Reality Check: Tax Cuts
Conway Fraser, CBC Online | May 28

Getting politicians from different parties to agree on something is not an easy task. But, in Manitoba, they all believe taxes need to be reduced for Manitobans.

Why wouldn't they think that? Most people aren't happy about paying taxes, so promising to cut them should be an automatic vote-getter.

The problem is that the Liberals, Tories, and NDP don't agree on how much taxes should be cut. And the biggest question is, how feasible is it to cut taxes in Manitoba right now? Can the parties pay for what they're promising?

• The promises •

The New Democrats propose the most modest tax cuts. For example, they says they would reduce taxes in the middle-income bracket, cut property taxes slightly, and cut the small business and corporate income tax rates. The total cost for the NDP promises over four years would be around $90 million.

The Liberals go a bit further when it comes to tax cuts. They would cut income taxes (first for people under the age of 30), reduce the education tax on farmland, and eliminate the payroll tax. The cost? Around $300 million.

The Conservatives seem to go the furthest. They would eliminate the education tax on property tax bills and reduce taxes in the middle-income bracket. The cost, depending on who you speak with, would be between $300 million and $400 million over the next four years.

• Can the politicians pay for them? •

Economist Michael Benarroch of the University of Winnipeg has his doubts about the ability of governments to pay for the tax cuts they've promised, especially when it comes to the more expensive Liberal and Tory plans.

Benarroch says both parties are basing their promises on a couple of major assumptions. First, he says, the parties are assuming Manitoba's economy will continue to grow at a rate of about five per cent each year. In fact, Benarroch says, groups like the Conference Board of Canada predict slowed growth in Manitoba, at rates of around 2.5 per cent a year. It doesn't sound like a lot when you deal with small percentages, but Benarroch says you could be talking hundreds of milllions of dollars in missing revenue.

"The predictions are for slower growth that we've seen in the last four or five years," he says. "I think what it means that they represent a bigger risk in terms of raising the kind of revenue. It means we're going to have to cut expenditures. We know this is going to be the case.

"If you deliver large tax cuts, the experience in Ontario and British Columbia recently has been that they have been financed through some combination of tax cuts and an increase in either user fees for programs or reductions in services provided by the government or an outright cut in government expenditures."

• Politicians 'fudging' on expenditures: economist •

The other major assumption the parties are making, Benarroch says, is that government expenditures won't grow more than normal. Over the past few years, government costs for things like health care, education, and infrastructure have been growing by approximately two per cent per year.

Benarroch believes that's going to change, too. "They're telling us one side of the story. They're telling us they're going to cut taxes and then they're, in some sense, fudging the numbers on the expenditure side," he says.

"It's easy to do, right. They're telling us the whole tax cut story, but on the expenditure side, given that it's an election campaign, they're not really telling us the kind of cuts that are going to have to take place."

Across town, University of Manitoba economist Norm Cameron – who both the Tories and Liberals have been claiming endorse their tax-cut plans – says the plans have some major credibility problems because of those assumptions being made.

"They'll pay a political cost for generating a rosier forecast for the economy, yes, but, that's really the case for all of the parties," he says.

"They are all assuming growth of the economy so that we don't go into any kind of tailspin despite the rising loonie, and they're all forecasting the regular expenditures will grow more slowly than tax revenue."

• Can tax cuts finance themselves? •

According to both the Liberals and Tories, the tax cut initiatives will pay for themselves. In other words, by cutting taxes, people will have more money. They'll spend that money and stimulate the economy, thus increasing provincial revenues enough to cover the cost of the tax cut.

Norm Cameron rolls his eyes and laughs at the idea, saying even his university students know that tax cuts can't pay for themselves:

"This is a frequently asked exam question in economics: Is it possible for a tax cut to be self-financing? The answer is always no," he says. "There is not enough stimulus generated, especially in a small, open province like Manitoba, by any tax cut to cause sufficient revenue growth to pay for that tax cut."

Cameron says if you factor in some new information like the rising Canadian dollar and the weakening American economy, the forecast for the Manitoba is even more bleak because exports to the U.S. will suffer.

That said, there are conservative-minded economists who argue adamantly that tax cuts do fuel the economy and are doable.

Manitobans will have to decide June 3 which party they believe is better at predicting the future economy of Manitoba.