Forget principles, it’s all politics
Flaherty saving good stuff for election budget
OTTAWA — Here’s the story the finance minister would like you to take away from this year’s budget. Because of the vital imperative of balancing the books by next year, he was obliged to tread lightly, with little room for grand initiatives. Accordingly, he has produced a cautious, even minimalist document, wholly devoted to curbing spending, keeping taxes low and protecting consumers.
As always with this government, this is at best halftrue. The budget is already, to all intents and purposes, balanced: whether it comes in a couple of billion dollars above or below the red line, in a $2-trillion economy, is immaterial; whether it hits this target in any given year, let alone the particular choice of 2015, even more so. It matters only in the political sense that the government would like to be able to officially declare a surplus in an election year.
Likewise, a government that was of a mind to do big things, especially big conservative things, could find ample room within the existing spending and revenue envelopes: By closing the many useless and inefficient tax preferences, for example, it could cut marginal tax rates quite deeply — taxes are in no meaningful sense “low” — in the same way that ending handouts to business would free up billions of dollars to be put to more appropriate uses.
If Jim Flaherty has not done these things, it is not because he can’t, but because he won’t: in part, because he wants to save up a couple of big things, like income-splitting, for next year’s election budget, but more because he prefers to do a lot of little things — to sprinkle tax credits and subsidies on every micro-targeted demographic and focus-grouped gimmick he can find.
That’s the real story of the budget. It’s not a bad budget, overall, neither reckless in the whole nor overly harmful (with one or two exceptions) in the particular: But whether it does the right thing or the wrong thing it is always and everywhere because it serves the government’s political interests. As it always has been.
In 2009, for example, it served the government’s political interests to be reckless: hence that year’s massive and unwarranted plunge into deficit spending, which recent research has shown had little or no economic impact — other than to add $162 billion to the debt — but which had the admirable political effect of saving the government’s bacon. Since then it has suited the government to adopt a more restrained approach. Very well: It is results that count, not the motive, and the results, as this budget confirms, are gratifying. By next year, program spending will have been reduced by nearly 14 per cent, after inflation and population, from its 2010 peak. That’s not saying a great deal — it will still be higher than in any year before then. But it is back within hailing distance of its pre-recession levels, and for that let us give thanks.
The minister likes to stress that this was achieved without cutting transfers to persons or provinces, but this again is an entirely artificial, i.e., political, constraint. There is much room to reform old age security and employment insurance, far beyond the timid changes the government has introduced. There is no good policy reason why the federal government continues to transfer $60 billion in cash, unconditionally, to the provinces every year. It’s just politics.
On the other hand, this unwillingness to rock the boat — the $37 billion in miscellaneous transfer payments to corporations, trade associations and sundry other interests is similarly untouched — has forced the government to adopt an uncharacteristically bold stance toward its own employees. The single biggest item in the budget is the $1.2 billion in savings pencilled in from reforms to overly generous public sector health and pension benefits, notably the notorious bankable sick days. (I say pencilled in: These have still to be negotiated.)
After that, the pickings get mighty slim. On the plus side, the government’s approach to labour markets is appropriately micro: Though opposition parties will be urging, as ever, Keynesian-style “stimulus” in the form of higher spending, with job vacancies already above four per cent and shortages emerging for certain skills and sectors, it’s clear that what is needed is measures to increase labour supply, not aggregate demand. The new support systems for apprentices and internships, beyond conventional student loans, are a welcome addition, with the abolition of the illjudged Immigrant Investor Program an equally welcome subtraction.
On the negative side, there is the usual grab bag of boutique tax credits (now playing: the Search and Rescue Volunteer Tax Credit), handouts to industry (another $500 million for the auto industry, as if it had not been coddled enough already, plus that awful plan to use defence procurement as an industrial “strategy”), and pandering to (not protecting) consumers. Most of these are fairly harmless — the “Made in Canada” branding campaign, for example — until you come to that bit about Legislating Against Unjustified Cross-Border Price Discrimination.
Words cannot quite convey how idiotic a proposal this is: at best a non-solution to a non-problem, at worst a costly bureaucratic nightmare.
There are thousands upon thousands of products sold on both sides of the border; their prices may be determined by all sorts of factors, but what is certain is that the relative prices of goods in each country are entirely hostage to the exchange rate. So: Suppose, at a given level of the dollar, the price of a widget is higher in Canada than it is in the U.S., and suppose the government orders it rolled back to parity.
The next day, the dollar rises, and the price in Canada is higher again. Will the government have to issue another price decree?
That only begins to describe why this is madness. But it shows just how far removed from any principled moorings this government has become. As ever, it’s all politics, all the time.