The correct kind of counterbalance

Every now and then, but all too infrequently, our government comes forth with a “stroke of genius.”

The government’s Home Renovation Tax Credit program sure fits that bill.

As a background, we should look more carefully into the question of how our government can serve as a kind of counterbalance for the private economy.

First, we must recognize something about the normal behaviour of the public sector; for despite the importance of political decisions in determining the action of the public sector, and despite the multiplicity of government units and activities, occasionally, nonetheless, we can see a trend in government activities – trends that play their compensating role in the economy.

The reason is that government interests are closely tied to the private sector.

Government receipts, of course, are derived in the main from taxes, and taxes – direct and indirect – generally reflect the trends of business and personal incomes. Governments can and do take on the task of acting on the deliberate balancing mechanism of the economy.

That explains, or justifies, the measures taken by the Bank of Canada and the federal government to moderate the current business downturn.

Given that, the federal government recently devised a very innovative program, the Home Renovation Tax Credit. Under that plan, all home renovation projects undertaken this year, exceeding the first $1,000, will receive a 15 per cent tax credit, of up to $1,350. That is 15 per cent of $9,000.

According to anecdotal evidence from many construction companies, that has sparked a major boom in home renovation. One firm specializing in that field reported to this columnist that it has never been busier, that revenues are running nearly 20 per cent above last year’s totals.

Needless to say, that has entailed an increase in direct employment. That, in turn, means a significant multiplier, one going to different spending groups.

Suppliers of materials are straight beneficiaries.

That brings about increased production of these materials, again more employment, more income and spending.

One problem usually found with tax cuts is that they will result in higher consumer savings, but obviously that is not the case with the renovation tax credit program that is predicated on spending.

Another potential problem is that it will not help those portions of the economy that are most in need in a recession.

Nevertheless, despite any such drawback, this home renovation plan is a superb idea.

Finally, this project will improve our housing stock and may make our homes more environmentally friendly.

At long last we can have three cheers for a government plan.

Bruce Whitestone