President Donald Trump walks with Prime Minister Justin Trudeau along the Colonnade to the Oval Office of the White House, Wednesday, Oct. 11, 2017, in Washington. (AP Photo/Evan Vucci)

The Liberals have begun a new holiday tradition. For the last two years, just days before Christmas, the Finance Department has put out a long-term fiscal forecast at the precise moment when no one is paying the slightest bit of attention.

“The only reason they would release it on the Friday afternoon before Christmas is that nobody sees it, and that’s what happened last year,” Randall Bartlett, chief economist with the Institute of Fiscal Studies and Democracy at the University of Ottawa, told The Globe and Mail.

The good news in Finance’s annual 40-year fiscal forecast is that it now predicts the budget will be balanced by 2045, rather than 2051, as projected a year ago.

The bad news is that Finance forecasts another 28 years of deficit spending before balanced budgets would be achieved under the current spending and taxation regime.

“Justin Trudeau will be a 74-year-old man relaxing on a private island before the budget is balanced,” said Conservative finance critic Pierre Poilievre in an anything-but-subtle reference to the prime minister’s free holiday on the Aga Khan’s island in the Caribbean — which led outgoing Ethics Commissioner Mary Dawson to report he violated four articles of the Conflict of Interest Act. (Trudeau, who turned 46 on Christmas Day, told friends he would be spending the holiday at the PM’s country residence at Harrington Lake — appropriate, as last year’s vacation wasn’t.)

The long-term fiscal forecast diverts attention from the obvious — that Trudeau and the Liberals have blatantly broken a campaign promise of running stimulative deficits of $10 billion a year for two years before returning to balance by 2019.

That target is nowhere in sight, though the economic narrative of jobs and GDP growth is extremely positive and bodes well for the Liberals’ prospects for a second majority government in 2019.

But as the conservative Fraser Institute points out in a year-end note, the Liberals have “run deficits of $18 billion in 2016 and $20 billion this year (with) additional deficits of almost $80 billion over the next five years. There’s no immediate plan to balance the budget.”

Finance’s own five-year fiscal forecast in the fall economic statement is in line with the Fraser outlook, which adds: “Prime Minister Trudeau is on track to increase person-to-person federal debt more than any other prime minister in Canadian history who did not face a world war or an economic recession.”

A daunting challenge looms on corporate tax rates, where Canadian comparative advantage looks to be disappearing almost overnight. A daunting challenge looms on corporate tax rates, where Canadian comparative advantage looks to be disappearing almost overnight.

However, the deficit numbers and debt-to-GDP ratio are improving incrementally because of a roaring economy that created 400,000 jobs this year. For example, over the first seven months of the fiscal year ending next March 31, the federal deficit was $6.3 billion compared to $9.3 billion in the previous FY period. And the fall statement projects real GDP growth up 3.1 per cent for the calendar year now ending, compared to a budget forecast of 2 per cent last March.

The fall statement also forecasts a declining debt-to-GDP ratio — from 30.5 to 28.5 per cent — over the next five years, compared to a budget outlook of 31.6 to only 30.9 per cent. Bank economists regard those numbers are leading long-term indicators.

This could provide Finance Minister Bill Morneau with a margin to manoeuvre in his 2018 budget, one that he may well need to keep Canadian business competitive with the U.S. in light of the sweeping $1.5 trillion tax cut bill Donald Trump signed into law last Friday morning in his first major win with the U.S. Congress.

“Canadian policy makers need to prepare for what could be a significant challenge to Canadian competition,” says economist Jack Mintz, Palmer Chair of the School of Public Policy at the University of Calgary.

A daunting challenge looms on corporate tax rates, where Canadian comparative advantage looks to be disappearing almost overnight.

The American corporate tax rate has been slashed from 35 to 21 per cent. In Canada, former Finance Minister Jim Flaherty lowered the corporate rate from 22 to 15 per cent, with a 10 per provincial tax on top of that.

But as Aaron Wudrick of the Canadian Taxpayers Federation observes in an online column for CBC News, “previously, Canada could boast about lower business taxes: the Canadian average combined federal-provincial rate of 26.7 per cent, compared favourably to an American average combined federal-state rate of 39.1 per cent. That advantage is now history: with passage of the new Tax Cuts and Jobs Act, the new average American rate is 26 per cent.” In other words, we’re tied.

On new investments, U.S. companies will receive 100 per cent of capital costs for the first five years, before that measure is phased out over the following five years. Small businesses are seeing their allowable expenses doubled to $1 million.

And even in terms of personal income tax rates, Trump’s bill whittles away at Canadian comparative advantage. The top U.S. rate for those earning $500,000 a year or more is being cut from 39.6 to 37 per cent. And in the 35 per cent rate just below that, the income threshold has been slashed from $418,000 to $200,000. There’s a tax cut in every bracket, including low income earners who will see their tax rate cut from 15 to 12 per cent, while the child tax credit is doubled to $2,000.

The Liberals increased the top marginal rate from 29 to 33 per cent, and when provincial rates are included, the personal income tax rate at the top exceeds 50 per cent in seven provinces, including Ontario and Quebec.

Among other things, as Wudrick points out in his CBC piece, there are implications for foreign direct investment in Canada, with the U.S. accounting for half of the FDI in this country. On Flaherty’s watch, Canada achieved the lowest business taxes in the G7, and was voted the second-best place in the world to do business.

That’s not going to be happening under Morneau, unless he faces the new comparative Canada-U.S. reality and rises to the occasion in the budget. This is not about the middle class and those “working hard to join it.” It’s about Canadian competitive advantage.

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