Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Wednesday, February 23, 2005

The Canadian Budget: C+

The Liberal gubmnt tabled (i.e., submitted to Parliament) its budget for the upcoming fiscal year today. Last month the feds reported that we had had yet another year with a surplus, and there was much speculation about whether taxes would be cut, more spending would be undertaken, and/or there would be some pay-down of the debt. Here are some highlights:

  • Corporate tax rates are being cut a bit over the next several years in several ways.
  • The Registered Retirement Savings Plan tax-deductible savings programme will have a much higher limit, inducing more saving.
  • The RRSP cap on including foreign investment in our portfolios has been completely and immediately lifted -- we can fully diversify our portfolios globally. It has been argued that this change had a big impact on the value of the Loonie late this afternoon.
  • More spending for national defence; Canada hasn't had much in recent years.
  • Too much money for Canada's Kyoto commitments and the environment (see here for why I say "too much"). As I have said before, there is no reason to subsidize exploration and development of alternative energy technologies; if the feds would just tax the snot out of carbon-based fuels, we'd all be scrambling, via the market, to find alternative energy technologies and make them marketable.
  • Redistribution of a portion of the federal gas tax to the large cities.
  • The big mistake: federal gubmnt funding for child care, which has likely created yet another costly entitlement programme. This is almost a moral hazard problem in that guaranteeing young couples that the gubmnt will pick up the day-care tab will induce more of them to have more children(see these links for other criticisms); I don't see any reason to subsidize this activity any more than subsidizing the purchase of big recreational vehicles (Phil Miller refers to his children as "the durables"). As of now, it appears to be a voucher-like plan, but just wait. My prediction is that the feds will become increasingly involved and squeeze the private schools out.

Update: for more highlights, see this story at the CBC.

Also, see here for The Fraser Institute's recommendations. It looks as if they will be happy with much of the budget, but certainly not all of it.

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