• Ted Fraser

Examining Economic Policy: Liberals


This is part one in a three-part series that will present and analyze the economic policies of the Liberals, NDP, and Conservatives.

Economic policy has been a subject of contention over the course of this election campaign, with each party proposing what they think will catalyze a rebound from the country's economic stagnation over the last year. The Liberal Party presents a unique economic policy, one that entails deficit-spending, a middle-class tax cut, massive infrastructure spending, and the introduction of numerous programs.

The Liberals are proposing a middle-class tax rate decrease to 20% from the current 22.5%. All taxpayers earning anywhere from $44,700 to $89,401 will get to take advantage of the cut. All other tax rates will remain the same under a Liberal government, with the exception of the wealthiest 1% of Canadians; those making upwards of $200,000 will have to pay 33% on taxable income, an increase from 29%.

The idea of putting money in the pockets of a country's middle class to spur growth is not a new one. In fact, Robert Reich, former U.S. labor secretary under President Clinton, has contributed to popularizing this particular school of thought. In his documentary, Inequality for All, he argues that wealth inequality is not only unjust but also detrimental to a country’s economy.

In the years 1928 – a year before the Great Depression – and 2007 – a year before the Great Recession – the richest 1% of Americans controlled approximately 24% of the country’s wealth. He states that when the rich have too much and the poor have too little, economic stagnation occurs. Reich believes that one of the ways to get the U.S. back on track is by doing exactly what the Liberals are proposing in Canada – cutting taxes for the middle class, while increasing the top marginal tax rate.

Indeed, 50% of Canada's GDP comes from consumer spending, and those consumers are mostly made up of members of the lower and middle classes. The Liberal idea is that, to catalyze economic recovery, a country has to give money to the people who are willing to spend it.

The Liberal Party is also proposing to cut small-business tax rates from 11% to 9%. Small businesses are accountable for 80% of new job creations in Canada. That being said, 60% of those that are being taxed according to the small-business tax rate have $150,000 or more in household income. This has led some to believe that this small-business tax cut – one that the NDP and the Conservatives have in their platforms as well – functions as a tax break for the wealthy.

Perhaps the most noteworthy aspect of the Liberals’ economic policy is their view on the politically touchy subject of surpluses and deficits. They have stated that they are willing to undertake modest deficits – an average of $8.5 billion a year for three years – in order to try and stimulate the economy.

Justin Trudeau announced last month that his party will undertake a $125 billion infrastructure plan over ten years to spur economic growth, create jobs, and better the country's roads, bridges, parks, and communities. The plan would commence with $5.1 billion in new infrastructure spending next year.

The Liberals have pledged to invest $20 billion over ten years in public transportation to reduce transport emissions, in addition to $20 billion over the same ten year period – part of their previously mentioned $125 billion plan – to invest in sustainable, green infrastructure to lower greenhouse gases.

Many economists, including David Dodge (the former Governor of the Bank of Canada), Scott Clark, Kevin Lynch, Larry Summers, and the International Monetary Fund support deficit spending. Indeed, the Conference Board of Canada approximates that for every $1 billion in infrastructure spending, 16,700 jobs are created and the GDP is boosted by $1.14 billion. The situation is ideal; record low interest rates and one of the lowest debt-to-GDP ratios in the entire world (31%).

In addition to the policies listed above, the Liberal Party has said that it would “conduct a review of all tax expenditures to target tax loopholes that particularly benefit Canada’s top one percent”, reduce EI insurance premiums from $1.88 to $1.65, cancel family income splitting, and phase out fossil fuel subsidies.

Also, they would cut the Conservatives’ Universal Child Care Benefit, Canada Child Tax Benefit, and National Child Benefit Supplement, which would produce almost $18 billion a year. They would replace these programs with their Canada Child Benefit. This benefit would provide cheques to families making less than $150,000, which is 9/10 families in Canada. For instance, “with the Liberal plan, a typical two-parent family, with two kids, earning $90,000 per year will get $490 tax-free every month. With Mr. Harper, the same family only receives around $275 after-tax. Over the course of a year, the Canada Child Benefit will provide $5,875 to this middle class family. That is $2,500 more help, tax-free.”

Trudeau has stated that his party will wait to see all the details surrounding the Trans-Pacific Partnership – a 12 country trade deal encompassing 40% of the global economy – before they make a decision to support or contest it.

Overall, the Liberal policy stands out as the most ambitious – yet potentially risky – economic plan. It differs from the NDP and Conservatives in many ways, yet shares some similarities as well. The Liberals will run deficits, unlike the other parties who claim they will balance the budget, and is the only party that is proposing a middle-class tax cut. However, all parties are offering a small-business tax cut, and the NDP is promising to invest in green technology and infrastructure as well.

The Liberals have a plan that, although could be potentially risky in the future, is unique, coherent and reasonable.