Finance ministers in Canada keeping close eye on U.S.

By Medicine Hat News Opinon on March 1, 2018.

Heaven help the political leader who has to work in the shadow of Donald Trump.

Federal Finance Minister Bill Morneau did it earlier this week while presenting Ottawa’s new budget.

Alberta Finance Minister Joe Ceci was at the podium on Wednesday for a provincial fiscal update, and will be back next month when the Alberta budget is due.

And the largest question for both is what they will do to compete with an almost unbelievably huge tax cut that America’s unpredictable president counts as a crowning achievement among few major victories.

It slashes corporate federal tax rates from 35 to 21 per cent this tax year. That’s eight points lower than the rate most companies that file in Canada pay. Those rates will not expire in several years like some new cuts for wage earners.

It’s a grand experiment to draw back corporate operations from overseas and across the continent (i.e. Canada and Mexico).

Conservative opposition parties in Edmonton and Ottawa, not to mention economists and business lobby groups nationwide, have seized on the issue.

It’s hard not to imagine the move in Washington creating a tidal wave of investment heading into the United States, leaving only backwash in other jurisdictions.

On cue, Statistics Canada reports Wednesday that oil and gas investment could fall again for a fourth straight year.

The situation is troubling. The problem as it is perplexing.

How do you respond to an unpredictable, often contradictory, policy coming out of Washington?

Put one way, Canada has to act now to avoid being clobbered.

Put another, should Canada jump off a cliff just because Donald Trump did it?

The trouble for Conservatives, is that many Canadians think it a good policy to avoid being caught in lock-step with America’s president.

Both the federal and provincial finance ministers, each with improving economies to work with, say they are staying the course for now.

Their opponents say that what-and-see amounts to doing next to nothing.

The U.S. tax plan is based on a theory that by vastly reducing taxes, the resulting boost to business will fill any gap or even leave government revenue with a gain.

For more libertarian members of the right wing, it’s an all-gain-no-pain solution, though underpinned by taking on huge amount of debt in the meantime (estimates run as high as an extra US$15 trillion).

There’s also some question about whether the cuts will survive this year’s mid-term elections.

As for motive, many see the end goal of the Republicans being a gut-job on social safety net programs as a way to deal with debt problems the tax cut creates.

It’s the sort of high stakes game that no Canadian should want to see played out here.

Liberal party supporters shouldn’t feel superior when it comes to economic theory, though.

The same theory lies in a Trudeau government plan to keep debt growth in step with economic growth as a way to balance the beams.

Many local-level politicians across the continent call for growth to broaden the tax base and lessen the burden to individuals. After record-breaking growth in Alberta for most of this century, we’re still waiting to see if local taxes will decrease.

It’s the job of a finance minister to bear the brunt of economic concern, to be lambasted on debt, jobs, the economy.

Both Ceci and Morneau both head into an election year in 2019. At that point they will gladly campaign that they’re not ready to follow Donald Trump’s lead, and their supporters will be happy to hear it.

Canadians like stability, it’s said.

Business owners like stability, it’s true, but not as much as they like stable low tax rates.

We’re going to hear more and more about the tax advantages of doing business in the United States.

Heaven help us, however, if we’re only playing defence.