Carney made a big, bold $150-billion budget bet. Will it pay off?

Résumé détaillé

Canada is borrowing a lot of money at a time of high interest rates, for a growth plan that is deeply uncertain

Kevin Yin is a contributing columnist for The Globe and Mail and an economics doctoral candidate at the University of California, Berkeley.

As energy profits rose from the Iran war, the government has projected more than $158-billion in additional fiscal capacity over the next five years relative to the spring forecast, about $120-billion of which is from higher tax revenues. With the Nov. 5 budget, Ottawa has chosen to spend more than $150 billion of this windfall, with a significant portion on corporate tax incentives and various infrastructure projects. While it will take years to see whether this growth strategy pays off, there are more than a few reasons for caution.

The fear is that we are borrowing quite a bit at a time of high interest rates, for a growth plan that is deeply uncertain. In such circumstances, it may have been wiser to save more of the windfall revenues and reduce deficits.

Since the spring forecast, a bit more than $40-billion over the next five years has been committed to business tax relief like the Productivity Mega Deduction, expansions to the Clean Electricity and Clean Technology tax credits, and changes to the Scientific Research and Experimental Development tax credit. The deduction reform allows companies to front-load their capital deductions instead of spreading them across years, which provides more cash upfront for reinvestment. The rest of the windfall is being spent on non-growth-related categories such as Indigenous programs, housing measures and tariff-relief, among others.

Corporate tax cuts should be good for growth, but because growth is an extremely hard problem, the question is whether this will help enough to justify spending every extra dollar of windfall tax revenues.

While almost all G7 economies have cut corporate taxes in the last few decades, none except the United States have seen real per-capita growth rates higher than 1 per cent since 2010.

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