FINANCE MINISTER BREAKS FAITH WITH MARKETS.
Canada faces its most challenging macroeconomic environment since the Great Financial Crisis. Free trade with the U. S. is in peril. Canada’s l ong- standing corporatetax advantage with the U. S. is gone, exposing myriad policies hampering our cost competitiveness. Not building pipelines reduces exports by an estimated $ 15 billion a year. Failing to shift growth to exports and business investment from debtf uelled government and household spending heightens the risks from the impending end of ultra-low interest rates for a heavily indebted nation like Canada.
Such a daunting array of challenges called for Finance Minister Bill Morneau to deliver a substantive budget to improve our trade and tax competitiveness and reassure financial markets by reining in government spending and setting a path to balancing the budget. We got none of that. Instead, we got a lightweight budget f eaturing Trudeau’s obsession with gender issues.
Gender-based initiatives include more pay for female civil servants, paternity leave so men can help more in raising children, “boot camps” for women entrepreneurs, and reams of gender- based analysis that guarantees lifetime jobs for graduates in gender studies. Important as they may be, these hardly address the macroeconomic risks Canada faces.
The government’s analysis of gender issues is not even done well. Nowhere in the dozens of pages devoted to gender issues is it mentioned that the most obvious difference between men and women in t he labour force is where they work. Men r eside overwhelmingly in the private sector, where they account for 66.7 per cent of all workers. Conversely, the public sector is dominated 71.8 per cent by women.
The budget ignores the implications for wage data of a female- dominated public sector and a male- dominated private sector. Many public- sector benefits don’t appear on a paycheque; hours of work are shorter, vacations are longer, sickleave benefits are greater, medical expense coverage is broader, job security is better, retirement starts earlier. Most importantly, publicsector pensions are heavily subsidized by taxpayers, a benefit hidden in income data but equivalent to 20 per cent of federal civil servant pay and 10 per cent of the pay of most non- federal civil servants.
All t hose s t ats about women earning less would be different if incomes were adjusted to reflect all the non- taxable benefits going to women, because so many work in the public sector. No one in government bothers making that adjustment since it reveals how the civil service has artfully constructed a compensation package to maximize non- taxable benefits and minimize its exposure to the tax system it helped design, while trying to ensnare as much private sector income as possible ( the recent tax assault on small businesses and crackdowns on the undeclared tips of restaurant workers in P. E. I. being the latest examples).
The lack of new initiatives in this government’s third budget is not surprising. It partly reflects the miscalculation in its first budget of emptying the federal piggybank to zealously differentiate i t self f rom t he Harper government. Trapped by past fiscal profligacy, it follows other governments in Canada by increasing compulsory private sector spending on their behalf, such as provincial minimum wage hikes, oblivious to the negative impact on business cost- competitiveness.
More fundamentally, the federal government shares with a growing number of provinces a distrust or misunderstanding of the systemic processes that produce desirable results for our society, notably capitalism and market forces. Instead, they believe that only direct government actions produce tangible results. Not content to establish the rules of free trade and then step aside to let firms compete, t hey now promote “progressive t rade” t hat dictates satisfying social goals. They don’t trust market mechanisms to increase everyone’s income, so they legislate radical increases in minimum wages. They don’t trust people to manage their own finances, so they mandate higher pension taxes. They don’t even really believe spending more on education and infrastructure ultimately will boost productivity, so they handpick innovation “superclusters” to lead the way.
In the hallowed name of progressiveness, this steady dribble of government interventions dulls incentives and pours sand in the gears of the private sector. The result is the stifling of business — as reflected in the abysmal performance of stock markets in Canada compared with the U. S. since October 2016 — the stagnation of investment, as money flows out of the country to greener pastures, and the plunge in the number of business startups in Canada.
The root of the problem is the faulty mindset that nothing beneficial occurs unless initiated by government. The everyday experience of Canadians proves the opposite. Almost all the big changes in our society — from the increasing participation of women in the labour force to the dazzling s mar t phone t echnolog y available at our fingertips — bubbled up from the millions of actions and decisions of people, co- ordinated by markets, not memes. Unintended benefits were the basis of Adam Smith’s description of how markets work. Governments in Canada seem to be losing faith in and understanding of this fundamental mechanism of growth and progress.
Three years i nto their mandate and the Liberals’ cupboard of big new ideas is bare, now that comprehensive tax reform is dead after last summer’s botched attempt — reducing this government to being pro clean drinking water and anti tobacco. The shallowness of the Trudeau administration is becoming increasingly apparent, revealing a government based mostly on posturing not principles, rhetoric not results, symbolism not substance, and vapidity not vision.