The Conservative campaign’s economic message is all about staying the course and keeping taxes low. Conservative Leader Stephen Harper triggered a 78-day election campaign in early August, but substantial new promises have been rare.
Instead, Mr. Harper has focused on the major initiatives that were unveiled over the past year, including income splitting for families with children under 18, more generous monthly cheques to parents, a near doubling of the maximum contribution that Canadians can make to their tax-free savings accounts and increased spending on infrastructure. Altogether, those promises are worth more than $5-billion a year.
Mr. Harper’s speeches regularly highlight the fact that the Liberals and NDP would reverse Conservative tax breaks and would bring in new costs for workers, such as new pension contributions and Employment Insurance premiums that would be higher than what the Tories have planned.
On the environment, the Conservatives oppose carbon taxes and cap-and-trade plans, opting instead to regulate greenhouse-gas emissions one sector at a time. Mr. Harper has said he won’t regulate the oil-and-gas sector without similar action from the United States. The Conservative government has promised to reduce greenhouse gas emissions to 17 per cent below 2005 levels by 2020, but critics say Ottawa is not on track to meet that goal. More recently, they pledged to cut emissions by 30 per cent from 2005 levels before 2030.
The Conservatives have a record of nearly 10 years in government to defend, including the response to the global recession that hit in 2008. The government ran six consecutive deficits before returning to surplus in the fiscal year that ended March 31, an achievement that was announced during the campaign. The party also boasts that federal taxes as a share of the economy are now lower than they’ve been in more than 50 years.
Breaking it down
Polls show Canadians support the government’s TFSA changes and business groups, such as the Canadian Federation of Independent Business, have appeared with Mr. Harper on the campaign trail to support the Conservatives opposition to any new payroll taxes.
The budget’s tax measures have run into criticism, however, from some economists and the Parliamentary Budget Officer, who have noted that they will primarily benefit higher-income Canadians. Canada’s approach to the economy appeared to receive some gentle nudging recently from the International Monetary Fund, which warned in an Oct. 6 report that it is now projecting growth in Canada of just 1 per cent this year and 1.7 per cent next year.
The report stated that countries with fiscal space, particularly oil-exporting nations, “should ease their fiscal stance in the near term, especially through increased infrastructure investment.”
The opposition regularly accuses the government of focusing too much on Canada’s oil-and-gas sector at the expense of manufacturing. However, the Canadian Manufacturers and Exporters lobby group has not joined in on those claims. The CME has praised the budget’s measures to help manufacturers and has expressed concern with plans to expand public pensions, which they warn would lead to higher costs on business and hurt investment.
The government’s April budget forecasted a string of small surpluses through to the end of the decade. Economists have cautioned that the budget’s assumptions for economic growth over that period may prove to be overly optimistic.
David Parkinson’s analysis
The Conservative economic platform, or rather the lack thereof, is at the heart of the incumbent’s overriding campaign message: We’re already doing it. There’s nothing new to see here, and that’s good.
The question is whether that will be good enough for a restless electorate and a troubled economy.
In reality, Stephen Harper’s economic platform was the budget his government presented in the spring. About the only concrete new spending unveiled during the campaign was compensation to farmers and the auto sector for anticipated losses under the just-announced Trans-Pacific Partnership trade agreement. Mr. Harper has made some grandiose campaign promises – 1.3 million new jobs, 700,000 new homeowners – but his strategy to deliver on these promises is, basically, to continue with the economic philosophy his government has adhered to for years.
At its root is an abiding faith that taxpayers, if given money in their hands, will keep the economic engine humming. As Mr. Harper often simply puts it, this boils down to low taxes and balanced budgets.
It was strategic for Mr. Harper to deliver both in his election budget because both underlined his economic philosophy, and established the foundation for a stay-the-course campaign. A balanced budget and some more hefty tax cuts – via a big expansion of the Universal Child Care Benefit and family income splitting on income-tax returns – were a done deal by the time the election was called. For campaign purposes, these weren’t promises, just business as usual under a Harper government.
What Mr. Harper hasn’t been able to get past, though, is an economy, not just for most of this year but for most of the time since the past election, that has repeatedly underwhelmed an electorate that is losing its patience. What good are tax cuts and balanced budgets if nothing feels better?
Meanwhile, it’s beginning to look like balanced budgets were the end in themselves, rather than the means to an end. Mr. Harper has no apparent grand plan to leverage that fiscal health to invest in the economy’s long-term future. Which in most elections wouldn’t look so bad; there’s something to be said about stable and reliable fiscal oversight that at least won’t get government in the way of letting the economy do what it does naturally.
But after nearly seven years wandering, to varying degrees, in the economic wilderness, there’s a sense among many voters that what the economy is doing naturally isn’t enough. Its long-term well-being has come into question. And while Mr. Harper certainly hasn’t been doing nothing about that – after all, he just nailed down the Trans-Pacific Partnership deal, part of a critical strategy to broaden Canada’s vital access to foreign markets – the stand-pat emphasis of his campaign suggests his government is running short on economic ideas.
If you fear that your vehicle is veering off the road, then sticking with what you are already doing equates to doing nothing at all. Mr. Harper’s stay-the-course approach requires confidence that there’s no cliff ahead. The election may well hinge on whether Mr. Harper has persuaded voters of that.
Liberal Leader Justin Trudeau argues the economy needs a boost. The central plank of his party platform is a 10-year, $60-billion infrastructure plan that he says will create jobs and address some of the serious congestion problems faced by Canadian cities. To pay for this, he would run three straight years of what he calls “modest” deficits of no more than $10-billion a year before balancing the books in the fourth year of a Liberal government.
The second key part of the Liberal platform involves shuffling family benefits and tax rates, with the overall goal of providing more benefits to low- and middle-income Canadians. Higher-income Canadians would pay more in various ways.
The Liberals say they expect this plan will create jobs and boost economic growth, leading to higher government revenues. But they also said they are being prudent by not counting on this extra money in their forecast.
Important details of a Liberal agenda would not be revealed until after the election. Mr. Trudeau said exact positions on everything from the environment, pensions, marijuana and health transfers would be resolved later through negotiation with the provinces.
Breaking it down
Former Bank of Canada governor David Dodge, who is currently advising the NDP government in Alberta, has long called for Ottawa to take advantage of low interest rates to build up and repair Canada’s infrastructure. The Liberal plan was inspired by this view and Mr. Dodge reacted positively to it by saying it is absolutely appropriate for governments to run small deficits now to support the economy.
The party’s infrastructure plan and its accounting work also won praise from former Parliamentary Budget Officer Kevin Page.
Where the Liberals have faced criticism from public-policy experts is over the merits of running deficits and the party’s definition of infrastructure. Former Saskatchewan finance minister and academic Janice MacKinnon warns that small deficits have a tendency to become permanent deficits. She argues that promising to balance the books imposes much-needed discipline on governments.
“It’s very easy to promise deficits,” said Dr. MacKinnon, who teaches fiscal policy at the University of Saskatchewan. “The problem is getting out.”
While the Liberal plan promises $60-billion for infrastructure, it is split three ways between public transit, green infrastructure and social infrastructure. The Liberals have faced questions as to whether more government spending in areas like social housing meets the traditional understanding of infrastructure. William Robson, the president of the C.D. Howe Institute, also questions whether Ottawa could realistically spend billions more right away on infrastructure given that major projects normally require years of planning with municipalities.
“I worry about this kind of talk,” he said, warning it could lead to wasteful spending. “If you transfer money and you expense it in a year, then you have to give it away … but when it comes to actually ensuring that the money is going to be used for the purpose that you transferred it for, that’s a problem.”
David Parkinson’s analysis
Of the three major party leaders, Justin Trudeau is the most deserving of our Kenny Rogers Award – he’s the big gambler on the economy in this election, and he’s putting a lot of money on the table. A lot.
But more than betting heavily on using our tax dollars to launch a long-overdue public infrastructure revolution, he’s betting that he can persuade Canadians to change the national mindset on government finances that his own party instilled in us nearly two decades ago, and is pretty deeply entrenched by now: That deficit spending is bad medicine.
Hard to remember (though Mr. Trudeau brings it up regularly) that the Liberals began this election pitching aggressively for Canada’s middle class; indeed, theirs is the only platform offering personal tax cuts to average Canadians. Granted, the Conservatives already baked their tax cuts into last spring’s budget, and had essentially already delivered them before the campaign began. But Mr. Trudeau is promising to repeal those cuts, on the grounds that they disproportionately help the wealthiest families, and replace them with even more cuts and child benefits directed specifically at lower- and middle-income earners – while raising taxes on the richest 1 per cent.
But it was a remarkable turning point in this campaign when Mr. Trudeau stepped forward with something even bigger and more audacious: A plan to intentionally send the Conservatives’ hard-earned balanced budget back into deficits, in order to pay for an almost doubling of federal infrastructure spending, to the tune of an extra $60-billion over the next decade.
Stephen Harper may have said it mockingly, but Mr. Trudeau really is talking about only teeny, tiny deficits that you can barely see. His proposed three years of deficits of “less than $10-billion” equate to just 3 per cent of the federal government’s budget, and 0.5 per cent of Canada’s gross domestic product. Federal revenues typically grow by more than that amount every year, and it’s far below the pace of annual GDP growth. The country’s debt-to-GDP ratio – a critical measure of its debt load – will actually continue to shrink under this plan. And the deficits will be whittled back down to zero by 2019 – which, certainly not coincidentally, would be in time for the next federal election. (Mr. Trudeau isn’t above borrowing from the Harper playbook on that front.)
The majority of economists agree that modest deficits like these are no threat to the government’s financial stability. And indeed, if they are being used to fund key investments in the economy, they will pay for themselves in future growth.
But anyone of a certain age – and that includes the vast majority of voters – remembers when federal deficits, big ones, were this country’s habit. When leaders start talking about wanting deficits, it sets off those old these-guys-can’t-be-trusted alarm bells. Chronic deficits are certainly a problem, and for many voters, that’s not a door they’re willing to open. For Mr. Trudeau to win, he’ll need to convince enough of them that he knows what he’s doing, and has the discipline to stick to it.
The NDP is promising improvements to health care, child care, infrastructure and the environment all while balancing the books. To pay for these promises, the NDP would repeal recent Conservative tax cuts and raise the corporate tax rate from 15 per cent to 17 per cent.
NDP Leader Tom Mulcair regularly tells voters that while his party has never formed government in Ottawa, provincial NDP governments have a solid record of balancing the books. He jokes that while Bob Rae’s government in Ontario was an exception, Mr. Rae turned out to be a Liberal.
Mr. Mulcair said he looks forward to representing Canada as prime minister this December in Paris when world leaders meet to negotiate a new plan to address climate change. He is promising a national cap-and-trade program that would allow provinces to opt out if they have similar policies that meet national standards. The NDP has also set ambitious targets to reduce greenhouse-gas emissions to 34 per cent below 1990 levels during the 2025-2030 period.
The NDP Leader has been highly critical of the Trans-Pacific Partnership trade deal agreed to on Oct. 5 by the Conservative government.
Breaking it down
The NDP spending plan included endorsements from university and labour economists as one that was balanced and feasible. Environmentalists at the Pembina Institute praised the NDP’s climate plans. Observers who are concerned about deficits are pleased with the NDP pledge to keep the federal books in balance.
Critics, meanwhile, have questioned the reasonableness of Mr. Mulcair’s pledge to create one million $15-a-day daycare spaces. Reaching that goal would take more than one mandate, according to the NDP, as well as provincial co-operation. The Ontario Liberal government has said the NDP plan leaves “lots of unanswered questions.”
The biggest source of new revenue in the NDP plan comes from an immediate two-point increase to the corporate tax rate, which is expected to raise $3.7-billion.
A further $1-billion a year is expected to come from tackling tax evasion and avoidance and closing the tax breaks on stock options. Critics warn that these types of changes may not produce the expected revenue, given that corporations and individuals can adjust to new rules by shifting profits and creating new compensation packages.
To reach that $3.7-billion estimate for new yearly revenue from a corporate tax hike, the NDP relied on a guide created by the Parliamentary Budget Office. However, that guide does not attempt to calculate the impact of behavioural changes corporations may deploy in order to pay less tax.
“It will probably raise half what the NDP thinks it will,” said Trevor Tombe, an assistant professor of economics at the University of Calgary. Prof. Tombe said pulling out of the TPP would have serious economic implications, but he doubts an NDP government would ultimately reject the trade deal.
Prof. Tombe said specific promises from the various parties would impact some Canadians more than others, but the economic policies of the three main parties are not dramatically different.
“The economy will be fine no matter who wins,” he said.
David Parkinson’s analysis
In an effort to look electable as our national government, Leader Tom Mulcair opted for an NDP economic platform that both soothes voters’ scary-NDP fears, and positions the party as the more moderate option for Canadians seeking a change. But it now looks like his last, best chance on the economic front in this election is the extreme turn he has taken on trade.
In terms of proposals, the NDP platform is economy-light – light on substance in some places, light on detail in others. His biggest tax measure – to raise corporate taxes, while cutting the rate for small businesses – could indeed spur job creation at the small-business level (the country’s biggest employers), but couldn’t come at a worse time for a corporate sector already starved of investment. While the NDP talk a lot about helping middle-class Canadians, they don’t go nearly as far as the Liberals on direct tax proposals to ease the burden on the middle class. On both the environmental and child-care front, the NDP has some big ideas, but we’re still lacking specifics.
Mr. Mulcair has remained committed to a balanced budget, his bottom-line assurance to voters that an NDP government wouldn’t live up to the party’s (largely unfounded) reputation as incorrigible spendaholics. The balanced-budget pledge may tie the NDP’s hands, and it’s a purely political move.
Besides, keen observers aren’t persuaded by the NDP’s arithmetic. Unlike the Liberals, who drew up their budget estimates based on more recent economic forecasts from the Bank of Canada incorporating the Canadian economy’s slump this year, the NDP relied on the same economic assumptions as the Conservative government’s spring budget – which now look far too optimistic. More realistic growth assumptions would certainly imply a budget deficit.
But Mr. Mulcair found new life on the economic front this week with the announcement that the Conservatives had reached an agreement with 11 Pacific Rim countries on the Trans-Pacific Partnership trade deal. His opposition to the deal sets him apart from his two main opponents, puts him on side with the NDP’s traditional unionist base as well as some of the Conservatives’ traditionally strong rural supporters, and sets him up as the defender of Canadians’ national interests.
Whether it’s enough to save the election for him is doubtful; there probably aren’t enough auto workers and dairy farmers in the country to turn the tide for the NDP this late in the race, and surveys have shown that most Canadians are supportive of Canada expanding its international trade agreements. But at least he’s stepped up to defend a traditional NDP position – an alternative economic viewpoint that perhaps we have seen too little of in this campaign.