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Philip Cross: If I were finance minister ...

I would undertake three broad initiatives that actually address the current crisis, rather than try to shoe-horn in policies that don’t fit into the pandemic

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With next week’s federal budget fast approaching, FP Comment asked its regular contributors to think about how they would approach things if they were finance minister. Today, Philip Cross.

Too many people in and around politics are using the pandemic to pursue long-cherished policies that do little to solve the problems created by the virus. If I were finance minister, I would undertake three broad initiatives that actually address the current crisis, rather than try to shoe-horn in policies that don’t fit into the pandemic and won’t alleviate its effects.

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The fiscal situation we find ourselves in is that the government simply cannot afford major new spending programs. Working within that constraint, the budget can still help Canadians by smoothing out their social security contributions, shifting infrastructure to where it is needed most and costs the least, and reducing the cost of the civil service.

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Low-wage Canadians have borne the brunt of the pandemic. To help them manage their finances, the government should go back to spreading out Employment Insurance (EI) and Canada Pension Plan (CPP) contributions over the full year. In the mid-1990s the federal government “doubled-up” annual contributions to EI and the CPP so they were all paid in the first six months rather than evenly over 12 months. At a time of high interest rates, shifting payments forward by six months meant considerable savings for a cash-strapped government. But the burden fell mostly on low-income households, many of which could not easily adjust their cash flow or savings to the new front-loaded pattern of contributions.

Now is an opportune time to go back to the old system. With interest rates close to zero, it would cost the government very little but would give low-income households much more flexibility with their recurring monthly expenses. The broader point is that governments need to regularly review and overhaul taxes and regulations. As it now stands, measures taken in response to a crisis often remain in place long after serving their original purpose. Reviewing past initiatives, especially those made in a crisis atmosphere, should be a core part of budgeting.

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The pandemic triggered big declines in mass transit ridership. A return to normal levels is unlikely anytime soon: part of the shift to remote work is permanent, while commuters who bought vehicles during the pandemic won’t abandon them. The government should slow its investment in mass transit and instead follow Quebec’s strategy of shifting infrastructure spending to upgrade road capacity in outlying areas to which many people migrated during the pandemic.

Getting our resources to market remains an infrastructure priority that wouldn’t cost the government much: companies are anxious to invest and build pipelines, pending government approval. The importance of adding pipeline capacity is underscored by Michigan’s threat to close Line 5, which helps supply central Canada with oil. Building a route bypassing Michigan would secure our supply and demonstrate the importance of discarding ideology and building critical infrastructure.

Instead of public investments in the so-called green economy, the oil and gas industry should be incentivized to further reduce greenhouse gas emissions. Activists have successfully demonized the sector, especially the oilsands, so the best way to improve its international image is to lower its environmental footprint. Promising technologies exist for carbon capture and sequestration, while the technology already exists to install methane gas detectors at existing well-heads. Monetary prizes have proved an effective incentive for invention; the government should offer a large one for the production of methanol from captured GHG emissions and hydrogen, the holy grail of carbon capture.

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Record government deficits inevitably will require more sacrifices from all Canadians as spending is cut and taxes rise. The public sector must share this burden. Public-sector workers should be asked to choose: either increase their contributions to pay the full cost of their pension benefits or receive lower benefits commensurate with what they pay now. Asking private-sector workers who receive few if any pension benefits to subsidize generous, defined-benefit civil service pensions is grossly unfair.

The government should also follow the example of Silicon Valley tech companies and ask workers shifting to remote work to accept lower salaries. Federal civil servants have profited from the pandemic by saving on commuting expenses, food and clothing. If companies can ask employees to share some of their savings, so can the federal government. On top of that, the move to remote or intermittent office work for many civil servants implies the government’s office space can be reduced substantially.

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Government transfers to people during the pandemic were poorly targeted, sending tens of billions of dollars to people with few pressing needs. The Auditor-General should document waste in and abuse of these support programs, with an eye to informing future debate about how government transfers (or a Guaranteed Annual Income) affect incentives to work, facilitate fraud and increase costs to taxpayers.

The economy does not need more fiscal stimulus. Governments have significantly under-estimated the ability of workplaces to adapt to the pandemic. The latest job numbers for February and March show the only stimulus needed is effective control of the virus, including vaccination. Despite more lockdowns in April and governments generally fumbling their pandemic response, employment will soon return to pre-pandemic levels. The surprising strength of employment reflects the creativity of employers and flexibility of workers in allowing five million Canadians to work from home. Adding more stimulus to an economy recovering rapidly even before vaccines arrive in bulk risks over-heating and putting upward pressure on prices and interest rates.

Philip Cross is a senior fellow at the Macdonald-Laurier Institute.

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