The New Democratic Party’s (NDP) costed election platform was released on Friday Morning, while the Conservatives released their platform in the mid-afternoon on Friday (review of platform will be provided tomorrow). Obviously, these platforms could easily have been released before the debate, but apparently both the NDP and the Conservatives felt this information would not have helped Canadians in making their election decisions. Fortunately there is still 10 days left before the election.
Like the Liberals, the NDP abandoned any attempt to balance the budget over the next four years. Also like the Liberals, they too are focusing on the debt-to-GDP ratio, claiming that, under their plan, it will continue to decline over the next four years, from 31.3% in 2020-21 to 30.0% in 2023-24
The Platform announces new spending initiatives totaling $35.0 billion in 2020-21 and between $30 billion and $33.7 billion over the next three years. Proposed revenue increases amount to $30.5 billion in 2020-21, increasing to $34.3 billion in 2023-24. The Parliamentary Budget Officer costed most of the revenue-raising measures, but only three of the spending proposals.
According to the PBO, the estimates of the main revenue-raising measures have a high level of uncertainty, as the estimates cannot fully take into account possible behavioural responses and could be “sensitive to changes in global interest and exchange rates”. The NDP Platform recognizes this and has included in its fiscal forecast a Contingency Reserve equal to 15% of their combined new revenues. This amounts to $4.6 billion in 2020-21, rising to $5.2 billion in 2023-24. In addition, the revised deficit forecast includes an adjustment to public debt charges, given the increase in the federal debt. The Liberal platform included neither of these.
As a result, the NDP is projecting a deficit of $32.7 billion in 2020-21, declining to $18.3 billion 2020-21,primarily due a nearly $8 billion decline in PBO’s status quo deficit, lower estimated costs of their new spending initiatives and higher revenues-raising measures in that year. For the next two fiscal years, the deficit remains stuck at about $16 billion.
A Contingency Reserve was added primarily to take into account for uncertainty associate3d with the costing of the revenue-raising measures. However, as noted in our assessments of the Green and Liberal parties’ platforms, significant risks to the economic and fiscal forecasts have emerged since the release of PBO forecast in June. These risks include trade tensions between the United States and China, military tensions in the Middle East, slowing economic growth in Europe and other advanced economies, Brexit, no ramification of the USMCA trade agreement by the US Congress or Canadian Parliament, among others. Both the International Monetary Fund (IMF) and Organization for Economic Development and Co-operation (OECD have lowered their economic forecasts. As a result, the level of the Contingency Reserve made be insufficient to manage deterioration in the budgetary balance.
No update was provided for the current fiscal year, 2019-20. The PBO forecast a deficit of $20.9 billion for this year. However, this does not include potential costs associated with recent Human Rights Tribunal order to compensate First Nation children impacted by on-reserve child welfare abuse. This could increase the 2019-20 deficit by $2 to $4 billion, potentially reaching almost $25 billion.
The Platform lacks sufficient details in order to properly assess the proposed initiatives. For example, a 1% tax rate is to be applied to Canadian residents with net wealth above $20 million. It is assumed, therefore, that this tax would be applied to farmers, small businesses owners, professionals, among others. It is not certain if this is the NDP’s intention.
Also, many of the spending initiatives fall in provincial jurisdiction. Complex negotiations will be required with the provinces, territories, aboriginals and possibly municipalities. The provinces would likely prefer the transfer of tax points rather than the direct involvement of the federal government in dictating the terms and conditions of receiving the new monies. In addition, the implementation of a number of high profile initiatives (for example Pharmacare) appears far too ambitious to have it fully in place in 2020-21. The Platform includes many small spending programs, with no justification for the amounts allocated. There are no major spending reductions in the Platform, despite Mr. Singh claims that he would eliminate or reduce several current programs.
The NDP Platform is the more transparent of the either of the Liberal or Green Party platforms. However, the NDP Platform would impose major changes to government taxation and spending in an extremely short time period. This is simply not feasible and would have major negative repercussions on the economy.
C. Scott Clark held a number of senior positions in the Canadian Government, including Deputy Minister of Finance from 1998-2001. He has a PhD in Economics from the University of California at Berkeley and is currently President of C. S. Clark Consulting.
From 1990 to 2005, Peter C. DeVries served as Director, Fiscal Policy Division, at the Department of Finance. In that capacity he was responsible for overall preparation of the federal budget. He is currently a consultant in fiscal policy and public management issues.
Their Blog is 3dpolicy.ca