The simple principle…
Since western democracies have come to eschew “head taxes”, generally in favour of
A) Sales taxes (of sundry forms!)
B) Income taxes
C) Of late, governments have gotten keen on charging fees for services (as for passports, licenses, and such)
People of varying political stripes may argue over the individual merits (or demerits) of these, for instance over whether or not they are progressive or regressive taxes. That may matter, but not for this argument…
In troubled times like these, there is a good thing about all of these sorts of taxes (contrast with relatively fixed property taxes…) which is that taxation naturally falls when the people haven’t as much money to pay out as taxes.
I have heard complaints levelled notably at Stephen Harper that he didn’t lower tax rates to help people during these times. I disagree – the tax systems (at least at Federal and Provincial, and in the US, states) are already designed to reduce the tax burden.
When incomes and spending increase, tax collection will naturally increase, as a direct consequence, and this is a good thing.
Unfortunately, we now come to budgets…
Governments try to set budgets, and talk of balancing them, and all of the preceding represents a direct enemy to that balance.
When the budget is set, they do not know what sales and income taxes will truly come in, and tax collection amounts are sure to be affected by factors that will not emerge until later. The practical effect is that these levels of government are fabricating wishful tales whenever they claim anything about balancing of budgets.
Municipal governments have a somewhat different situation – property taxes tend to be more stable. Which is less helpful than one might hope, when municipalities are responsible for welfare coverage – that throws in a nice dose of postfacto variability to prevent predicting the balancing of the budget.
In any case, this indicates that the “balanced budget” idea is chasing a mirage.
So what shall we do, if balancing budgets is nonsense?
Simply: budgets should recognize the inherent sources of variances, and provide reserves to either add to (in good years) or to draw on (in bad years).
Providing reserves requires that there is a regular plan to charge a little more taxes to allow for this. This is anathema to today’s “neo-conservatives,” but that is another story…
Given reserves, it’s fine if there’s an extra snowstorm to clean up after – reserves were meant to cover such things. In a “light snow” year, it’s fine that