Jim Flaherty was refreshingly candid about the global economy in his fall economic statement on Tuesday. While the Finance Minister was right to adjust accordingly, he missed a chance to be more candid about the situation at home – or about the policy changes Canada needs to get on a sounder economic footing.
Don’t be alarmed by Mr. Flaherty’s Janus face. Yes, the Conservatives have shifted again, with a plan to balance in 2015-16 (as they said in their March budget) instead of 2014-15 (as they said during the election). But Mr. Flaherty also said – straying from prepared remarks – that balancing in 2014-15 “remains an aim.” The ultimate destination is known; it’s the journey, and the degree of resolve and prudence that the federal government brings in its efforts to trim spending, that count.
The journey is getting more difficult. The revenue projection is $9-billion lower in 2012 and $11.7-billion in 2015. That’s a 3.5- to 3.7-per-cent deterioration compared with what was projected in the 2011 budget – a fact that Mr. Flaherty underplayed. The federal government has started the difficult process of finding savings within departments, but Mr. Flaherty ought to stand for austerity, too, and could have described the specific cuts in greater detail – he should not only preach it abroad but also let other ministers, such as Treasury Board President Tony Clement, spread the word at home.
Mr. Flaherty’s update did not take up the opportunity to articulate a more nimble, more co-operative approach to federalism. Once again, without any prior commitment to reform by the provinces, he said he would maintain increases in health-care transfers at 6 per cent for 2014 and 2015 – despite the fact that some provinces have already started to hold annual health spending increases to 4.5 per cent or less.
At the same time, he could have heeded the concerns of provinces and the Parliamentary Budget Officer, and accounted for the billions of dollars in new costs that will result from the Conservatives’ crime agenda, to be borne by both levels of government. Or perhaps the Conservative should reconsider the less affordable aspects of that agenda.
On employment insurance, Mr. Flaherty offered half a loaf. A cut in half in the planned employment-insurance premium increases – 5 cents per $100 of earnings instead of 10 cents – does return $600-million to Canadian workers and businesses. Private-sector forecasters may agree that unemployment is headed downwards, but if there are indeed new economic headwinds, any increase in the premiums is undesirable; EI premiums are regressive and relate directly to job creation. In addition to freezing planned premium increases for now, Mr. Flaherty should be working on a broader-based reform of the EI system, to make it more counter-cyclical and more fair to workers in regions of relatively low unemployment.
Mr. Flaherty has good reason to be proud of his stewardship of the economy during the recession. He should be making Canadians more prepared for the difficult times to come.