If you’re a fan of creative economic thinking, this was not the election for you. Sadly, it may have been a preview of the next four years.
At a time when the Canadian economy needs bold ideas, this campaign delivered none. Where we needed a wholesale rethink of our cumbersome, outdated tax system, we got some modest mom-and-pop tax cuts. Where we needed vision on energy policy, we got a rehashing of old squabbles over pipelines. On competitiveness, on innovation, on trade, on skills shortages, we heard little more than silence.
With a Liberal victory, albeit in a minority, our government for the next four years isn’t proposing to do much meaningfully different than it did for the past four. But it wouldn’t have anyway, even if the result had swung the other way.
The Liberals and the Conservatives were so much in agreement on the big stuff that it didn’t even come up. Both are committed to free trade. Both want to build more oil and gas pipelines. Both directed their campaigns toward helping the middle class. Either way, you were getting a personal income-tax cut.
“While they might amend the details, no party in Canada would challenge a continuation of the major items of federal spending: the CPP/OAS for the elderly, EI for the unemployed, transfer payments to provinces in support of public health insurance and education, and equalization payments to provinces with weaker tax bases,” CIBC chief economist Avery Shenfeld said in a research note last week.
The big gap between the two came up only late in the campaign, when the Conservatives unveiled a plan to cut the federal infrastructure budget. Infrastructure is the magnum opus of the Liberal economic strategy, its grand vision to invest in the economy’s future. The election win saves the infrastructure program from a major step backward. But it was the 2015 election’s great Liberal ambition; no one would describe anything the Liberals proposed in this campaign as “grand."
You could argue that there’s nothing wrong with that. Liberal Leader Justin Trudeau was happy to campaign on his government’s economic record, which, he figured, looked pretty good. Four years of expansion. Unemployment at 40-plus-year lows. More than a million jobs created. More than 800,000 lifted out of poverty.
But we’ve just lived through a pretty benign few years for the bulk of the Canadian economy (oil and gas being the notable exception). In the sweet spot of an economic expansion, with low interest rates and tame inflation – those sorts of conditions just spit out good economic numbers. The Liberals will find the economic boasting points fewer and harder to come by this time.
It won’t be able to hang its hat on job creation and shrinking unemployment, because those gains aren’t there to be had any more. We’re at a much later stage in the economic cycle; we’re already very close to full employment.
There might be pockets in the country where the labour market still has room to grow, but overall, we’re bumping up against the ceiling.
The same can be said for the economy in general. Most of the expansion is behind us – and it has already been one of the longest expansions on record.
History strongly suggests that the government won’t be able to skate through the next four years without encountering a significant downturn, if not an outright recession. With global manufacturing and trade already slowing markedly, and the China-U.S. trade dispute posing a serious risk to the stability of the world economy, that downturn may not be far off.
Downturns have a way of exposing economic weaknesses that the country can gloss over during expansions – things the Liberals did far too little to address over the past four years. We have a dinosaur of a tax system that was designed for a manufacturing-and-resource-driven economy of the 1960s, not the innovation-and-services-driven economy of the 2020s. We have chronic problems with global competitiveness and productivity. We have massive trade barriers between our own provinces. We have record consumer debt loads. These failings will deepen and prolong the next recession.
But with a splintered electorate and fragmented House of Commons, we may now lack the consensus necessary to seriously tackle these problems. Dramatic moves and bold policies are for governments with large, emboldening majorities, clear mandates to think big. This minority government won’t have that. If it succeeds, it will be through cautious compromise, not daring policy innovation.
So prepare for a government deeply committed to muddling through with the status quo. That will be wholly uninspiring, and not nearly enough if and when a recession hits.
But hey, enjoy your tax cut.