Lib­er­als claim we’re bet­ter off, but are we?

PressReader - Tke Channel - Lib­er­als claim we’re bet­ter off, but are we?
Don’t look now, colum­nist John Ivi­son writes, but the Lib­er­als have a good-news mes­sage that they want to take into the next fed­eral elec­tion cam­paign: They have made a real, tan­gi­ble dif­fer­ence in the lives of mid­dle-class Cana­di­ans.A Depart­ment of Fi­nance re­port last week put the best pos­si­ble gloss on the Lib­eral gov­ern­ment’s record since be­ing elected in 2015, but Ivi­son won­ders whether the claim that Cana­di­ans have never had it so good re­ally is ac­cu­rate.Even if it’s the case that eco­nomic de­vel­op­ment is strong and the ben­e­fits of it are wide­spread, Ivi­son writes, how much of that progress can ac­tu­ally be at­trib­uted to the Trudeau Lib­er­als?In what he de­scribes as an at­tempt to sort truth from fic­tion, Ivi­son went through last week’s re­port — en­ti­tled Real Progress for Canada’s Mid­dle Class — with Craig Alexan­der, the chief econ­o­mist at Deloitte Canada.Many non-par­ti­sans have a sim­ple vot­ing strat­egy — they use their own ex­pe­ri­ence to guide them. If they have fared well over the pre­vi­ous four years, they go on vot­ing for the party they voted for be­fore; if not, they switch.That’s why a re­port re­leased by the Depart­ment of Fi­nance last week was an im­por­tant benchmark for the Lib­eral gov­ern­ment. The re­port — mod­estly en­ti­tled “Real Progress for Canada’s Mid­dle Class” — sug­gests the Lib­eral plan is work­ing.“While there is more work to be done, Cana­di­ans are bet­ter off to­day thanks to these in­vest­ments,” said Bill Morneau, the fi­nance min­is­ter.His claim is that eco­nomic growth is strong, and the ben­e­fits are wide­spread; that mid­dle class Cana­di­ans have more money to save and in­vest; that half a mil­lion jobs have been cre­ated since late 2015; and, that the share of work­ing-age Cana­di­ans who are em­ployed is close to a record high.The re­port put the best gloss on the Lib­eral gov­ern­ment’s three-year record.But how solid is the claim that Cana­di­ans have never had it so good — and, if ac­cu­rate, how much of it can be at­trib­uted to the Lib­er­als?I went through the re­port with Craig Alexan­der, chief econ­o­mist at Deloitte Canada, to sep­a­rate truth from fic­tion.

SO­CIAL PRO­GRAMS

The gov­ern­ment’s con­tention is that the “mid­dle class” tax cut in­tro­duced in De­cem­ber 2015 and the Canada Child Ben­e­fit have com­bined to boost in­comes for typ­i­cal fam­i­lies. The ex­am­ple of­fered by Fi­nance is that a me­dian in­come cou­ple on $110,000 (af­ter tax), with two chil­dren, would be around $2,000 a year bet­ter off.The tax cut was mar­ginal, and prob­a­bly went un­no­ticed by most peo­ple, but the sheer amount of money spent on the Canada Child Ben­e­fit — at $22 bil­lion, it is roughly $4 bil­lion a year more than un­der the Con­ser­va­tives — means this claim falls into the genre of non-fic­tion.Fi­nance notes that nine out of 10 deciles of fam­ily in­come have seen their fam­ily in­come rise as a re­sult of fed­eral trans­fers, in­clud­ing the Canada Child Ben­e­fit, the Guar­an­teed In­come Sup­ple­ment (re­ceived by low-in­come se­niors) and the Canada Work­ers Ben­e­fit (aimed at low-in­come work­ers). The three mea­sures have com­bined to pro­vide a sim­i­lar so­cial se­cu­rity net to a guar­an­teed ba­sic in­come.The Lib­er­als claim that these in­vest­ments will help lift 652,000 peo­ple out of poverty.Alexan­der agrees the Lib­er­als have de­liv­ered on what they promised.“The Canada Child Ben­e­fit was a very sig­nif­i­cant pol­icy mea­sure,” he said. “It will re­duce poverty for low-in­come fam­i­lies with kids and that trans­fer of funds wasn’t saved, it con­trib­uted to con­sumer spend­ing.”The child ben­e­fit more than made up for in­fra­struc­ture spend­ing that did not live up to the bold pre­dic­tions of the gov­ern­ment in the first two years.

EM­PLOY­MENT

The Lib­er­als claim that in­vest­ments in in­fra­struc­ture and new trade agree­ments, in­clud­ing with the Euro­pean Union, have helped to re­duce the unem­ploy­ment rate to a 40-year low of 6 per cent, from 7.1 per cent in the fall of 2015, cre­at­ing half a mil­lion full-time jobs. Em­ploy­ment gains are no­table among women, with the rate for women aged 25-54 hit­ting an his­toric high.This claim needs to be put into con­text. This gov­ern­ment is rid­ing a cycli­cal wave and has ben­e­fited from the re­bound in com­mod­ity prices, af­ter the col­lapse in prices in 2015-16. Re­source rich prov­inces like Al­berta suf­fered a deep re­ces­sion — the econ­omy shrank around 7 per cent, be­fore re­bound­ing by 7 per cent.As part of the re­cov­ery, the econ­omy grew at a gal­lop in 2017, with GDP ris­ing 3 per cent.That tight­ened labour mar­kets al­ready un­der pres­sure be­cause of an ag­ing pop­u­la­tion (if there are fewer work­ers, it is eas­ier to lower the job­less rate).Alexan­der gives credit to the gov­ern­ment for re­mov­ing bar­ri­ers for women to help im­prove eco­nomic per­for­mance. But at­tribut­ing the fall in unem­ploy­ment to the gov­ern­ment falls into the lit­er­ary cat­e­gory of a tall tale — el­e­ments of fact, with bla­tant ex­ag­ger­a­tion.

IN­VEST­MENT

The gov­ern­ment claims busi­ness in­vest­ment is also on the rise, point­ing to six con­sec­u­tive quar­ters of growth. The sug­ges­tion is that all is hunky dory with the wider econ­omy.“When Cana­di­ans and Cana­dian busi­nesses are con­fi­dent, they in­vest in the things that help to grow our econ­omy now and over the long run,” Fi­nance said.Yet a slew of re­cent pri­vate sec­tor re­ports say there are real con­cerns about com­pet­i­tive­ness.A C.D. Howe re­port said spend­ing on ma­chin­ery and equip­ment is be­low 2006 lev­els and that busi­nesses are mak­ing cap­i­tal in­vest­ments equal to $13,900 per worker, com­pared to $23,200 in the United States.Pipe­line de­lays, ris­ing elec­tric­ity prices in On­tario, un­cer­tainty over NAFTA and a U.S. cor­po­rate tax cut have added to con­cerns over weak cap­i­tal spend­ing, and are be­com­ing “a threat to Canada’s fu­ture pros­per­ity,” said the C.D. Howe re­port.Alexan­der said he be­lieves Canada has a com­pet­i­tive­ness chal­lenge, par­tic­u­larly in light of Don­ald Trump’s cor­po­rate tax cuts. “Canada is a small econ­omy and its do­mes­tic sav­ings are never go­ing to be enough to sup­port the level of gov­ern­ment and busi­ness in­vest­ment re­quired, so we need to at­tract for­eign cap­i­tal.”He said, tra­di­tion­ally, the triple at­trac­tions of a highly ed­u­cated work­force, the ac­ces­si­bil­ity of the U.S. mar­ket and a tax ad­van­tage have been mag­nets for for­eign in­vest­ment. But two of those can no longer be taken for granted. “The gov­ern­ment of Canada needs to be mind­ful of tax com­pet­i­tive­ness,” he said.Alexan­der men­tioned one mit­i­gat­ing fac­tor — Cana­dian busi­ness lead­ers are more risk-averse than their Amer­i­can peers. But the sug­ges­tion that the Lib­eral gov­ern­ment has blazed a re­cov­ery in busi­ness in­vest­ment would be clas­si­fied in the lit­er­ary canon as a fairy tale.

DEFICITS

There is an op­por­tu­nity cost to be paid for the mas­sive in­vest­ments in poverty re­duc­tion, in the form of fis­cal deficits. Of this, there is no men­tion in the Fi­nance re­port, even though the depart­ment has fore­cast the bud­get will be in deficit un­til around 2050.The re­bound from the com­mod­ity shock dis­torted per­for­mance, but most fore­casts sug­gest growth will fall be­low two per cent in the next two years. With an ag­ing pop­u­la­tion and slow­ing labour force growth, it is go­ing to be a chal­lenge to main­tain rev­enues.“At this stage of the busi­ness cy­cle, I don’t think the gov­ern­ment should be run­ning deficits,” said Alexan­der.THE GOV­ERN­MENT IS RUN­NING A STRUC­TURAL DEFICIT THAT ECO­NOMIC GROWTH WON’T MAKE GO AWAY.The gov­ern­ment has pre­ferred to fo­cus on the debtto-GDP ra­tio as its fis­cal an­chor — of course it would. But Alexan­der is skep­ti­cal.“I’m a sailor and that isn’t an an­chor. The gov­ern­ment doesn’t have con­trol over the de­nom­i­na­tor in that ra­tio and when the next re­ces­sion hits — and it will — that de­nom­i­na­tor is go­ing to con­tract and the ra­tio will jump,” he said.Com­pared to its in­ter­na­tional peers, Canada is in rea­son­able fis­cal shape.“The deficits don’t pose a clear and present dan­ger,” said Alexan­der. “But the gov­ern­ment of Canada is run­ning a struc­tural deficit that eco­nomic growth won’t make go away.”Justin Trudeau has made the cal­cu­la­tion that vot­ers have em­braced the ex­panded so­cial pro­grams he cam­paigned on in 2015, and sub­se­quently in­tro­duced, and they will show their ap­pre­ci­a­tion by re-elect­ing him next year.What he, and ap­par­ently the Depart­ment of Fi­nance, would rather not point out is that their chil­dren will pay the bill.That story should be filed un­der the lit­er­ary genre “tragic com­edy.”

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