Editorial Budget of broken promises

What comfort can Canadian’s find in a deficit of $30.5 billion this year — $2 billion higher than was estimated in February 1988 — and followed by $28 billion next year? What comfort can Canadians find in a government that worked for months scrutinizing every spending program for areas in which to make cuts, prepared us for the worst with the illusion that `total war’ had been declared on the deficit, and finally mustered a meagre deficit reduction of $1.5 billion? Precious little.

According to the Canadian Manufacturers’ Association (CMA), the budget is a step in the right direction, but falls short of its objective of generating a surplus. Canadians are already among the highest taxed people in the world and now the government has asked them to shoulder even more of the debt burden. The government has failed by not taking an aggressive stance on spending — spending which the CMA says cannot be sustained.

Especially frightening are the economic assumptions made by the government. Following a forecasted economic slowdown within the next 12 months, the Department of Finance anticipates strong growth during the early 1990s that will be characterized by low inflation and low interest rates averaging 7.5%.

The big gamble is on interest rates. According to Michael Walker, director of the Vancouver-based Fraser Institute, a socio- economic thinktank, a surplus is possible if low interest rates materialize. However, with expenditures so highly leveraged to interest rates, its a high risk gamble to peg one’s budget hopes to the whims of central bankers.

For the mining industry, the budget was welcomed in that what remaining incentives the industry has, were not whisked away. The Canadian Exploration Incentive Program (CEIP) — a vital component of the mineral exploration sector — remained intact. But a new capital or large corporations tax has been introduced. Affecting companies with capital in excess of $10 million, this tax is negative for mining companies, many of which exceed the minimum capital but are still in the production start-up phase.

The Fraser Institute calls it a `bush league tax’, and for Canadian mining companies, which are in the business of creating wealth, such a tax will not be viewed kindly by both domestic and foreign investors. By introducing such a tax, the government has sent notice that it is conservative in name only.

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