There is fiscal room for Canada’s federal political parties to cut taxes, cut debt and boost spending, according to Bank of Montreal chief economist Tim O’Neill.

O’Neill draws these conclusions in a new report that aims to establish a framework for evaluating economic promises during the current federal election campaign.

“There is scope, over the rest of the decade, to simultaneously reduce taxes, lower debt burdens by at least $3 billion per year and raise program spending,” he concludes. “The share of the estimated fiscal room devoted to tax cuts, spending increases and debt reduction becomes the critical policy choice on which the three national parties will differentiate themselves.”

However, he stresses that, as the political parties roll out the numbers on the elements of their economic policy platforms and indicate how they plan to be fiscally responsible “it is critically important that the underlying baseline program spending assumptions be clearly spelled out. Effective comparisons of the parties’ fiscal platforms will be possible only if these baseline assumptions are transparent.”

BMO’s outlook assumes a recovery from below potential growth in 2003 and 2004 and a gradual rise in interest rates to more neutral levels. Inflation edges up to the Bank of Canada’s 2 % target over the medium term. It also assumes: the federal government will want to run surpluses of $3 billion per year which will go towards reducing the debt; and tax policy will remain unchanged from existing legislation.