IMF Impressed With Canada’s Pro-Growth Policies
After little more than a year in power, it’s probably too early to judge Justin Trudeau and his Liberal Government’s handling of the Canadian economy. But looking from afar, it seems to be a case of so far so good. The IMF at least seems impressed. Welcoming the new Government’s pro-growth policies, it predicted in June this year that measures contained in the last Budget would boost GDP by 0.5 percent in each of the next two fiscal years.
However, it is those “pro-growth policies” – essentially a euphemism for higher public spending – have seen Canada go from a budget surplus to a budget deficit either side of the last election. And worryingly, while spending has been rising, tax revenues have been fluctuating. This is despite the fact that, generally speaking, the new Government has been raising taxes – or at least not cutting them. For example, it has raised the top rate of income tax, cancelled a proposed cut in the small business corporate tax rate, and plugged loopholes left, right, and center.
Still, Canada’s current budgetary situation is far from disastrous. At CAD1bn, its deficit is a drop in the ocean. The federal deficit in the United States for example, while no longer the hotbed issue it used to be, was USD438bn in 2015, or 2.5 percent of GDP. Despite the Eurozone’s ongoing struggles with sovereign debt, the United Kingdom continues to run one of the largest deficits in the EU, at GBP69bn (USD84bn) in 2015/16, or 4.4 percent of GDP. Even more encouragingly for Canada, its national debt remains at a relatively sane 26 percent of GDP. By comparison, the UK’s public debt is over 80 percent, and the US’s is in excess of 100 percent.
While Canada’s fiscal health owes much to the prudence of previous governments rather than the current one, it is still worthy of praise. History therefore will not judge Trudeau kindly if he undid much of this work.
For more information on this, and other topical international tax matters, please visit: https://www.cchgroup.com/roles/corporations/international-solutions/research/global-tax-weekly-a-closer-look