Friday, January 30, 2009

The Opportunity Budget of 2010

Well, we now have the disappointing "me too" budget of 2009, foisted on the Canadian public by the threat of a coalition of the inept taking political power in Canada. While the government did what was necessary to remain in power, perhaps there are some long term opportunities available to Canada.

First off, we must consider the budget and economy not in isolation, but also as part of the larger framework of the North American and indeed global economies. Since our largest trading partner is the United States, any actions we do here must take the actions of the current US Administration and the Congress into account. For Canadian governments, taxpayers and investors, the next four years should give us pause.

All evidence points to the Obama administration using the pretext of a financial crisis to politicise large portions of the American economy. For Canadians, that means that the destination of 82% of our exports will face a huge and long term economic slow down. Vast numbers of our customers will be lost as American business buckles under the burdens of increasing taxation and regulatory control. Further slowdowns will occur as Americans begin to take part in the "John Galt" strike, either as organized strikers (many American blogs seem to indicate that small business owners and investors are busy downsizing even now) or as a spontaneous reaction to the political and regulatory environment the Obama Administration and the Congress impose.

While this is going on, the US Treasury will be exporting inflation by flooding the financial markets with dollars. People who think back a short while to when the Canadian dollar was at and above par with the "greenback" should note that this was not a good time to be a Canadian manufacturer or exporter.

So how is this grounds for a Canadian "Opportunity" budget?

First off, the true recession should reach bottom in the last half or quarter of 2009. The Canadian Government can then cancel many of the "stimulus" boondoggles of the 2009 budget, keeping the deficit and debt to manageable levels. Being able to stop the slide into long term deficit spending will be a particular bonus for the Conservatives.

Next, there will be a need to reduce the import of inflation from the United States. Since inflation is the problem of too much currency chasing too few goods and services, we need to increase our productivity. The best way is to provide incentives to productivity. The Opportunity Budget should eliminate business taxes altogether, providing greater profit opportunities to efficient, well run business. Eliminating business subsidies, regional development funds and other assorted payouts will more than pay for these tax cuts. As Canadian business takes advantage of these tax cuts to retool and reorganize in a changed environment, the increases in productivity and profitability will drive a true economic recovery in Canada, one that is decoupled from the evolving situation in the United States. Indeed, as American business activity slows, the ability of Canadian business to take up the slack for hard pressed Americans will become our ace card in the economic game.

The big bonus of eliminating business subsidies and taxation in the Opportunity Budget is Canada will become a North American tax haven, attracting investors and skilled workers from the United States who will energize our economy and (as landed immigrants) begin to take some of the long term demographic pressures off Canada. Canada currently suffers a shortage of skilled workers, and the aging of the boomer population threatens to put excessive stress on the Canadian pension and medical systems without sufficient skilled workers to maintain solvency. While in the ideal world, State run pension and medical systems would not exist, in the real world attracting skilled workers who are able to contribute to the Canadian economy provides time and resources to plan and manage a transition, something that is not possible given the current situation.

So all is not lost, and if the cardinal sin is not to take advantage of any crisis that comes along, then we will have sinned greatly by not using this crisis to craft an Opportunity Budget and getting it passed in 2010.

1 comment:

Richard said...

"Eliminating business subsidies, regional development funds and other assorted payouts will more than pay for these tax cuts."

"Pay" whom, the looters? That phrase presumes the State's reduction in tax revenue is something in need of being supported. Yes, eliminating such payouts could reduce the looting of the government, and return some justice to our economic culture, but NOT if it pays "for these tax cuts.

The Canadian government must also stop SPENDING!!!!