Canadian Manufacturing

‘Staying in the black’ must be Ottawa’s top priority, says think tank

The C.D. Howe Institute says loose spending would be a mistake in an era when tax hikes and debt defaults cloud the outlook in many countries



TORONTO—The C.D. Howe Institute says “staying in the black” should be the first priority when the Harper government tables what it has promised will be a balanced budget on April 21.

The Toronto-based economic think-tank, in a so-called shadow budget, says that in the past a return to budgetary surplus has too often prompted looser spending.

And that, it says, would be a mistake in an era when the prospect of tax hikes and debt defaults is clouding the outlook in many countries.

At home, it says Canada faces major demographic pressures on public finances in the years ahead that call for prudent management.

The C.D. Howe’s shadow budget offers several steps it says would promote saving and investment and improve the efficiency of Crown financial corporations.

Among the first things the shadow budget takes issue with are estimates that project a $2.5-billion decline in federal revenues starting 2015 as a result of the severe drop in oil prices. It suggests that if oil prices persist at current levels, federal revenues would take a $5.5-billion hit.

For this reason, it suggests $6 billion be set aside for contingencies instead of the normal $3 billion.

Meanwhile, it also takes aim at wages and benefits paid in the federal public service, saying that together they “exceed that of comparable private sector industries by a large margin.”

“To contain compensation costs, therefore, Ottawa should pay special attention to the management of its employee benefits, particularly pension and other post-retirement benefits,” it says.

Other recommendations call for an auction of Ottawa’s airport leases, changes to the corporate tax structure that would eliminate tax on “normal profits,” changes to research and development tax incentives and elimination of the federal excise tax on aviation fuel.

On retirement issues, it calls for the removal of federal payroll taxes from employer contributions to group RRSPs and the elimination of mandatory drawdowns from registered retirement income funds. The institute would also like to see an increase in the maximum age in which contributions can be made to an RRSP to 72 starting in 2016 and increasing it gradually after that.

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