From a commentary by David Dodge, former Governer of the Bank of Canada, in Bloomberg Business Week
“Can Canadian governments balance their budgets by mid- decade with program spending cuts alone? It would mean a significant reduction in services or income-support programs, even if there were unprecedented productivity gains in public services. Specifically, it would require significant cuts in public-pension payments, employment-insurance benefits and welfare payments, health and long-term care coverage as well as increased co-payments. The quality of education, and investment in roads and public transit also would decline.
These cuts would need to be both continuing and more radical than those of the mid-1990s. Moreover, with population aging set to continue in the 2020s and 2030s, further service and transfer payment reductions will be needed.
In my view, achieving balanced budgets through lower spending alone simply isn’t possible; we need more revenue. The key is to do so in a way that has the least negative impact on incentives to work, to invest and to increase productivity.”
What this means is higher consumption taxes with appropriate refunds to low-income groups, as Québec and Nova Scotia have proposed in their latest budgets. It also means introducing or increasing fees for services associated with roads, health care and post-secondary education, spurring efficiency both in production and use.
Balancing revenues and expenditures over the decade won’t be easy. But it must be done if Canadians are to enjoy rising incomes in the years ahead. In their 2010 budgets, governments largely failed to set out credible plans to achieve fiscal balance, though Québec began to address the medium-term issues. The federal and provincial governments shouldn’t fail to do so in 2011.