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[Financial Post G7 Record]

Financial Post, Weekly edition, Wed 19 Jul 89, page 10. Editorial.


Worthy goals: will they stick?

The Prime Minister's penchant for exaggeration has on occasion put him in the uncomfortable position of having to explain why he hasn't done something he was expected to do, or why he has done something he wasn't expected to do.

It's to be hoped he won't have to go through that exercise in relation to the policy directions he outlined to The Financial Post's Hyman Solomon in Paris, following the economic summit. Mulroney made firm pronouncements in three key areas:

The goods & services tax will go ahead.

There will be no easing off in the battle against inflation.

Deficit-reduction will be the focus of at least two more budgets before the next election.

Will the government stick to this agenda? Already, as columnist Arthur Drache noted in yesterday's Post, rumors are circulating in Ottawa that strong opposition to the GST in the Tory caucus may cause the government to back away from the controversial levy. What, then, would replace the manufacturers' sales tax, an inequitable impost that disdvantages domestic producers, and which business and most tax authorities agree should be scrapped?

The PM's comments belie the rumors of a policy flipflop on the GST. What's needed now is for him to go further and reaffirm the government's original intention that the tax be a visible levy, clearly evident to purchasers as a separate charge.

Mulroney's commitment to keep up the fight against inflation is heartening, especially in light of the latest figures showing that the rate in June hit a five-year high of 5.4%. The anti-inflation stance will test Mulroney's resolve because the government and the Bank of Canada are under constant pressure to get interest rates down.

''We will sustain the Governor of the Bank of Canada and his interest-rate policy because the fundamental evil in the economy is inflation, and it must and will be dealt with,'' the PM told The Post.

Concerning the pledge to continue to cut the deficit, Mulroney should note that the bulge in inflation is largely attributable to higher taxes. Higher federal and provincial taxes - including June's increase in the federal MST - are helping to push up prices. The tax increases constitute a one-shot boost to inflation, but the government is reaping the consequences of attacking the deficit mainly by tax increases rather than spending cuts.

Those consequences should be kept in mind during preparation of the next two budgets, which the PM says will focus on cutting the deficit. Furthermore, the government shouldn't ease up on the deficit after two more budgets. The third budget will likely be a pre-election budget. If that means the spending lid comes off, whatever progress may have been achieved in the preceding budgets will be undone.

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Revised: June 3, 1995

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