Con’s Savings Plan: Just another ideological gimmick?

Travis Fast

I don’t really have much to say about the budget save for just a few comments and mostly about the new savings vehicle for wealthier Canadians.

On subsidies to industry.

I am totally against subsidies to industry. If companies get cash or near cash from citizens then citizens should get ownership certificates (some form of equity). No equity stake, no Steak!

On the Savings Plan.

First, I think progressives should be worried about the distribution of savings. Clearly this plan favors those with a high enough disposable income to save. In general, even if I agree that in some sense investment drives savings the question becomes for whom does it drive savings?

Second concern: I think as is implicitly argued here, that it is rather reckless to argue that stimulating effective demand which is augmented by negative savings –consumer credit– is the way to go for blue and white collar workers regardless of the link between consumption and investment. This is because the more in debt workers are, the more they have to work and the higher the level of flexibility in wages and working conditions which can itself have a deleterious effect on aggregate demand unless augmented by further consumer debt. And then around we go. This is the last twenty years of off-loading the public debt (and macro-economic stimulus) onto to the backs of workers.

Third, I am not sure how increasing the propensity of higher income earners to save helps as a hedge against a possible downturn, as high income earners are likely to have a greater propensity to consume (relative to poorer citizens) in the face of an economic slowdown. This plan could become a negative drag on effective demand. Even if the plan does not kick in until 2009, why would I not start saving money now in the expectation of making a deposit in 2009?

Fourth, and finally I can only conclude that this savings plan was an ideologically driven program with the usual distributional implications. In short more of the same, but far from just a gimmick.

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