IFSD finds that the New Democratic Party (NDP) Platform 2021 merits a rating of ‘pass,’ with ratings of ‘good’ for realistic economic and fiscal assumptions, a ‘pass’ for responsible fiscal management, and a’ fail’ on transparency.
The New Democratic Party (NDP) released the fiscal plan on September 11, 2021, associated to its 2021 platform, “Ready for Better: New Democrats’ Commitments to You.” The platform proposes an expanded role for the state to address several policy issues identified by the party, including, childcare, health care, basic income supports, affordable housing, First Nations reconciliation, and climate change. To pay for these spending increases, significant revenues are raised through increased taxation on wealthier individuals and corporations. While the proposed higher revenues offset most of the spending increases, there is an increase in budgetary deficits over the medium-term.
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;
The principles and scoring criteria are detailed in IFSD’s platform assessment framework, originally developed ahead of the 2019 federal election.
These assessments are designed to test for coherence between policy proposals and fiscal and economic plans, as well as the realism of assumptions. Platforms are political documents and are expected to provide reliable and realistic proposals, making them different than budgets or government documents that have different requirements for accuracy, realism, and transparency.
IFSD finds that the NDP platform and fiscal plan merit an overall ‘pass,’ attributed largely to its use of the Parliamentary Budget Officer’s (PBO) baseline economic and fiscal assumptions, the clarity of the presentation of its fiscal planning framework and its ‘policy’ commitment to fiscal sustainability. The results are tempered by weaknesses in fiscal management (i.e., implementation challenges and fiscal sustainability issue) and transparency.
The overall score is 10/18 across the three principles.
The NDP’s proposed measures would significantly expand the role of the state. There is a planned permanent increase in spending and revenues relative to the size of the economy. Using the PBO’s baseline fiscal and economic forecasts, the NDP’s fiscal plan projects a slightly declining debt-to-GDP ratio. While there is a policy commitment to fiscal sustainability, the uncertainty surrounding estimates of proposed revenue measures and increasing expenditures would likely challenge the sustainability of the plan.
Roughly $215B in new spending (including a $9B contingency fund) is proposed in the platform, with gross revenues of approximately $185B (net revenues to the fiscal framework of $166B) over the next five years. Some revenue measures, such as the proposed wealth tax, have higher degrees of uncertainty. The platform costing includes provisions for risk with room for revenue forecast errors, as well as a contingency fund to address uncertainties related to new spending proposals. While the overall fiscal framework proposes a declining debt-to-GDP ratio, permanent spending from major national measures, e.g., pharmacare, dental care, a universal livable basic income for people with disabilities and seniors, etc., likely make the long-term fiscal structure unsustainable.
The platform’s revenue and expenditure considerations, along with a contingency, are clearly presented. However, given the scope and scale of the proposed revenue measures of $185B ($166B net) over five years, there are few, if any, indicators on the expected impact of these measures on the economy as a whole, on specific sectors (e.g. oil and gas), and on capital markets (e.g. wealth tax, capital gains inclusion). The platform commitments are ambitious and complex. Implementation of these commitments are resource intensive and are dependent on collaborations with other orders of government, and may be unrealistic within the proposed timeframes.
1.1 Platform uses the latest PBO baseline economic and fiscal forecasts.
NDP Party Platform score: 1.5/2
− The platform uses the latest PBO baseline economic and fiscal forecasts.
− Many of the proposed revenue measures have been costed by the PBO. Very few spending measures have been costed by the PBO.
1.2 Platform articulates economic challenges.
NDP Party Platform score: 1/2
− The platform’s economic strategy is based on the need for additional fiscal supports to address continued uncertainty around the economic recovery. There is also a larger proposed public sector role to address what the NDP identifies as long-standing issues related to income disparities, social inequities, and environmental sustainability. The party’s premise for improving the well-being and opportunity for more citizens is to create a stronger and more balanced foundation for economic growth.
− Only some of the economic implications of such an approach are considered in the fiscal plan. The platform strategy focusses on the benefits of new spending proposals and not the implications of higher taxes on investment and growth. From an economic competitiveness vantage point, the implicit assumption is that negative implications from the relative large increase in proposed taxation is offset by improvements in social infrastructure.
1.3 Platform articulates fiscal challenges.
NDP Party Platform score: 1.5/2
− The platform’s fiscal plan assumes that there remains significant fiscal room to increase taxes, (as long as the focus is on higher income and wealthy people and large corporations) and federal debt (in nominal terms) over the medium-term.
− There is an implicit recognition that it is important for the federal deficit and debt-to-GDP ratio to trend downwards after the large increases in 2020-21 to address the pandemic. There is a policy commitment to do regular fiscal sustainability analyses, presumably related to the uncertainty surrounding significant structural policy changes.
− The fiscal strategy necessitates a strengthening in intergovernmental relations given the concurrent jurisdictional responsibilities in policy areas related to childcare, health, and income assistance.
2.1 Platform commitments are consistent with a defendable medium-term fiscal strategy and framework.
NDP Party Platform Score: 1/2
− The medium-term fiscal strategy in the NDP Platform is based on a slightly declining debt-to-GDP ratio in the medium-term and a commitment to undertake an annual sustainability analysis and potential fiscal adjustments if necessary.
− The strategy does not have a strong medium term fiscal anchor or target.
− The platform costing document states that, “our fiscal approach would not significantly impact Canada’s projected debt-to-GDP ratio, meaning our long-run finances would remain fiscally sustainable.” A slightly declining debt-to-GDP ratio in the medium-term does not guarantee long-term fiscal sustainability.
− The platform proposes roughly $215B in new spending (including a $9B contingency fund), with plans to generate an additional $185B ($166B net) in revenues over the next five years. Some revenue measures, such as the proposed wealth tax, have higher degrees of uncertainty. To this end, the platform reduces the anticipated revenues by 10% to account for the uncertain revenue generation.
− Overall, the plan will result in an annual average
2.2 Platform’s commitments maintain long-term fiscal sustainability.
NDP Party Platform Score: 0.5/2
− The platform’s fiscal framework shows a slightly declining debt-to-GDP ratio. The challenge is the likely long-term unsustainability of the proposed fiscal structure.
− The significant increase in permanent spending through programs such as national pharmacare, a national dental care program, and a guaranteed basic livable income for people with disabilities and seniors would likely increase the spending-to-GDP ratio over time, as they are subject to demographic pressures, making the fiscal structure unsustainable.
2.3 The fiscal planning framework contains adequate provisions for unforeseen events and/or forecasting errors.
NDP Party Platform Score: 2/2
− The NDP fiscal plan includes two provisions to manage risk. First, estimated revenues from new taxes are reduced by 10% to account for errors in the revenue generation forecast. Second, a contingency fund, equal to 5% of expected revenues, is established to manage other unforeseen COVID-19 related costs.
3.1 Platform provides economic and fiscal outlooks for five years (2021-26) with details on key indicators, which incorporate the proposed policy measures.
NDP Platform score: 1/2
− The costed platform uses the PBO’s economic and fiscal baseline. The platform proposes significant increases in new revenue and spending which would impact the national economy and the finances of the Government of Canada.
− The platform’s revenue and expenditure considerations, along with a contingency, are clearly presented.
− Given the scope and scale of the proposed revenue measures of $185B ($166B net) over five years, there are few, if any, indicators on the expected impact of these measures on the economy as a whole, on specific sectors (e.g. oil and gas sector), and on capital markets (e.g. wealth tax, capital gains inclusion).
− The spending measures of over $215B (with the contingency fund), over five years are clearly articulated. There are few indicators, however, on the performance impact (e.g., outcomes, multipliers) of the measures.
3.2 Platform provides sufficient detail on its proposed policy measures.
NDP Platform score: 1/2
− The platform includes many measures to be implemented over the course of a five-year period.
− The platform provides high level descriptions of many of the proposed revenue and expenditures measures.
− Some consideration of economic and fiscal risks are included through the use of a contingency fund. However, there is little consideration of the difficulties of achieving such significant changes to the tax system and program spending in a relatively short period of time.
− The detailed financial information in the fiscal plan is not matched in the high-level narrative of the core platform document.
− While the NDP had virtually all revenue measures costed by the PBO, pharmacare and the mental health program were the only substantial spending measures that were costed. Significant measures such as dental care and a universal basic livable income for people with disabilities and seniors were not costed by the PBO.
− The fiscal plan was released 9 days before Election Day, after advance polls were open, and after the leaders’ debates.
3.3 Platform provides a clear implementation plan for key policy measures.
NDP Platform score: 0.5/2
− On the revenue side, the platform proposes a significant transformation of federal tax policy through multiple measures. With some measures, such as a change in the capital gains inclusion rate, the administration is expected to be relatively straightforward. However, with other measures, such as a new wealth tax, the implementation (and on-going yield) would have to contend with behavioural responses from taxpayers as well as administrative complexity.
− On the expenditure side, the platform proposes the simultaneous implementation of multiple large and complex measures, many of which entail significant federal-provincial dimensions (e.g., pharmacare, dental care, guaranteed basic income, infrastructure). There is no discussion on the very significant implementation challenges and risks associated with the delivery of such a large mandate.
− The realities of governing require that policy, operational, and fiscal considerations be addressed in concert with existing institutional arrangements. The scale and scope of the transformation being proposed by the NDP in their platform, requires a sophisticated implementation strategy to build confidence in its commitments. Such a strategy is lacking in the NDP’s platform documents.