Canada Shows the Way

The Progressive Conservative government of Canada has set an example that the White House should not overlook, ordering tax increases in addition to tough budget cuts in a strong move to reduce the deficit in public spending. As a result of this decisive action, the deficit will be cut close to 14% by the time the fiscal year ends March 31.

The Canadian action contrasts with President Reagan’s insistence that there be no tax increase while at the same time demanding major defense increases. Under the Canadian plan, defense-budget increases over the next two fiscal years will be held to 2.8% and then 2% in constant dollars. Both personal income and corporate taxes will be increased, but this is matched with a commitment to begin tax cuts the following year.

Canada’s economy has been strong, and unemployment has been dropping. But the value of the Canadian dollar also has been dropping. The combined federal and provincial government deficit for the current fiscal year had been projected at 9% of the gross national product, three times the equivalent for the United States, according to calculations of the Economist magazine. Continuing high deficits had threatened a further fall in the value of the dollar.