Canada’s economy stays basically flat on Liberals’ watch
Years of deficit-slashing undone in mere months
What should be our “take-aways” about Liberal economics a year now into the second Trudeau era? I always find my take-aways are similar to my brought-to’s. In other words, it’s hard not to assess the last year without re-litigating last year’s election campaign. But let’s try.
In the long run, governments are judged by how the economy performs “on their watch.” That’s both unfair and unwise, and for the same reason: What happens isn’t all the government’s doing, often far from it. On that front, a year into the new government, things are basically flat. Real output is up a little. The unemployment rate hasn’t budged. Business investment was down one-tenth of one per cent in the latest quarter for which we have data. But that’s actually an improvement: In each of the previous five it was down even more. Canada may be back. Private Canadian investment is only getting close.
Government investment is up slightly, though probably not yet because of Liberal infrastructure spending. First rule of government: Nothing is ever really shovel-ready. And even when the digging starts, the effects take time.
Infrastructure spending got the headlines in the Liberals’ March budget, but in fact the single biggest spending item was promise No. 1 of their platform’s (literally) 325 promises: streamlining and boosting child benefits, which are now more generous but no longer universal. They also enacted their other two big economic promises, namely, the middle-class tax cut (Promise 2) and the one-per-centers’ tax hike (Promise 3). The glow from the tax cut had barely worn off,
This first Trudeau year was mainly about redistribution.
however, when the feds completed a deal with the provinces on “enhancing” the Canada Pension Plan (Promise 14). Unfortunately, the price of higher long-run benefits is a two-percentagepoint increase in the CPP “contribution” (i.e., payroll tax) rate. The people paying it will have to decide whether bigger payouts in future are worth higher taxes now.
As a matter of principle, it’s good when governments do what they promise — unless what they promise is really dumb (see Trump, Donald). This first Trudeau year was mainly about redistribution. Though not a lot has happened to inequality in Canada since the 1990s, most Liberal voters share the worldwide angst about high-top incomes. If we’re now done with punishing top earners, the economy can probably survive the new 33-per-cent top rate. But if that was just the start, then, parents, point your kids toward tax accounting and lawyering. They, not tech, will be the growth industries of the future.
Anyone paying attention during the minute and a half a week U.S. political coverage devotes to policy discussion will have noticed that Hillary Clinton’s platform combines modest tax hikes at the top end with more generous tax credits for kids. She won’t actually say, “Hey, if it worked in Canada …” But maybe it’s in an email Vladimir Putin will soon release.
On the downside, in just a few months the Liberals have undone two decades of really hard political slogging, by Liberal and Tory governments alike, to get control of the federal deficit. If it gets out of control again, belief in government’s ability to manage — which is bedrock Liberalism — will be the loser.
Despite happy talk to the contrary, neither debt nor redistribution will bring economic growth. I’m actually agnostic on whether oil and gas exports are key to our economic future: Let markets decide. But in the last month, the Liberals have set the stage for market-directed choice by announcing their national carbon-pricing strategy. It won’t stop anti-fossil fanatics (nothing will!) but it provides cover for fair-minded people not fundamentally opposed to energy development. If we’re pricing carbon reasonably and people think they can still make a profit selling the energy, well, let them try.
Keeping your promises, making one tough decision (on fuels), good. Putting the deficit back in play, not so good. On to Year 2.