Bring on the Novocaine
Why the Harper tax cuts will leave a bad taste in your mouth
BY Ellen Russell
Illustration by Joshua Leipciger
“Root-canal economics” is the catchy phrase used to describe incredibly painful economic policies. Think of an IMF austerity package imposed on a third-world country, and you get the idea of root-canal economics.
But if you are a politician, economic dental work might provoke riots in the streets and other such things that can really hurt your polling numbers.
Let’s say you are a politician who just hates “big government,” but you realize that radical government downsizing means a serious root canal. Sure, people have beefs with government, but government also does things that the electorate likes, such as providing health care and education.
Back in the 1980s, Ronald Reagan came up with a solution that provides political cover for unpopular government downsizing, and it looks like the Harper government will try it too. It’s called “starve the beast.”
It works like this: Get elected by promising all manner of expensive tax cuts. Justify them with spiffy economic lingo (say the words “competitiveness” and “productivity” as often as possible). The tax cuts will dry up government revenue—they may even create a deficit—so the government has no choice but to cut spending.
Once politicians have “starved the beast,” they can claim they have no choice but to downsize government because the treasury is out of money (never mind why the government is out of money). How else is a wealthy country to justify a policy agenda with cuts so painful that they rival an IMF austerity package?
Here you have it from the horse’s mouth: “The goal is reducing the size and scope of government by draining its lifeblood,” says Grover Norquist, president of Americans for Tax Reform. “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”
Now you know why Republicans chalked up the big US deficits in the last 25 years: they are starving the beast.
Fast forward from Ronald Reagan’s USA to Harper’s Canada. A right-wing party gets elected on a platform including tax cuts. In its first budget this party spends virtually all of Canada’s $17.8 billion budget surplus.
Harper introduced almost $10 billion in tax cuts, more than half of which was soaked up by the one percentage point GST cut. Add another $4.4 billion for defence, a pseudo child-care program, and some spending for farming and forestry sectors. Plus he promises $3 billion in debt repayment. Presto: the surplus is now a slim $0.6 billion.
In case you were hoping that Harper only temporarily emptied the treasury, don’t count on it. A report released this summer by Don Drummond of TD Bank indicates the Harper government has burned through our forthcoming surpluses for some time to come.
New budget projections will likely be available by the time this article is in print, but don’t count on the government finding enough cash to cover everything on its “to do” list.
It is supposed to cut the GST by one more percentage point, which will cost more than $5 billion per year. Plus (at the time of writing) we still don’t know what the price tag is on Harper’s “fiscal imbalance” agenda. And he wants more defence spending.
You can see the writing on the wall. Harper can’t afford the stuff he has already promised—let alone any new promises he’ll make in order to get a majority government in the next election.
How will he balance the books once all those expensive promises kick in?
The answer is simple: spending cuts. If you looked at the fine print of the Conservatives’ last election platform, they claimed they would cut $22.5 billion in government spending over five years—possibly more. But no doubt the size and scope of these cuts won’t be made clear until after the next election.
Harper has to hope that Canadians don’t catch on until after he gets his majority in Parliament. He wants you to be so mesmerized by your shiny new tax cuts that you don’t see the root canal coming until your mouth is wide open and they are already drilling. I call it “starve the beast” Canadian style, eh?
