Canada Tax Hike Irks Citizens. BUDGET CRISIS
CANADA's finance minister is being told he didn't cut spending enough and raised taxes too high. That's the chorus facing Michael Wilson a week after he brought down the federal budget. With Canada facing a growing budget deficit - on a per capita basis, it is larger than that of the United States - a stern budget was expected. Critics from business analysts to social groups are predicting that the budget is so tough it could push Canada into a recession, especially when combined with Ottawa's policy of high interest rates.
``The Canadian economy is heading into a period of very hard times,'' said Arthur Donner, an economist with Andras Research Capital here. ``The picture is made even worse by the budget, which takes $14 billion [Canadian; US$11.4 billion] of net purchasing power from Canadian households and businesses in 1989 and 1990, primarily to pay the extra costs of financing the country's interest debt burden.'' Canada's public debt is $321 billion (US$270 billion).
Here's where some of the $14 billion will come from, stated in Canadian dollars.
A personal income tax surtax on Canadians earning more than $70,000 a year. That will raise $1.2 billion.
Increased taxes on gasoline, tobacco, and alcohol. Combined with rising world prices, prices at the pump have risen 10 cents a liter in the past two weeks, or about 40 cents an American gallon.
Corporate taxes were increased by 7.1 percent to raise almost $1 billion.
Unemployment insurance costs will now be paid by workers and industry, saving the government $1.9 billion next year.
People making more than $50,000 a year will not get ``baby bonuses'' (payments for having children) and government old-age pensions.
The national train service, Via Rail, has been trimmed by $500 million over the next five years. Sleeping cars will be cut out almost entirely and the government has suggested that private industry run the railroad.
An election promise of $4 billion for a national day-care program has been shelved, probably canceled.
Foreign aid has been cut, and so has aid to the poorer provinces in Canada. And the nuclear submarine program was canceled, saving at least $8 billion over 20 years.
All this has managed to anger just about every special-interest group in Canada, from business to welfare rights groups.
``It's a hard budget for Canada's poor,'' said Havi Echenberg, executive director of the National Anti-Poverty Organization. Others said it would hurt women and children - the baby bonuses - and old-age pensioners.
But many people have said the reason for Canada's budget deficit - it will be $30.5 billion (US$25.6 billion) this year - is that social programs are paid to everyone, whether rich or poor. Many economists, along with Mr. Wilson, say it is a luxury the country can no longer afford.
Another thing the country may no longer be able to afford is the tradition of budget secrecy, where the minister resigns if there is a leak. Wilson had to deliver his budget a day early because a television reporter was given a printed copy of budget highlights 24 hours early. The handoff to the reporter was made at a gas station.
Opposition members bayed for Wilson's resignation.
A more muted analysis of the budget came from John Grant, chief economist at Wood Gundy.
``This government is turning out to be surprisingly Thatcherite,'' he wrote in a budget analysis for the firm's clients. ``The Free Trade Agreement, unemployment insurance reform, debt stabilization, reduced inflation, privatization, and reduced subsidies to weak corporate ventures all fit into a pattern, a resolve to challenge Canadians to prosper in a less protected, much more competitive environment. This augurs well for future budget.''
This was the first budget since the government election victory last fall. It may prove to be the toughest before the next election.