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The Budget is Coming! The Budget is Coming!

It’s all about the budget, stupid – not corporate tax cuts

By L. Ian MacDonald, Special to The Montreal Gazette January 31, 2011 9:01 AM MONTREAL – As the House of Commons resumes today, Stephen Harper might reflect that he has had the kind of January in 2011 that he would have had in 2010 had he not lost an entire month to blowback over proroguing the session to “recalibrate” the government’s agenda.

This month has been different, with the Conservative government leveraging the six-week holiday recess to make announcements, and with the prime minister joining Finance Minister Jim Flaherty on a pre-budget listening tour.

And the budget is all that matters in the coming weeks. Everything else in the media, from poll numbers to attack ads, is just background noise.

The opposition leaders used the last week of the recess to stake out their differentiated positions on the budget, and their terms for supporting it.

Michael Ignatieff says the Liberals will oppose the budget because of corporate tax cuts that won’t be in it. The corporate tax cuts were already legislated in 2007, and when fully implemented at 15 per cent in 2012, will leave Canada with the lowest rates in the G7.

This is a huge source of comparative advantage over the United States, which has a federal corporate tax rate of 35 per cent. And there’s no way the U.S. can reduce that at this stage of the game, given a deficit that’s 10 per cent of GDP and a debt that will cross 100 per cent of output next year.

As Jack Layton pointed out the other day, Ignatieff and the Liberals didn’t oppose the corporate tax cuts in 2007. Most of them hid behind the curtains and stayed out of the House because they were terrified at the prospect of an election under Stéphane Dion. (They weren’t wrong about that.)

The suggestion that Flaherty would rescind the corporate tax cuts, one of his proudest achievements, is beyond ludicrous. It’s simply stupid.

Depending on the day of the week, Iggy says it’s either time to get rid of Harper or that he doesn’t want an election. But he’s prepared to trigger one over something that won’t be in the budget, and has zero prospect of being rescinded.

In trying to differentiate themselves from the Conservatives on this issue, the Liberals have inadvertently played to their strengths – competence, the economy and jobs. One study, by the Canadian Manufacturers and Exporters, says the corporate tax cuts will create 100,000 new jobs in the next two years in an economy that has already regained nearly all the jobs lost in the Great Recession.

Investment goes where there’s comparative advantage, and Canada’s advantages include a highly skilled and mobile workforce, an abundance of resources and commodities the world wants, and the lowest corporate tax rates in the industrialized world.

By making this an issue, the Liberals have empowered the Conservatives to tell this story. As for the Liberal narrative, freeing up funds for families, it has been lost in a needless discussion of corporate tax rates.

The Liberals might have stolen a page from the New Democratic Party’s playbook – make the rich pay – but that doesn’t mean Layton has to go along with them. As Layton was only too happy to remind the Liberals, they had their opportunity to vote against the phased-in cuts, four years ago, and didn’t.

In other words, he isn’t playing their game. He has his own agenda of looking at the budget as a whole. While he was at it, he took his own finance critic, Tom Mulcair, into the boards for suggesting it was “highly unlikely” the NDP would support a budget with corporate tax cuts in it.

“Now you’re into a world of probabilities when you use words like ‘unlikely,’ ” Layton said.

Or as Bill Clinton famously said: “It depends on what the meaning of the word ‘is’ is.”

What Layton sees here is an opportunity to exercise the balance of power, and avoid an election. If he can get some breaks for seniors and low-income Canadians, he will clearly support the Conservatives on the budget.

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