The amount of spending that Prime Minister

Mark Carney

committed to last month is eye-watering.

The $9-billion boost to our

defence budget

and the pledge to the North Atlantic Treaty Organization (

NATO

) to eventually spend

five per cent

of our country’s

gross domestic product

annually amount to billions in the short term and hundreds of billions in the longer term. All these spending commitments have been made without presenting a spring budget.

Asked by a reporter at The Hague Summit about how Canada will pay for all the spending, acknowledging the concerns by the Parliamentary Budget Officer (PBO) about sustainability, Carney made a

visible eye roll

before proceeding to give a non-answer. He defaulted to his usual talking points about how the government is committed to growing the economy, balancing the operational budget within three years and investing in Canada.

The commitment to balance the operational budget sounds good, but

it’s not

. It’s a simple accounting trick designed to mask spending by moving costs to the “capital budget.” It doesn’t help reduce spending in the least and doesn’t consider the increased debt-servicing costs that will result from the increased, but less visible, spending.

The

PBO report

the reporter was about our Canada’s year-to-date finances. It had the following eye-catching quote:

“Unlike the previous fiscal anchor, the government has not defined how the new operating budget targets will be measured. Specifically, there is no commonly accepted definition of what is defined as “operating” or “non-operating/capital” spending. Hence, PBO is unable to assess whether the government’s recent fiscal policy initiatives presented in Parliament … are consistent with achieving its new fiscal objective.

“PBO also notes that the government could fulfill its operating budget goals, and yet at the same time the federal debt-to-GDP ratio could grow because of additional borrowing for non-operating spending (for example, new acquisitions of weapons systems for the Canadian military). This means that the government could achieve its fiscal objective and yet be fiscally unsustainable.”

The PBO is bang on. Regardless of how you account for such additional spending — operating versus capital — the amounts need to come from somewhere, either in the form of increased revenues — taxes — or cuts in government spending. Or both.

I believe there is a lot of room to significantly cut expenditures without affecting core essential services such as health transfers, support for the vulnerable, defence, etc., especially when you consider how

fast expenditures have been growing

. Ten years ago, federal expenditures were $250.1 billion. For this coming year, it’s expected to be $486.9 billion — a 94.7% increase (revenues haven’t kept pace).

However, my belief would need to be proven by a significant audit of such expenditures, not endless

academic studies

that suggest the government has plenty of fiscal capacity to continue spending.

Without reining in growing expenditures, there is only one way to go: increased revenues, meaning more taxes. Former United States president Ronald Reagan once quipped, “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

Apropos. Why? Because one of the easiest things for a government to do is to implement a tax as a “solution” instead of trying to deal with the core or systemic issue.

Over the years, there has been no shortage of silly taxes introduced by nations to deal with certain issues, such as a tax on bachelors (thought to help procreation) in ancient Rome and Italy in the 1920s and an email tax in Hungary (quickly abandoned).

It’s amusing to review the history of what governments have implemented taxation on. You would think such history provides good lessons, but, unfortunately, that doesn’t appear to be the case.

As a recent example, one former bureaucrat recently

proposed

that Canada should introduce a new defence and security tax — functioning like our GST — so as to help pay for our country’s required defence commitments. I appreciate the writer’s passion and

a consumption tax is a better way

to tax than income tax, but simply introducing new taxes to deal with increased spending is hardly a solution.

Unfortunately, these types of articles have been common in recent years. The federal government is well known for testing ideas by “friendly authors.” I can almost hear the conversation in the prime minister’s office: “Hey, let’s get Mr. X to publish an article on our latest idea and then do a poll to see how it lands.”

Recent examples have included articles advocating wealth taxes, changes to the principal residence exemption, a home equity tax and a whole host of housing-related tax measures. This kind of tax policy by polling is a dangerous path forward, shallow in substance and

driven almost entirely by politics

.

Case in point: the government on Sunday abruptly

scrapped the digital services tax

after sustained pressure from the U.S., a last-minute retreat from yet another ill-conceived tax.

A comprehensive solution to our country’s fiscal mess

starts with a budget

. Something we won’t see until the fall. It also includes a comprehensive audit of our government spending and

tax review/reform

, not just a corporate tax expert review.

Eye-watering spending and eye-rolling dismissals of legitimate questions might fool some for a while, but they don’t fix broken budgets or build a sustainable future. New taxes aren’t the solution; they’re a symptom of deeper problems.

  • Tavares hasn’t won his tax case against the CRA yet, but here’s why Canada gains if he succeeds
  • Consumption-oriented taxes are a better option than those on labour or potentially robots

Canadians deserve better than accounting tricks and polling-driven tax policy. Former South African archbishop Desmond Tutu once said, “There comes a point where we need to stop just pulling people out of the river. We need to go upstream and find out why they’re falling in.”

It’s time to go upstream and open our eyes.

Kim Moody, FCPA, FCA, TEP, is the founder of Moodys Tax/Moodys Private Client, a former chair of the Canadian Tax Foundation, former chair of the Society of Estate Practitioners (Canada) and has held many other leadership positions in the Canadian tax community. He can be reached at kgcm@kimgcmoody.com and his LinkedIn profile is https://www.linkedin.com/in/kimgcmoody.

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