O’Toole’s economic plan seems incoherently ambitious
When it comes to economic recovery, Conservative Leader Erin O’Toole wants to have it all.
Fiscal discipline but with lots of new spending; a crackdown on inflation but with higher wages and consumption; flourishing free trade but with protectionist measures.
But having it all is just not coherent, nor is it consistent with the Conservatives’ reputation for being strong economic managers.
O’Toole sets out his goals in the introduction to his election platform: “It is a plan to secure Canada’s recovery from the pandemic. To get the economy back on track. To bring back jobs. To get spending back under control. To tackle high prices (especially home prices) and fight inflation.”
Indeed, he has campaigned hard on all of those things, going so far as to blame Justin Trudeau personally for inflation running too high and for the deficit ballooning to a previously unimaginable size.
The incoherence starts there. Industrialized countries around the world are grappling with a surge in inflation, mainly due to dysfunctional post-pandemic supply chains and a consensus that governments should spend lots in a crisis, all while central banks keep interest rates low.
Is that Trudeau’s fault? Obviously not. But when O’Toole campaigns with signs that read “Trudeau’s inflation,” and when his candidates argue that the central bank is a pawn for Liberal
pandering, that sounds like expedient politicking rather than a serious approach to economic recovery.
O’Toole’s proposed fix for inflation is to equate rising prices with affordability problems. He promises a GST holiday in December — which if anything will spur an increase in prices. And his housing market proposals, like those of the Liberals, will take time to work on the supply side but quickly boost demand. That’s another recipe for juicing near-term inflation.
On ballooning deficits, O’Toole has also talked out of both sides of his mouth. He notes that when the going got tough in March 2020, the federal government was right to step in with hundreds of billions of dollars in support. He has certainly levelled some solid criticism about the design of those supports, but he and his party have backed the amplitude of the spending throughout the pandemic.
And the Conservatives, like the Liberals, have promised to extend the help for as long as there are lockdown conditions due to COVID-19. Like the Liberals, they’ll scale them back quickly when the going gets good, and they’ll tinker with the design along the way in the hopes of weaning the economy off government life-support.
By definition, that all leads to big deficits.
And as prime minister, O’Toole would allow the deficit to rise even higher than the Liberals would in the current fiscal year — $168 billion, compared to the Liberals’ $157 billion.
O’Toole told the Star’s editorial board on Tuesday that the boost in spending was so that low-income families and fragile companies “get their footing” to enable a solid recovery. That’s great, but the point is that reining in the deficit would come later on — and it would follow much the same trajectory as that proposed by the Liberals, despite his implication that Liberal spending is out of control.
In a new analysis, Scotiabank economist Rebekah Young crunched numbers from 150 disparate proposals from both parties’ platforms. She found that over the next five years, their spending would be nearly the same, their deficits would decline at a similar pace, and neither party has a meaningful plan to keep the fiscal framework in check.
Conservatives argue that by committing to balancing the budget within 10 years, their plan is more responsible than the Liberal plan, which doesn’t commit. But the analysts at the Institute of Fiscal Studies and Democracy, who have gone through the platforms with a measuring tape, say that in fact the Conservatives’ plan is more reckless than the Liberals’ plan because there are no interim targets and no rainy-day funds set aside if things go wrong.
“High budgetary deficits are raised as a policy concern. Yet, the platform proposes to increase budgetary deficits, without addressing planning risks,” the analysis concludes.
In the end, both parties lean heavily on healthy economic growth in order to pay for all their promises and keep the deficit at reasonable levels. So the details of each plan are important.
The Conservatives turn to tax measures and regulation, but they also promise to spend billions on Canadian innovation — in other words, subsidies — all while setting up protectionist measures around the production of essential goods and putting the damper on trade and investment with China.
Protectionism may be the way of a pandemic-stung world right now, but Canada’s relatively small, open economy has prospered in the past from free trade. O’Toole wants to pick and choose our free-trade partners; that has its merits, but economic growth is not necessarily one of them.
In his conversation with the Star, O’Toole emphasized repeatedly that he is “a new leader with a new style and a new approach.”
In the aftermath of the COVID-19 recession and the profound change it has imposed on how the global economy works, it’s certainly essential to rethink how fiscal and economic policy work for the benefit of our entire society. But coherence is just as essential.