On rebalancing

Jim Stanford points out that there's more than one fiscal imbalance currently in play in Canada, even if the second has received little to no attention so far:

Since spring of 2000, Canadian corporations (excluding banks) have been generating far more cash flow (after-tax profits plus capital depreciation) than they spend on new investment. As a result, they are piling up cash at a rate of almost $60 billion per year. That's seven times as large as Ottawa's average budget surplus since 1997 (when the budget was first balanced).

What is driving this corporate money machine? Corporate profits have surged to record levels. Prices for energy and mineral exports are sky-high. Labour costs are stagnant (except for pipefitters in Fort McMurray). And corporate taxes have been cut deeply. All this produced a 50 percent surge in after-tax cash flow since 2000.

Unfortunately, the investment response to this inflow has been uninspiring, to say the least. Corporate capital spending has grown less than 20 percent since 2000, declining as a share of GDP (despite record profits). Companies now reinvest only about 70 percent of their cash flow...

Record cash inflows, combined with ho-hum investment, mean that corporate coffers are bursting at the seams. Some of this largesse has been siphoned off to fat dividends; some has been invested overseas. But lots of it just sits there. Canadian businesses currently sit on $280 billion worth of cash, foreign currency, and short-term paper.

Note that while the federal surplus which has given rise to so much discussion has at least been put into paying off the debt, there's no indication that the money held by businesses is being put to any positive use whatsoever.

Of course, corporate Canada is entitled to run itself as it sees fit within the law. But based on the low reinvestment rates in the wake of the massive tax cuts earlier this decade, there's no reason at all to pretend that yet more corporate tax cuts will somehow lead to any economic expansion - and plenty of reason to take a closer look at Stanford's suggestions to try to get a few more of those idle resources back into Canada's economy.