Ottawa’s role key to auto industry
BUSINESS
From a flurry of big- money investment announcements to plant closings and layoffs, it seems no sector has generated more good news and heartbreak in the past year than the auto industry. Toyota expands near Cambridge. Ford plans to build in Oakville. DaimlerChrysler invests in its Canadian operations, including a new paint facility in Windsor. General Motors announces major spending in Ontario but also says it will shut a plant in Oshawa. The solidification of a national auto strategy will help bring stability to an industry facing fierce competition from low- cost countries. And that’s why auto workers, executives and residents of communities dependent on auto factories should care about the outcome of the next federal election, said Canadian Auto Workers economist Jim Stanford. The key issue, Stanford said, is “whether government should play an active role trying to attract new auto investment or not.” As another election looms, the auto sector and others will look to Ottawa for recognition of their challenges and needs —
Ontario industry, however, will see some tax relief, whoever wins. The Liberals have already announced plans to lower corporate tax rates and eventually eliminate the capital tax, potentially spurring investment spending. Those are meaningful moves and will enhance productivity growth, said Rick Egelton, chief economist at the Bank of Montreal. The Conservatives could go even further by proposing even deeper tax cuts for corporations, he added.
“ If I had to guess, I’d say they will probably move in that direction.”
If the Conservatives hope to form the next government, they almost certainly need to make inroads in Ontario.
Perhaps the hottest political issue is the huge net outflow of tax dollars to Ottawa, which the Ontario government claims is running about $23 billion a year.
It looks like the issue of federalprovincial transfers is a nonstarter for this election campaign, Egelton said. As for overall economic policy, there is very little difference between the Liberal and Conservative platforms, said Andrew Pyle, senior financial markets economist at the Bank of Nova Scotia.
“ That is why I am wondering how much the economy will factor into this campaign,” he said.
“ It’s not like the U. S, where you can turn around and say: ‘ Look at this massive trade deficit or look at this massive fiscal deficit.’ ” Even left- wing thinkers are on the same page as Bay St.
“ The differences in terms of big-picture economic policies among the Liberals and Tories are so small that the outcome of the election will not in any way affect where our economy is headed,” predicted Jim Stanford, an economist with the Canadian Auto Workers union.
Recent history, at first glance, suggests the Canadian economy started booming after the last two changes of power in Ottawa, Brian Mulroney’s Conservative victory in 1984 and Jean Chrétien’s Liberals in 1993.
It was actually a case of a government getting tossed out of power after ruling the country during a deep recession, said Doug Porter, deputy chief economist at BMO Nesbitt Burns.
“ Very superficially, it looks like a change in government has led to a wonderful renaissance in the economy but it was more a fluke of timing.”
During the 2003 election campaign, Prime Minister Paul Martin boasted about his record of fiscal prudence. After all, he was the slayer of massive and persistent budget deficits. But Martin’s credibility in financial markets is waning.
“ It’s not the same factor it was a couple of years ago,” said Porter, noting that Martin’s deal with the NDP to increase spending and backtrack on corporate tax cuts left a sour taste in some people’s mouths.
“ We have certainly seen a heavy emphasis on spending over other options in the last couple of years.” The party or parties that control the next government will have billions of dollars of surplus revenues to dish out. A Conservative government may put most of that cash into tax cuts, said the CAW’s Stanford. The Liberals may lean further toward increased spending, especially if they need the NDP’s support to form a coalition government, he
added.
“ Either way, the government’s bottom line
won’t change. It’s more
a question of income
distribution and
whether we are getting good social programs.”
Conservatives will likely take aim at the Liberal party’s recent spending spree, which heated up just days before its government was defeated in a nonconfidence vote in parliament.
It’s easy for opposition candidates to manipulate the statistics to show huge increases in federal government spending, but that’s because expenditures were slashed for so many years, said Ellen Russell, senior economist at the Canadian Centre for Policy Alternatives.
“ Then we get into a tax cut auction. I can go to the bottom faster than you can.”
Rather, the government needs to continue investing in education, health care and infrastructure — not token income tax cuts — to ensure Canada’s longterm prosperity, Russell said.