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IFSD Fiscal Credibility Assessment: New Democratic Party (NDP) Platform 2019 Costing

IFSD finds that that the NDP Party Platform Costing merits an overall ‘pass’ rating including a ‘pass’ rating on the principles related to realistic economic and fiscal assumptions and responsible fiscal management; and a ‘fail’ rating with respect to transparency.

Information on the scoring framework is detailed in IFSD’s Assessment: Fiscal Credibility of 2019 Federal Election Platforms.

The New Democratic Party (NDP) of Canada released its 2019 Platform Costing (A New Deal for People: Our Fiscal Plan) on October 11, 2019. The document outlines the NDP fiscal approach and includes the costing of specific revenue and spending measures and a summary of total allocations in the NDP fiscal framework.

The Institute of Fiscal Studies and Democracy (IFSD) assesses the fiscal credibility of election platforms of the major parties according to three principles:

  1. Use of realistic and credible economic and fiscal projections;
  2. Responsible fiscal management; 
  3. Transparency. 

The principles and scoring criteria are detailed in IFSD’s assessment framework.

IFSD finds that that the NDP Party Platform Costing merits an overall ‘pass’ rating, with a ‘pass’ on realistic economic and fiscal assumptions, a ‘pass’ rating with respect to the principle of responsible fiscal management, and a ‘fail’ rating with respect to transparency.

From a transparency perspective, IFSD wishes to note that the NDP costed platform should have been released earlier in the campaign – before the commissioned debates and well before the start of advanced polling (not the day advanced polling begins). The late release of the costed platform unduly limits debate and scrutiny of the NDP fiscal plan by leaders and the media.  Furthermore, it unduly limits the time for consideration and reflection by voters with respect to the issue of fiscal credibility of the NDP platform.

Overall, the fiscal strategy in the NDP Party Platform Costing is one of significant fiscal expansion and a commitment to a reduction in the debt-to-GDP ratio over the medium-term.

Proposed spending and revenues are increased by more than $30 billion annually (more than 1 percent of GDP) over the medium-term starting in 2020-21. The projected budgetary deficit rises to $33 billion (including a contingency fund) in 2020-21, from $14 billion in 2018-19, and declines by about half to $16.5 billion in 2023-24. The (accumulated deficit) debt-to-GDP ratio is projected to rise to 31.3% in 2020-21, from 30.9% in 2014-15, and then falls to 30% in 2023-24. Relative to status quo projections, the debt is increased by about $25 billion over the next five years, which includes a provision of $2 billion in compensation to First Nations children associated with a recent ruling of the Canadian Human Rights Tribunal.

The key spending commitments are related to health care (Pharmacare and dental care), housing, First Nations and childcare.

The proposed increase in revenues starting in 2020-21 would be historic in magnitude. Revenues are generated from a significant (3 point) increase in corporate income taxes; a rollback in capital gains inclusion; tax integrity type measures to restrict the use of tax havens; and new taxes related to wealth, digital services and an increase in the top marginal personal income tax rate.

The NDP fiscal plan is given a ‘pass’ rating on realistic assumptions. The costed platform and projected budget balance are based on economic and fiscal baselines prepared by the independent Parliamentary Budget Office (PBO). While there is discussion of the importance of strengthening key public programs to enhance economic growth, there is no discussion of the challenges related to competitiveness and productivity or the potential negative economic impacts associated with large corporate tax increases over the short-term. While there is reference to the federal government’s fiscally sustainable position, as estimated by the PBO, there is little discussion related to the fiscal uncertainty linked to the introduction of new taxes on long-term fiscal sustainability or the fiscal challenges associated with a potential economic downturn over the short-term.

The NDP fiscal plan is given a ‘pass’ rating on the principle of responsible fiscal management. The NDP fiscal approach is based on an indicated relatively low and declining debt-to-GDP ratio. The plan wisely includes a contingency fund to address economic and fiscal uncertainty. It is the first party platform released in the 2019 campaign to include a prudence adjustment.

The large tax increases proposed in 2020-21, however, come with significant economic and fiscal risk. The large planned spending increases come with policy and fiscal risk associated with federal-provincial negotiations.

The NDP fiscal plan is given a ‘fail’ rating associated with the principle of transparency. The fail rating reflects factors in addition to the relatively late release of the document – after the commissioned debates and on the same day as the start of advanced polling.

The NDP platform makes good use of PBO costing, though the vast majority of spending measures use fixed envelopes rather than PBO cost estimates. Further, no effort was made to examine the economic and fiscal impacts of large and complex revenue and spending adjustments over the short or medium-term horizons. This is compounded by the fact that over 90% of revenue measures were judged by the PBO to have high uncertainty. Little background information was provided on the 70 measures highlighted in the document in addition to information provided in the 14 PBO costed measures.  The costed platform did not provide an implementation strategy with timelines and contingencies on major initiatives like Pharmacare, dental care, large housing and First Nations initiatives.

  1. Platform uses the latest PBO baseline economic and fiscal forecast.

NDP Platform score: 2/2

The platform uses the PBO baseline economic and fiscal forecasts.All proposed revenue measures and three of the expenditure measures have been costed by the PBO. While two of the largest expenditure measures are included, the balance of the measures are presented as maximum spending envelopes.

1.2 Platform articulates economic challenges.

NDP Platform score: 0.5/2

  • The main challenge that the platform addresses appears to be affordability for low to middle-income Canadians. 
  • The platform, however, does not explicitly address fundamental economic challenges, such as low productivity growth and the declining role of the manufacturing sector.  In fact, certain revenue measures an incongruent with a policy response to these two economic challenges.

1.3 Platform articulates fiscal challenges

NDP Platform score: 0.5/2

  • The platform’s proposed measures are subject to significant uncertainty.
  • The platform does not take into account any potential fiscal challenges that could arise as a result of economic or financial shocks. 
  • The platform does include a prudence factor, i.e. contingency fund.  However, the platform does not provide any information on how potential fiscal challenges would be addressed.    

2.1 Platform commitments are consistent with a defendable medium-term fiscal strategy and framework.

NDP Party Platform Score: 1.0/2

  • The medium-term fiscal strategy in the NDP Platform Costing is focused on a commitment to lower Canada’s debt to GDP ratio over the 2020-21 to 2023-24 period.
  • The budgetary deficit is projected to rise to about $33 billion in 2021-22 (including a contingency fund) and then fall to $16.5 billion in 2023-24.
  • From a fiscal perspective, the plan proposes a large fiscal injection in the next fiscal year, with revenues and expenditures increasing by $31 billion and $35 billion, respectively. This fiscal expansion is larger than the fiscal stimulus package implemented in 2009.  Unlike 2009 stimulus, the expansion is structural (ongoing) in nature.
  • The planned revenue increase comes from substantive changes to the tax system that carry significant fiscal risk, e.g. large increases in corporate taxes, the roll back of capital gains inclusion, as well as the introduction of new taxes on the wealthy and digital services.
  • All revenue measures in the NDP Platform Costing were costed by the PBO.  However, over 90% of the measures were deemed to be highly uncertain.
  • The large increase in proposed spending reflects increases to transfers related to health (Pharmacare and dental care), housing and First Nations. There are significant timing and performance risks related to scope and scale of the initiatives.

2.2 Platform’s commitments maintain long-term fiscal sustainability.

NDP Party Platform Score: 1/2

  • The NDP Platform Costing has an implicit (not explicit) commitment to fiscal sustainability. 
  • Consistent with recent analysis by the Department of Finance and the PBO, the NDP Platform Costing indicates that the federal fiscal structure is sustainable.
  • The NDP Platform indicates a declining deficit track over the medium-term, beginning in 2020-21. The debt to GDP ratio declines at a modest pace.
  • The high uncertainty associated with proposed revenue measures would require a commitment (which is not formally made) to annual sustainability analysis and fiscal adjustment to maintain long-term sustainability

2.3 The fiscal planning framework contains adequate provisions for unforeseen events and/or forecasting errors.

NDP Party Platform Score:  1.5/2

  • The NDP Platform Costing includes prudence adjustments in the fiscal planning framework. The contingency fund is equivalent to 15% of proposed revenue measures.
  • The contingency fund is substantive and consistent with the high uncertainty associated with revenue estimates from proposed tax measures.  The fund is designed to offset both economic and tax revenue risks.
  • The NDP Platform Costing presents budgetary balance forecasts with and without the contingency fund.
  • Specific rules on how the contingency fund would be managed, should economic growth and tax revenue turn out to be higher than forecast, are not provided.  For instance, it is not clear whether the fund would be used to lower debt or increase spending relative to planning assumptions.

3.1 Platform provides economic and fiscal outlook for five years (2019-23) with details on key indicators, which incorporate the proposed policy measures.

NDP  Platform score: 1/2

  • The proposed significant increase in spending and revenue raising, through taxation, would significantly impact the economy and the finances of the Government of Canada.
  • According to the PBO, over 90% of the proposed revenue measures are considered to be highly uncertain.  The cost estimate for pharmacare, the largest proposed expenditure, is also considered to be highly uncertain.
  • There are only passing references to the economic implications of the proposed measures.  For instance, there is no discussion of how corporate tax increases would impact the business sector.
  • There is a lack of sufficient detail on the implications of growth in the size of government. 

3.2 Platform provides sufficient detail on its proposed policy measures

NDP Platform score: 1/2

  • Proposed revenue measures are expected to generate over $30 billion per year, including in the first year, without any consideration of the difficulties of achieving such significant changes to the tax system in such a short period of time.
  • In general, there is little information in the platform on how key objectives, e.g. pharmacare, luxury tax, will be achieved. 
  • The platform does not outline priorities and timelines for achieving the desired objectives.

3.3 Platform provides a clear implementation plan for key policy measures

NDP Platform score: 0.5/2

  • The platform provides little information on how key measures, such as pharmacare and dental care, would be implemented, especially as they require agreement from provinces.
  • In addition to having a comprehensive plan based on realistic assumptions, a credible platform must outline a detailed plan with timelines and contingencies related for their implementation.