of about $5 billion in existing excise duty revenues.

[…]

I still can’t get my head around the truly bizarre notion that low tariffs are a subsidy to other countries on the part of Canadian taxpayers, especially since raising tariffs requires Canadian taxpayers to cough up an additional $300 million a year to the government. But if we needed any more evidence that this government is not serious about free trade, here it is. Instead of viewing cheaper imports as a way of increasing consumers’ purchasing power, the Conservative government views them as a problem to be solved.

The comparison of tariffs to subsidies represents a fundamental misunderstanding of what benefit these tariffs produce in terms of trade with these foreign countries. The focus on tariffs this media cycle was on the new lower tariffs for importing hockey gear while ignoring the increase in prices on 20 per cent of all other imports. But here’s how the Globe and Mail worded it:

In a populist nod to sports enthusiasts and parents, the Conservatives will announce in their fiscal plan that Ottawa is cutting tariffs on imported hockey gear as part of a pilot project to see whether the money the government loses in customs revenue is recouped in sales tax.

It’s a bait-and-switch and the Conservatives are laughing all the way to the bank.

Another example of this anti-messaging comes with infrastructure spending, which got its own sort of special wrangling with this budget. As Coyne higlights:

The new Building Canada plan provides approximately $53.5-billion in new and existing funding for provincial, territorial and municipal infrastructure.

If you blinked, you’d miss it: $53.5-billion in new and existing funding. The “new” plan is in fact an extension of the old plan. About $6-billion of the total is in funds that were already committed. That eye-popping total, moreover, is achieved only by summing over 10 years: provinces and cities will receive about the same amount per year under the “new” plan as they do now.

The main issue here lies in the idea of spending over the next ten years. Much of the infrastructure expenditure is only going to come after 2020, a sleight of hand referred to as back-end loading

The Building Infrastructure Fund is one of the foundations for federal-municipal infrastructure spending. It is currently spending $1.25 billion a year and expires in 2013-14. The Federation of Canadian Municipalities (and the Alternative Federal Budget) was looking to have this fund renewed and significantly increased. Instead, spending in 2014-15 has gone from $1.25 billion to only $210 million—a significant drop.

Now, the government is saying that this infrastructure plan is worth $14 billion over 10 years—however, 75% of that money is scheduled for in or after 2020, making the plan heavily back-end loaded.

Source

On top of this, the federal government also increased the flexibility of what constitutes infrastructure spending to include “highways, airports, Internet connectivity, disaster mitigation, tourism, culture, sports and short-line rail.” when it previously covered “public transit, drinking water and waste-water infrastructure, solid waste management, local roads and community energy systems.”. While it’s hard to argue that many of these do not constitute actual “infrastructure” (highways, airports, and internet connectivity surely), it’s harder to finding reasoning in why infrastructure spending should subsidize mainly private sector dominated fields such as culture or sports. While these things should receive some funding in one way or another, they’re inclusion in the infrastructure pot may only serve to hamper funding for other crucial projects we all need and which the government is solely responsible.

Through all this however, this sort of anti-messaging and sleight of hand should come as no surprise. The federal government has been notoriously underhanded when it comes to reporting anything with a dollar sign and actively works against its own appointed watchdog on such matters. The biggest cliff this budget presents is its optimistic attitude that our economy will grow and continue to grow well beyond 2020, allowing us to eliminate our deficit. We can only hope the economy does not continue to slow or, dare we even say, start a downward trend in the meantime, least we burst the Conservative bubble.

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