Liberal slogan on economy needs growth for meaning

Like many Canadians, I wonder why we are having a $600-million federal election when the governing party has little trouble with support drawn from the like-minded NDP. It was particularly ironic that the election call was made on an attention-grabbing day with turmoil in Afghanistan, leaving Canadians and allies remaining there in peril with the rapid Taliban takeover. Shouldn’t a government be focused on an emergency like this rather than engaging in an election that few want?

Be that as it may, this election could be a turning point if Canadians think deeply about Canada’s economic direction. As I have written in the past several months, Canada’s economy has performed poorly since 2015. Per capita economic growth has been declining but especially so in the past five years — in fact, the five-year average was negative for the first time since the Great Depression. Our business investment performance has been one of the worst amongst OECD countries since 2015, a conclusion also reached in C. D. Howe Institute and Fraser Institute reports. As we recover from the pandemic-induced recession, the supply-shock has led to stagflation. Many Canadians are facing long-term unemployment while post-pandemic government spending is fanning the inflation tax.

On top of this poor economic performance, federal and provincial governments have taken on almost a trillion dollars of net public debt since the fiscal year 2015-16. The federal deficit won’t be balanced for another half century assuming existing policies continue. Provinces, responsible for health and education expenditures, have unsustainable fiscal policies while the federal government loses its fiscal firepower should future economic crises arise.

So, what determines per capita growth? Part of it is getting people to work rather than take government handouts. Education, which recently has been downgraded for Canada in OECD rankings, is also important to improve skills. The creation and adoption of new ideas is critical for a country to compete in international markets. This decade alone faces three specific challenges laying ahead.

First, we have a rapidly aging society, which will lead to declining employment rates in face of growing demands for health care and other aged-related public services to support the elderly. Governments, now laden with debt, will need to raise income, payroll and consumption taxes to feed the beast unless they focus on core services.

Second, our lack of business investment is leading to the slow adoption of new technologies. This in turn will lead to a growing gap between Canadian and U.S. incomes, which already has been happening with a dollar now well below parity with the U.S. dollar. Our brightest will move elsewhere if we don’t provide the opportunities for Canadians to succeed here.

Third, there is an expensive energy transition requiring new energy sources and infrastructure. Finding the least cost path to achieve GHG emission targets should be the aim of any government. The energy transition results in the loss of the highest paid jobs in the economy and our most important source of export earnings. Replacing oil and gas extraction with new opportunities is a challenge. It could be some green jobs, but Canada has no particular trade advantage in solar or windmill generation, which is already dominated by China, the U.S. and Europe. Instead, it will be a matter of growing strategic resource, manufacturing, and service sectors to support our future standard of living.

The primary economic challenge is therefore growth in our productive capacity. It leads to better paying jobs, more tax revenues and lower deficits and inflation. Build back better is a slogan that has no meaning without growth.

So far, we don’t yet know the Liberal policy platform beyond the 2021 budget. The two other parties have already released plans for voters to consider.

The NDP propose expanded health care, pharmacare, long-term care and dental care, strengthening union rights, funding sick leave, and business subsidies. They expect families with more than $205,000 already paying 55 per cent of all taxes, to pay more with new wealth and luxury taxes, and higher capital gains and personal taxes. Businesses face higher corporate taxes and excess profit taxes as well as a plethora of new regulations.

Ultimately the NDP relies on trickle-down government spending to “kick-start” the economy. The private sector is a source of revenue, not growth. Perhaps by throwing enough borrowed money around, we can get a sugar high in the short run but, as a medium-term plan, it will fail to address key economic challenges.

The Conservatives just released their policy platform as I write this, which I cannot properly review here with limited space. It seeks to improve investment climate at least with several measures that would incentivize investment through targeted tax cuts and deregulation. Whether the plan will address the challenges well enough requires further scrutiny. For example, its climate plan is detailed but fails to be the most cost efficient one by relying heavily on various regulations. However, this is little different from other parties.

Policy rarely gets much attention in elections. It is usually the leader’s attractiveness rather than what they promise. Yet, promises are important as parties feel committed to implement them if they win power. In this election, Canadians should especially focus on economic policies because much

is at stake in the future with the challenges ahead of us.

POLICY RARELY GETS MUCH ATTENTION IN ELECTIONS.