Canada West Foundation Blog

By: Robert Roach, VP, Research

In an article in today’s Globe and Mail, John Ibbitson argues that "One question will define national politics in our time: Are Western Canadians prepared to sacrifice for the sake of the nation, now that Ontario is less able to help?"

In addition to incorrectly implying that western Canadians chipping in to help the rest of the country is a new phenomenon, the question is the wrong one to ask.

The question Canadians should be focused on is how to ensure that the nation successfully adjusts to the evolving global economy. It is a mistake to start with a negative question that assumes the need for "sacrifice"—whatever that means—or puts pressure on the nation’s fault lines by immediately assuming that regional wealth redistribution is the solution to central Canada’s problems. This is the old way of thinking and this is not the time to bring it back.

The West knows what it is like to have its interests and economic prospects ignored and how damaging this is to the country and its potential. It will not, therefore, make the same mistake that central Canada has made in the past and be blithe to the blight of the other regions.

The West gets it—all regions benefit when all regions are heard and respected. The West will do its part, as it always has.

Ensuring Canada’s prosperity will happen naturally as the western economy continues to provide jobs and returns on investment. It will also happen at the political level through the equalization program, a strong tax base in the West that helps fill the national treasury, and by ongoing efforts by Canadians to ensure strong regional representation within the national government.

Ultimately, however, the economic recovery of Canada's industrial heartland will depend on the efforts of individual Canadians and their ability to harness the changes happening at a global level.

by: Robert Roach, Senior Researcher and the Director of The West in Canada Project

Majorities are not evil
Majority governments are the norm in Canada, so it is a bit odd to hear a large number of commentators acting like a Tory majority is some sort of evil aberration out of Tolkien’s Land of Mordor. It is true that the Harper government will be able to pursue its agenda without the restrictions of a minority Parliament, but this is exactly the same as it was for Trudeau, Mulroney, and Chretien. We are back to business as usual and not—as some seem to think—out on a crazy limb that will break and send the country into freefall.

In addition, majority governments like to win more than one majority. Hence, while they can pursue their vision for the country without constant fear of a non-confidence vote, they tend to keep one eye on the next election cycle. In other words, radical policies that will alienate large chunks of voters remain unappealing regardless of majority status.

Regional fault lines remain
From a regional perspective, the outcome of the election is very interesting. You barely need two hands to count the Conservative seats in Quebec whereas the NDP have become the de facto representatives of Quebec in the House. This is a new dynamic. In some ways, Quebec has become like Alberta in that it has chosen to side with the opposition rather than the government. Not that long ago, it was Alberta MPs who had only a small presence on the government side of the House.

On the bright side, a Harper majority likely means that the federal government will do as much as it can to advance Senate reform (full reform still requires the provinces to get on board). This is good for the country, good for Quebec and good for the West. A properly designed Senate has the potential to ensure that regional representation does not depend on which party forms the government in the House. Maybe, just maybe, Canada will finally start to fix this broken part of our political system. Maybe.

The Rise of the NDP
Given the nature of the Canadian system, the Official Opposition in a majority Parliament is largely irrelevant in terms of policy. They have an important job to do trying to keep the government’s feet over the coals, but they can’t block government legislation. In this sense, it matters little which party forms the opposition. However, the rise of the NDP is important for several reasons: 1) it is the first time in Canadian history that the Liberal party finds itself in the third party position and it remains to be seen if it can recover; 2) the fuzzy mandate that Layton has from Quebec voters will be a factor but it is impossible to say how this will play out; and 3) the ideological differences between the Tories and the NDPs are relatively clear and will present Canadians with a black and white set of alternatives to watch over the next four years.

The West is Still In
This election shows that a party with a leader from the West and a strong base of support in the region can, by also appealing to Ontario voters, form a majority government. Regardless of your political stripes, the Harper government is not a bad thing from a regional perspective. A government with a strong western base will have a natural connection to the region’s needs and unique circumstances. Because they are governing a nation rather than a region, these needs will not always take precedence, but they should be at least understood and given a fair hearing. This does not mean that governments without a strong western base can’t do this, but in reality, it is much more likely when they do.

A few blogs ago I mentioned that the March budget contained hints that the Conservative minority government was attempting to leave a shrunken government as its permanent legacy. In a recent op-ed I also lamented the absence of long-term thought in current federal economic policy. But now, Industry Minister Tony Clement has apparently accomplished both of these feats by altering the way Statistics Canada collects demographic data across the country. I am talking here of the decision, in anticipation of next year’s Census, to replace the usual Long Form (which was randomly sent to one Canadian household out of five) with a voluntary survey.

Does this matter? Isn’t this just a data collection methodology debate among statistical eggheads and data geeks? Well, the instant uproar was started among that group (of which I am a proud, card-carrying member), but the impact of this decision will be felt everywhere in Canada. Other people have explained very well how the loss of detailed census data will greatly complicate the work of anyone in this country whose job it is to make informed decisions requiring some detailed knowledge of who Canada’s population is. This is especially the case for public policy specialists who work in areas concerned with planning. Just think of people who must figure out the location and the size of hospitals, public transit and roads.

Census information forms the backbone of too many Canadian systems and processes to count. The new approach is the statistical equivalent of changing the diametre of gas pump spouts across the country. It can physically be done and there is a way for everyone to adapt to it, but the adjustment itself is so complicated that you better have a pretty darn good reason for making the change in the first place. I do not think that this is the case here.

Apparently, the Harper cabinet decided to proceed with the change because of growing complaints from the population. Minister Clement told the press that “every MP has had complaints” about what is perceived as intrusions into people’s privacy. Well, I have two things to reply to this. First of all, filling in a census form with personal information is a very small price to pay in order to benefit from informed public policy. Secondly, the complaints the government will receive about this change probably outnumber the initial privacy-related batch already. From left to right, in both the private and the public sector (ranging from federal to municipal), not to mention NGOs and think tanks like Canada West Foundation, many people have expressed concern about the risk of losing access to precious information.

One of the most unexpected aspects of this is the stealth surrounding the change. No consultation whatsoever took place, and the announcement consisted in a mere posting in the Gazette of Canada on June 26 (a Saturday). Contrast this with all the opinion-seeking our Prime Minister went through before selecting the next Governor General.

Statistics Canada has been ranked the world’s no. 1 statistical agency many times and takes great pride in producing good data. As an “arm’s length” federal agency, it is supposed to be outside of the small politics game. When I worked there in the 1990s, the only time we realized we had a Minister at all was during budget cut time. Apart from this, we were allowed to do our number-crunching work alone with no interference. Otherwise, how could our data be credible?

Some will say “This is not a truly important issue. Get your priorities right. Do something about child poverty instead.” Sure. Now, tell me, how do you measure child poverty to start with?

(Note: click PM Harper July 5 to read the letter sent to the Prime Minister by Dr. Roger Gibbins, President and CEO of the Canada West Foundation.)

Posted by: Jacques Marcil

The big news from yesterday’s budget includes the $49.2 billion deficit and the plan to reduce the red ink to just under $2 billion by 2014/15.

There are lots of other announcements and dollar figures in the budget document entitled “Leading the Way on Jobs and Growth.”

I stumbled across more than a few items, however, that don’t seem particularly “budgety.” For example, there is a short section on “modernizing Canada’s currency” on page 117 (the budget document is a whopping 451 pages). The section notes that new “bank notes will have increased security features and will be printed on a polymer material, which lasts significantly longer than the current cotton-based paper, thereby reducing production costs and the impact on the environment.” This sounds great, but does it belong in the budget document? There isn’t even a dollar amount attached to how much this will cost or save.

On the next page, there is a short section announcing a federal framework for credit unions that includes the following statement: “To promote the continued growth and competitiveness of the sector and enhance financial stability, the Government will introduce a legislative framework to enable credit unions to incorporate and continue their operations as federal entities.” As with the new bank notes, what does this have to do with how much money the government is taking in and spending?

We have bigger fish to fry than reducing the girth of the federal budget document, but in the name of doing more with less, maybe next time around the budget document will be leaner.

Posted By: Robert Roach

So here we are, deep in deficit again.  It’s easy for some to say that Canada’s deficit and debt remain quite manageable compared to those of other Western economies.  The problem is, the debt and the deficit could both have been considerably easier to deal with.  Mr. Flaherty’s government tinkered with the GST rate in 2006 and 2007 for reasons that were more political than economic, and now you can see the result.  If you know a single Canadian economist who thought that lowering the GST rate was a good idea, and if that economist doesn’t happen to be a Prime Minister, you are a very lucky person. Go buy a lottery ticket right away.

In fact, a simple calculation shows that if the GST rate had remained at 7% the government would have faced only four years of deficit instead of the seven (and counting) it now has to deal with. From 2006 to 2015, the government’s cumulated deficits will add $141 billion to the debt, $92 billion of which could have been avoided with an untouched 7% GST rate.  Do you know anyone who fundamentally modified their consumption habits because of those extra GST pennies they saved each day? If you do, you should get another lottery ticket.

Unfortunately, budgets are as much about politics as they are about finances.  The current budget is an example of such politics in motion.  If you put aside temporary stimulus spending, this government (with a small g) looks determined to gradually reduce the size of Government (with a big G) by shrinking both its revenue and expenses.  This represents an ideological shift as much as a financial one, hopefully with better outcomes than the changes to the GST.

Posted By: Jacques Marcil

Given that a prorogation of the House of Commons was required to put it together, yesterday’s 2010 federal budget was quite a disappointment.  Minister Flaherty’s document is thick with announcements related to the government’s much publicized “Economic Action Plan” but despite a thorough scan not much else is new in terms of economic policy.  The overall opus is 450-pages long but the complete list of genuinely new announcements could probably fit on a business card.

A large section of the budget consists in a report concerning the Action Plan, a report that the government was due to release anyway.  The bulk of it deals with infrastructure spending.  Of specific interest to the West, over this year and the next one or so (the time period is not clear), BC will get $1.6 billion, Alberta $1.0 billion, and Saskatchewan and Manitoba about $0.4 billion each for infrastructure.  These projects cover anything from new highway interchanges to new windows in some public buildings and are for the most part just barely getting started.

All this stimulus spending leaves the government with a $49.2 billion deficit in 2010-11. This marks a slight improvement in the government’s fiscal balance compared to last year as a result of revenues edging up this year due to the return to growth, but is still a deficit position.  If revenue projections are met, we will start to edge towards a surplus position over the short term as the stimulus money taps will shut down by the end of next fiscal year and the government will freeze its departmental operating spending starting this year.   Optimistically, Mr. Flaherty anticipates he will be able to balance the books sometime after 2014-15, the fiscal year marking the end of his forecasting horizon.  The back-to-surplus date may or may not be 2015-16.  He doesn’t know.

This deficit-fighting plan assumes that economic growth will average 2.8% over the next five years, which is a possible yet somewhat optimistic scenario.  During the deficit wars of the 1990s Paul Martin would average the private sector forecasts and then assume a bit less growth just in case. No such prudence for Mr. Flaherty.  The margin of error is therefore very thin: all it takes is one year of sub-par growth to derail the whole thing.

One solution the government said it would not use to bring the deficit under control is to reduce the provinces’ funding in areas such as equalization and health transfers.  In other words, there will be no shoveling of the federal deficit into the provinces’ yards.  All premiers will be happy to hear that, but they will keep asking for more money anyway.  That’s required by their job descriptions.

Note:

In a previous blog I mentioned that this year was a golden opportunity to simplify our personal income tax system.  The results are in, and I won’t bore the readers by showcasing in how many languages I can say the word “nothing.”

Posted By: Jacques Marcil

In a recent column by L. Ian MacDonald (Calgary Herald, Feb. 9, 2010), Stephen Harper is criticized for not doing anything big. Mac-Donald argues that “while [Harper] has done a good job of running the country, he hasn’t yet done much to change it.”

The problem with this analysis is twofold. First, it assumes that the Prime Minister wants to do something big. Second, it fails to see that not initiating huge changes is itself a major change of direction for the federal government.

Harper’s ideological bent is conservative. Conservatives are suspicious of big government projects on the grounds that they grow the state at the expense of personal freedom and tend to have all sorts of negative unintended consequences. For a true blue conservative, running the country is not about changing it, but making sure that there is “peace, order and good government.” It’s up to Canadians to change their country, not the Prime Minister.

There is little doubt that Harper has had to compromise some of his conservative beliefs to win two elections and hold onto two minority governments. I don’t even want to think about the stomach ache he probably had while overseeing the use of taxpayer dollars to bail out auto companies.

And while the idea of a secret agenda has always been nonsense, this doesn’t mean that the Prime Minister doesn’t have a different vision for the federal government than his predecessors.

Harper is a fan of small (or at least smaller) government. He used to rail against politicians who went to Ottawa to impose their big ideas while spending truckloads of tax dollars doing it. It should not, therefore, be a surprise that he has not proposed a lot of big ideas.

Harper wants to be “transformational” (to borrow MacDonald’s word), but not by leaving a legacy of major federal initiatives. He wants to transform the approach of the federal government from a “let’s create a new program” to “let’s see if we can get by without a new program, let the provinces look after their areas of jurisdiction, and generally be less, not more, present in the lives of Canadians.”

This boggles the minds of those who want, or are used to, the idea of an interventionist federal government. Harper appears to have no vision because “vision” is typically associated with more government. Harper’s vision is less government.

Whether you agree with this or not, it’s “transformational” — if it can outlast Harper. Unlike some of the accomplishments of previous PMs, Harper is not leaving behind a lot of programs that will be hard to dump when he is gone. Cracking down on crime, good relations with the United States and a predilection toward less rather than more government are simply not as durable as Medicare or the Canada Pension Plan.

There is at least one major exception to this: the GST cut. Harper and every economist worth their salt know that cutting a consumption tax is not as good in economic terms as cutting income or corporate taxes. But, as Maclean’s columnist Paul Wells has noticed, Harper’s goal was not good economics but good conservative politics. “Harper’s GST cuts were designed to deprive future governments of an income source” (Maclean’s, May 26, 2008).

The two percentage points shaved off the GST mean that every time someone spends a dollar on something, two cents less goes to Ottawa to fund more ambitious government programs.

This looks less smart in the wake of the recession and the deficits that will follow it, but it still makes a great deal of sense if your goal is to rein in government rather than unleash it. It is important to note that the federal government is not withering away under Harper’s leadership — it remains a massive operation with a huge influence on the lives of Canadians. The difference is one of degree, albeit an important degree.

It remains to be seen if Harper’s vision for the federal government can stand a third electoral test. Canadians like social programs and we are generally not shy about asking our governments to do more (even if we ask for less in the next breath). O Canada, indeed.

Posted By: Robert Roach