The federal liberals’ recent flurry of pre-election spending announcements is affordable and mostly just fills in the details of initiatives announced in last February’s budget. But there is enough new that, should the Conservatives form the next government, that party will find itself constrained.

At the top of the list is the $5.1 billion Prime Minister Paul Martin has committed to initiatives to improve the conditions of Aboriginal people over the next five years. This deal was worked out with provincial and territorial premiers, as well as Aboriginal leaders, making it virtually impossible to get out of.

The Liberals have also announced $1.5 billion in new money for forestry, $755 million for grain and oilseed farmers, $700 million to speed up immigration processing, $300 million in forgone revenue from the increase in the dividend tax credit, $263 million to extend programs for the homeless and residential home rehabilitation, and $110 million for increased security on public transportation. Most of these announcements would also be very difficult to renege on.

In total, these commitments come to $8.7 billion, or more than half the $15.5 billion that Finance Canada estimated in the November fiscal update will be available over the next five years for new measures.

It’s tempting to be irritated by the sheer number of spending announcements in November — 146, according to the Ottawa-based Canadian Taxpayers Federation — as well as the large new commitments made just before an election. Voters should not focus on this but rather on whether the Liberals have used the money at their disposal wisely since Martin became prime minister in November 2003, and whether the Liberals’ platform will meet future needs.

There is no doubt that the Liberals have spent a lot, but there were a lot of needs and large surpluses that provided the wherewithal. They can certainly say they have met the health-care funding needs of the provinces, addressed cities’ infrastructure funding needs, provided the financing required to bring National Defence up to speed and negotiated an important agreement to provide funding to deal with First Nations’ issues.

With the November fiscal update, the Liberals have also made major cuts in personal income taxes, and restored the corporate tax reductions announced in the February budget.

Measures in the past two budgets were heavily weighted toward spending, but the fiscal update redresses this, with $29.1 billion in personal income tax cuts over the six years ending March 31, 2011, and $1.1 billion for corporate tax reduction. Total tax cuts in the February budget and fiscal update now total $41.4 billion on the personal side, $10 billion on the corporate side and $938 million for other taxes.

The fiscal update proposes accelerating the increases in the basic personal exemption contained in the budget. Exemptions for spouses or common-law partners and eligible dependents are also accelerated. The lowest tax bracket would drop to 15%, effective January 2005, from the current 16%. In 2010, the second bracket would drop to 21% from 22% and the third to 25% from 26%, with the ceiling rising to $200,000.

The fiscal update also proposes: a refundable working income tax benefit to ease moving from social assistance into the labour force; an increase in the child disability benefit; and an increase in the refundable medical expense supplement for low-income Canadians joining the workforce.

On the corporate side, the elimination of the capital tax for larger non-financial corporations is moved up to 2006 from 2008. The carry-forward period for non-capital losses and investment tax credits is extended to 20 years from 10, and accelerated capital cost allowances for green-power investments are extended to co-generation in pulp and paper using a biomass residue known as “black liquor.”

The Liberals, however, have also made some mistakes, specifically the recent flip-flop on income trusts and side deals with the provinces.

The threat of measures that would reduce or do away with the income trust tax advantage introduced an indefensible amount of uncertainty into financial markets this fall. The only plus is that Finance Minister Ralph Goodale finally ended this with the decision to raise dividend tax credits, a much more satisfactory way to level the playing field.

There was some justification for excluding oil and gas revenue from equalization payment calculations for Newfoundland, and perhaps for Nova Scotia. But giving extra money to Ontario is difficult to justify.

@page_break@Would a Conservative government have done better? Its priorities would have been different but the same issues would have been addressed. Tax-cutting and Defence would have been top priorities. Moving earlier on taxes would have been better for Canada’s international competitiveness. Moving faster on Defence would have made the U.S. happier.

But any skimping on health — which might have been necessary if the Conservatives decided that more tax-cutting and more money for Defence were needed — would not have been well received, and many would have been upset if private care were included in the solution.

Urban infrastructure doesn’t resonate as much with average voters. They want good roads and public transit, but aren’t clear about who should be responsible for providing them. They probably wouldn’t have punished the Tories for foot-dragging on that.

The Conservatives would not have done a special deal with Ontario and probably wouldn’t have agreed to Newfoundland’s and Nova Scotia’s demands. That’s not because of concerns about protecting the viability of the equalization system but because the Conservatives prefer to see market forces determine economic activity.

But the important question going forward is what is needed next and who is likely to provide it. The big issue is productivity growth. Without strong productivity growth, Canadian companies, already struggling with a much higher Canadian dollar, may become seriously uncompetitive internationally, and we won’t have the economic growth to generate enough revenue to protect our social programs.

This is partly a tax issue. Economists would like to see more tax cuts on the personal side, and perhaps on the corporate side as well. The cuts proposed by the Liberals still leave Canadian personal rates, particularly for the highest bracket, well above those in the U.S., says Dale Orr, Toronto-based managing director at economic consultants Global Insight (Canada).

Orr says we are more competitive on the corporate side but would need to lower rates further if the U.S. does, as is expected. Bank of Nova Scotia’s economics department goes further, saying in a recent report that boosting productivity “will require more attention to corporate taxation.” But there are also regulation issues that result in misallocation of resources and discourage mobility of labour.

Orr would like to see the end of equalization, regional economic policies and production controls on dairy, eggs and poultry. He would also like the employment insurance program to become more insurance-like, with repeat collectors paying higher premiums.

It’s not that Orr is against providing income support when it is needed, but he doesn’t want it to interfere with economic decisions. Equalization keeps tax rates down in recipient provinces, while regional economic policies prop up otherwise uncompetitive businesses in those areas. Production controls artificially raise prices of dairy products, eggs and poultry. And employment insurance benefits subsidize seasonal workers, such as fishermen, and also provide enough support for repeat collectors to keep them from moving to regions where there are more jobs.

TD Bank Financial Group also wants to see reductions in regulation and foreign ownership at all government levels. A recent report says “improving support for innovation and raising university enrolment” is also needed.

The Liberals have made a start on the tax side and will probably do more when it’s affordable, but they have given no indication that they would consider major changes, let alone eliminate equalization, regional economic policies and foreign-ownership restrictions.

The Conservatives would probably do more on the tax side. They would also be more open to regulatory change. They probably wouldn’t move on equalization, at least in the near future, but they might make EI more of an insurance program, reduce foreign-ownership restrictions and reduce regional economic programs. IE