William Watson: Will this budget help journalists? Homebuyers? Prove it with a graph!
The post-budget headline on the Montreal Gazette, under a picture of a grinning Finance Minister Bill Morneau, was “March Inventory Blowout!,” with “blowout” in red ink and an extra big font. That’s a bit strong, I thought, but not wholly off-point: the budget gave away everything but the kitchen sink, with the Liberals’ all-out, damn-the-deficit, red-ink spending showing they’re all-in for the election.
But then I realized this was actually an ad for a big box store, one of those full-page wraparounds newspapers now use on their home delivery editions instead of the real front page. The Gazette’s actual budget headline, one page in, was an anodyne “Targeting the middle class,” echoing the budget’s title: “Investing in the Middle Class.”
I don’t have a pipeline to publishers’ offices but I assume wraparound ads arise from the industry’s well-known financial difficulties, which in fact the budget addresses. It was heroic of reporters to provide clear-eyed, generally skeptical coverage of a budget that promises to raise their salaries, or at least make them more secure. If their employer is a QCJO, a “Qualified Canadian Journalism Organization,” it will soon be eligible for “a 25-per-cent refundable tax credit on salary or wages paid to eligible newsroom employees” covering up to $55,000 per employee, which translates into a maximum tax credit per employee of $13,750.
If the budget were cutting me a cheque for $13,750 per year, or even giving it to my employer on my behalf, I know I’d be hard-pressed to keep my critical faculties working. If I were an accountant, lawyer or philosopher reading about this new tax credit, I’d also be excited — because determining what qualifies as news and which employees and organizations are therefore eligible is bound to end up in court, which means new business for these professions, too.
The same is true of the new tax credit for digital subscriptions. It covers $500 worth of subscriptions to QCJOs — which means more lawsuits — and generates a maximum tax credit of at most $75 per year.
I already have a digital subscription to what I presume will qualify as a QJCO, i.e., this newspaper (though you never know: these days students can’t get summer jobs with organizations that hold non-Liberal views on abortion). I will therefore get a tax benefit. On the other hand, I probably won’t change my behaviour. Even at 15-per-cent off, I probably won’t buy a second subscription (sorry, boss).
But some current non-subscribers may decide that at 15-per-cent off they are now going to buy. If the discount gets them to bite, the tax credit will have induced a shift in demand, as economists call it. At any price publishers charge, there will be more buyers because of the tax credit. How big a shift? You’ve got to know the “price-elasticity” of demand. Exactly how much do readers respond to price changes? If they’re generally unresponsive, the effect isn’t very big. If they’re not at all responsive, it’s zero: in that case, the tax credit benefits existing subscribers — thank you very much, Mr. Morneau — and no one else.
If demand does shift, however, what eventually happens depends on how “price-elastic” supply is. Does extra demand allow publishers to raise prices and make extra money? Or is competition in the industry so fierce that price increases are simply out of the question? If the latter, the industry gets some extra volume but no boost in prices.
As a rule, if you don’t know the “elasticities,” you can’t say what exactly happens or who benefits. Budgets really should include demand-and-supply graphs!
Take the new housing subsidies offered in the budget. Suppose, as many people do, that they will increase the overall demand for housing. If the supply is inelastic (or fixed), which in the short run it probably is, this extra demand pushes up prices. People eligible for the new interest-free loans from CMHC — those with family incomes under $120,000 — will be able to handle the higher prices. But if supply really is fixed, for each new enabled entrant, someone else gets squeezed out. The policy changes who has housing, but not how much housing there is.
The budget recognizes supply is important but sees government partnerships as the key to increasing it. (It cites a new 27-storey Ottawa “housing project”— they actually use that discredited term; don’t they know the history of “the projects”?) A better policy would be to work on increasing the elasticity of supply, so that when housing prices do rise, private suppliers jump in to expand supply. Deregulating the housing sector, not socializing it, is how to do that.
Back to our intrepid reporters. Maybe they kept their judgment despite visions of a big raise because they know their own supply is very elastic. If all sorts of people want to be ink-stained wretches, as does seem to be the case, then publishers keep the tax credits, thus boosting their corporate cash flow.
Liberals helping bosses, not workers. Don’t tell the NDP.