February 3, 2010

How should we assess Harper?

A new poll from Ekos Research shows the Conservative Government is on the verge of seeing its once 10-point advantage over the Federal Liberals disappear.

Given growing discontent over the prorogation of Parliament, this move seems to have backfired on Prime Minister Stephen Harper. If – and this may be a big if – voters actually turn this discontent into action at the polls it could be fatal for the Conservative party.

Prorogation aside, the primary issue facing Canadians in the short- and mid-term is the hangover we’ll likely to suffer fiscally from the past 18 months of stimulus spending, bailouts and increased employment insurance payments. For 2010 this amounts to a $56-billion deficit, and that’s no small change.

If there’s a silver lining, though, it’s that most of this debt is composed of cyclical, demand-boosting stimulus and nothing structural, or so we thought.

The most recent estimate by parliamentary budget officer Kevin Page has it that we’ll face a $19 billion structural deficit well into 2014 thanks to an aging population and an overall decrease in economic growth. His forecast stops at 2014, but he foresees an even greater structural deficit beyond that date.

The solution to this short and mid-term problem, a la Harper and Finance Minister Jim Flaherty, is the hope that economic growth carries our economy sufficiently to produce sufficient revenue to erase this shortfall.

But increasingly most economists across the country are pointing to a prolonged recovery from recession, which when combined with labour market trends and the strength of the Canadian dollar, will fail to address the deficit.

So what’s a government to do? Cutting expenditures is the easiest answer. When the Conservatives first came to power they cut $1 billion from the federal cost sheet by cutting what they determined was unproductive spending. But finding 20 times that amount in a budget of approximately $115 billion is quite another thing.

Flaherty has noted that some of the savings will come by not replacing retiring civil servants, though someone might want to remind him of our 8.5 per cent nominal unemployment rate and the subsequent impact on tax revenue.

Perhaps such thinking shouldn’t surprise us. This is, afterall, a government that erased $12 billion in annual tax revenue by shrinking the GST from seven to five per cent.

That did put money back into people’s pockets, its advocates say. And that’s true, to the extent of approximately $250 to each Canadian family per year. However, running a series of $20-billion deficits, and paying interest on each of those dollars, will take much more out of our pockets.

Moreover, at the time the tax cuts were proposed, most, if not all, economists across the country were against the move, noting that while it would indeed be beneficial for those making large purchases, it failed to promote economic growth in any sustainable fashion.

Much more effective would have been a decrease in personal income taxes. And perhaps more effective yet would have been the creation of a long-term cushion, one that would have provided the short-term cash stimulus needed over the past year, and one that cushions Canadian taxpayers from the ill-effects of a long-term deficit.

That $12 billion in annual revenue would have gone a long way towards those aims, and in good times could have played an essential role in updating Canada’s crumbling physical and economic infrastructure.

Research completed for the Federation of Canadian Municipalities estimates that we need to invest $123 billion into our bridges, roads and transit systems to maintain the status quo. Add another $31 billion to upgrade an aging system of water works and we can quickly see where we might spend a few extra billion.

Equally important is the significant need for increased funding for research and scientific development, where the competitive pressures of a global knowledge economy make government funding all the more important.

While south of the border, President Barack Obama has recognized these needs and included $10 billion for medical research in his economic stimulus package, our government cut funding for basic research in its stimulus budget by $148 million, albeit while increasing funding for university infrastructures and equipment.

Britain’s Nature Magazine recently penned an editorial on the Canadian government science policy, noting that, “Canadian government policy does far too little to support and utilize (Canada’s academic) strength.

Some critics say Canada has no science policy at all. Others say it has unwritten laws that seem to let it muddle along. But muddling along isn’t good enough in today’s tough economic climate. Canada needs a bigger vision of where its science is going: a vision informed by organized scientists, and voiced by a strong position in government.”

There’s no doubt that the job of balancing a budget is difficult, but doing so cannot continuously sacrifice the long-term. Our policies and investments in science, research and technology must be a priority. Losing world class researchers to more generous research grants south of the border should not be accepted.

And if we don’t have the tax revenue to properly fund a competitive knowledge and research intensive economy, we certainly shouldn’t be cutting taxes at their expense.

Leadership must go beyond the confines of short-term thinking. Yet, be it with regards to our economy, the environment, Quebec, and our constitution, Harper has shied away from debate and has chosen political expediency the long-term planning and preparation.

Proroguing Parliament is just one more move that does so and highlights some major gaps in what we currently need from our country’s leadership.

Perhaps the blame rests in the lack of clout held by a minority government – one that has sought to combat its insecurities by avoiding real discussion of the very serious predicament facing our economic and social structures.

Or perhaps Harper truly does fear the “market instability” created by Parliament. No matter the cause, the glaring lack of leadership and foresight coming from Ottawa related to our economy, our natural resources, and our political union, should leaves us increasingly uncomfortable.

If we – that is to say both those who govern and those who are governed – are truly afraid of an open and honest debate about the future then we’re in trouble. It’s only through the conflict and debate caused by a jarring of opinions and ideas in Parliament and in our dining rooms that we’re going to find sustainable solutions to the issues that face Canada – solutions that will ultimately be acceptable to the majority of Canadians.

The prime minister has failed us in this regard.

And while I don’t pretend to know who might do better, I’m prepared to find out.

(Originally published in the Waterloo Record on Saturday, January 23, 2010)