Federal Budget Innovation Strategy Widely Unpopular Business Leaders Want Monies Devoted to Tax Cuts, Health Spending, Debt Repayment, and Especially Security Instead CIBC/Chamber Weekly CEO/Business Leader Poll by COMPAS in the Financial Post for Publication November 12 th Report COMPAS Inc. Multi-Audience Research Ottawa, Toronto, and Winnipeg
Federal Budget Innovation Strategy Widely Unpopular Business Leaders Want Monies Devoted to Security, Tax Cuts, Health Spending, and Debt Repayment Instead Business Embraces Bank of Canada Governor David Dodge s Budgetary Caution Canadian business leaders embrace the notions of caution conveyed recently by Bank of Canada Governor David Dodge, who warned against the risks of over-spending given his expectation that lower interests would be adequate for re-igniting the economy. The overwhelming majority of business leaders and CEOs prefer a policy that is more cautious than that of the United States commitment to increased spending and reduced taxes (74%) while few advocate emulation (23%) and almost none favour greater spending increases and tax cuts than south of the border (see table 1). Table 1: As you may know, President George Bush is behind efforts to greatly increase spending while greatly cutting taxes. In light of Canada s particular situation, do you think that Canada should [choose one] % Increase spending and cut taxes even more than in the US 3 Do much the same as the US 23 Be more cautious than the US 74. Respondents conveyed their sense of caution in the following volunteered responses: Canada should not consider going into deficit in any circumstance. Until the gdp/debt [ratio is a lot lower], Canada should continue paying down its debt or at least maintain the current level in the eventuality the economy does not recover as expected and Canada needs to stimulate the economy however creatively. We need to concentrate on debt reduction in order to put our dollar back in the playing field. Innovation Strategy Spending Widely Unpopular The COMPAS survey repeatedly probed respondents attitudes towards the federal government s mooted innovation strategy, eliciting a negative reaction to every measure of attitudes towards the policy. Asked where the federal government ought not to direct 1
potential discretionary spending, respondents singled out innovation strategy as an area to avoid. As shown in table 2, 47% of respondents single out innovation policy negatively nearly twice the proportion naming corporate and personal income tax cuts in combination. Table 2: As you know, the federal government will announce a new budget soon. Suppose Ottawa has a surplus or discretionary spending of a few billion dollars, where should the federal government definitely NOT devote any new money (choose one answer) [ROTATE] Innovation policy--one billion dollars on high-speed internet access in small town/rural Canada and supplementary monies for university technology research Cutting corporate taxes 19 Paying down the national debt 10 Military preparedness 8 Health transfer payments to the provinces 7 Cutting personal income taxes 7 Home security including border and immigration controls and domestic preparedness against potential terror COMPOSITE CALCULATION: Total tax cuts, i.e. cutting corporate taxes + cutting personal income taxes COMPOSITE CALCULATION: Total physical security, i.e. military preparedness + home security % 47 3 26 11 Respondents were asked to volunteer the percentage of any potential discretionary monies that ought to be devoted to corporate tax cuts, personal income tax cuts, debt repayment, military preparedness, home security, innovation strategy, and health transfer payments to the provinces. As shown in table 3, innovation strategy elicits the lowest percentage 7% vs. 29% for physical security (15% for home security plus 14% for military preparedness), 22% for tax cuts (personal cuts of 14% plus 8% for corporate tax cuts), 23% for debt repayment, and 20% for health transfer payments. Table 3: Approximately what percentage of any NEW money, if any, should go to each of the following [ROTATE] 2
% Paying down the national debt 23 Health transfer payments to the provinces 20 Home security including border and immigration controls 15 and domestic preparedness against potential terror Military preparedness 14 Cutting personal income taxes 14 Cutting corporate taxes 8 Innovation policy--one billion dollars on high-speed internet 7 access in small town/rural Canada and supplementary monies for university technology research COMPOSITE CALCULATION: Total tax cuts, i.e. cutting 22 corporate taxes + cutting personal income taxes COMPOSITE CALCULATION: Total physical security, i.e. 29 military preparedness + home security Table 4: Would spending 2 billion new dollars [ROTATE] on innovation policy (choose one of the following) cutting taxes cutting the national debt Do a lot more good for the Canadian 10 9 economy Somewhat more good 20 26 About the same good 13 13 Somewhat less good 9 11 A lot less good than devoting this money to cutting taxes/ to cutting the national debt 48 40 Respondents were asked serially to what extent they expected greater or lesser good from innovation policy spending as compared, respectively, to cutting taxes or cutting the national debt. As shown in table 4, business leaders and CEOs much prefer cutting the debt and, especially, cutting taxes over innovation policy. In the case of cutting taxes, the ratio of preference for tax cuts over innovation spending is almost 2:1. Among respondents with strong opinions (i.e. those who believe that one or the other would do a lot more good or a lot less good), supporters of tax cuts outnumber nearly 5:1 supporters of innovation policy spending. 3
In volunteered responses, respondents characterized their views in the following words: Innovation is most important but don't think it is up to the government to pay for it. [The federal government] should be encouraged to allow the private sector to work towards increasing our national interest, knowledge and thus make us realize the importance of innovating. Innovation will thrive in the right environment without being forcefed by taxpayers. The high speed internet access project is a waste of public funds. It should be privately financed. The proposed federal government innovation expenditures risk becoming another massive government boondoggle like the HRDC mess. Leave innovation to the private sector. If the process needs to be accelerated, incent (sic) ordinary Canadians to innovate. Any money to an innovation policy would be to friends of the Liberals. Military Security, Tax Cuts, Health, and Debt Share Prime of Place As shown in table 3, business leaders and CEOs favour an approximately equal division of discretionary monies among physical security, tax cuts, health spending, and debt pay-down with an edge to physical security (29%). In the case of physical security, homeland security and military preparedness draw approximately equal priorities 15% vs. 14%. In the case of tax cuts, personal cuts have an apparent edge over corporate taxes 14% vs. 8%. Respondents volunteered thoughts express a range of considerations: Focus should be much greater on debt reduction and getting that monster under control before we can seriously consider addressing other opportunities or certainly before any non-budget discretionary spending takes place. Canada's high corporate, personal and capital taxes are the cause of our poor economic condition compared to the U.S.A. and the declining value of the Canadian dollar. The downturn in the economy clearly shows that Canada has to be realistic in ensuring that our border controls and immigration policies are harmonized with the U.S.A. The national debt is a cancer on the future well-being of Canada. It has not yet been beaten and in fact is not even in remission. 4
Methodology The amount of resources that are squandered on interest payments impedes our ability to react appropriately. The web-survey of leaders of small and large corporations and among executives of the local and national Chambers of Commerce was conducted November 7-8, 2001. Because of the small population of CEOs and business leaders from which the sample was drawn, the study can be considered more accurate than comparably sized general public studies. In studies of the general public, surveys of n=245 are deemed accurate to within 6.3% 19 times out of 20. The principal and co-investigators on this study are Conrad Winn Ph.D. and Robert Laufer. 5