Tax cuts in Canada will be self-financing

Bloated government is the legacy of the Trudeau regime

I have seen many Canadians react to the federal budget and statements by Pierre Poilievre that he would cut taxes by claiming that Canada cannot afford to cut taxes. That is absurd.

Trudeau’s bloated government hired hundreds of thousands of workers to staff bureaus to administer programs that provide little value to Canadians. Taking money from some Canadians who have earned it to give to other Canadians who have not demotivates both and creates the lethargic productivity holding back Canada’s per capita GDP growth. “Tax the rich” is good politics and bad policy since the rich already pay over 60% of the taxes Canada collects and the lowest 20% of Canadian income earners already pay virtually no taxes at all. This is well known and even Microsoft Co-Pilot returns these data:

Tax revenue in Canada is correlated with GDP, with total taxes running over 30% of GDP which is now approaching $2 trillion. A 4% increase in GDP would add $25 billion to tax revenue at current rates. A $25 billion cut in personal and corporate taxes would stimulate economic growth from its currently anemic levels. Economic growth produces higher tax revenue, making a tax cut at least partially self-financing. The “Laffer curve” comprises an argument that when tax rates are too high they produce less tax revenues, a controversial argument, but Canada’s tax “rates” don’t appear too high at first blush.

A better measure of effective tax “rates” is revenues collected at all levels of government from all sources compared to GDP. In 2021, Canadian governments collected $851 billion of revenues in an economy totaling $2 trillion, almost 43%. Add to this government borrowing which is in effect a tax on future income (since debt must be repaid) and the total increases materially. Canadian federal government debts added $123 billion in 2021 according to the Debt Management Report issued by the federal government, which brought aggregate federal government debt to approximately $1.1 trillion and total debt of all Canadian levels of government to over $3 trillion or 150% of GDP.

Canadian government debts are unsustainable and can be added to household debt which comprises over $2.2 trillion, about $1.7 trillion of which is mortgage debt. Ultimately, it is citizens who must repay the total of some $5.5 trillion of debt, and our governments keep sweeping the problem forward shifting the issue on to future generations. It is no wonder our kids can’t afford a home and are worried about their economic futures.

There are only two ways out of this morass - high inflation (which will artificially expand nominal GDP and reduce the value of the debt) and economic growth which promises higher government revenues without higher tax rates. Liberal governments tacitly embrace higher inflation as their solution while pretending their reckless spending “has our backs” despite increasing debt and enacting persistent deficits which exacerbate the problem. Conservative leaders see the solution in lower taxes, higher economic growth and fewer “programs” that giveaway money to voters in return for electoral support. In a Conservative led Canada, personal responsibility becomes paramount and Canadians stop pretending they can live on the dole.

Canada’s real growth opportunity is resources industries, particularly energy, mining and forestry. By permitting pipelines, building deep water ports, and reducing the complexity of approval of new mines for desperately needed metals like copper, cobalt, and nickel, Canada can generate billions of new government revenue in royalties and taxes without altering the royalty rates. In the past 50 years, Alberta oil & gas taxes and royalties alone generated over $600 billion in government revenue and did so while under the thumb of leftist governments stifling energy industry growth. World energy demand keeps rising, the climate change alarm is nonsense, and a doubling of Canada’s oil & gas output alone would produce enough government revenue over the next fifty years to cut federal debt in half while generating a growing balance of trade with salutory affects on Canadian dollar exchange rates reducing imported inflation.

We have the solutions to the economic problems the Liberals under Trudeau created. We just need to throw the Liberals out and elect a common sense government with the spine to enact the needed changes.