Tax policies and human behaviour: Which comes first?
Can we expect our politicians to set wise long-term fiscal policies?
Thanks to a precipitous drop in oil prices, Albertans are staring at a huge budget shortfall. Premier Jim Prentice provoked the masses when he recently suggested they “need only look in the mirror” for the lack of preparedness to the new reality. Most people looking in the mirror saw only that the PC party has been ruling the province for 44 years!
Alberta’s current deficit dilemma raises an important question. Can we expect our politicians to set wise long-term fiscal policies? Or is it silly to presume they would look beyond the next election? Perhaps Prentice was right. Maybe we should all be looking in the mirror before we cast our next vote.
Canada’s politicians put on a financial dog and pony show each spring. They deliver promises and prognostications. Optimistic governments offer to share the wealth; pessimistic ones make dire predictions and, like Alberta, increase taxes. Whether giving or receiving, they appeal to our civic pride and sense of responsibility.
The 2015 budget season has delivered more drama than usual. The federal government delayed its budget by two months, ostensibly to get a better handle on the impact of reduced oil prices. But skeptics wonder how they will cook the budget books to avoid showing red ink in spite of generous promises.
The feds are delivering on a lot of those promises to share the wealth. I recently completed tax returns for a low-income family. Thanks in large part to their four children; they will receive benefits of more than $23,000 from the federal government in the next year. Benefits of that magnitude dwarf the political debate regarding “tax bracket equalization” of up to $2,000 for couples with minor children.
The feds are not the only politicians hoping to motivate citizens. This year’s provincial budgets offer some dramatic contrasts. Several dealt directly with “share your wealth” issues.
Alberta concluded that tax policies do not motivate generosity. In 2007 the provincial tax credit for charitable donations over $200 was increased from 12.75 to 21 per cent (50 per cent including the federal tax credit). But donations as a percent of Alberta’s GDP did not increase as hoped, so the tax credit is reverting to the old rate.
On the East Coast, New Brunswick politicians feel that “asking our one per cent richest citizens to contribute more is reasonable, fair and progressive.” Translation: The bracket for those earning more than $250,000 will increase from 46.84 per cent to 54.75.
Meanwhile even Quebec, with all of its social policies, is on track to balance its books next year, thanks in part to lower oil prices. It’s been a fascinating budget season this spring.
As you contemplate what fiscal policies are best for Canada and your province, don’t forget to pray for your elected servants. They have a difficult task at the best of times; making decisions that are wise and right is seldom easy in a setting where it’s impossible to please everyone. And 2015 is proving more difficult than most.
Henry Friesen, a chartered accountant, follows Canada’s budget road show near Winnipeg.
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