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Web ExclusiveThe Conservative Deficit
Economist’ is just a Greek word for ‘household manager.’ We all have households of one sort or another. Managing them is not rocket science. You don’t spend money you don’t have (or aren’t guaranteed to get). Consistently spending more than you earn will put you into debt and maybe bankruptcy. Do-it-yourself projects will build your skills and save a ton of money. Maintenance is cheaper than repairs. We all know how to manage households.
So why do governments seem to have such a hard time, especially Conservative governments?
When John G Diefenbaker rode out of the west in 1957 into a minority Conservative Government, he inherited a household in relatively good shape. Liberal PM Uncle Louis [St Laurent had paid down Canada’s World War II]http://www.biographi.ca/009004-119.01-e.php?&id_nbr=7990&interval=20&&PHPSESSID=s6bai1150faqqk6qcf90cckql0) debts in full and established the Canada Council and the Hospital Insurance Plan – the precursor to Tommy Douglas’ comprehensive healthcare scheme in Saskatchewan.
The Conservatives soon introduced tax cuts but the economy turned sour and by the time Dief the Chief was turfed from office they were borrowing money from the International Monetary Fund and had turned a small surplus into a large deficit.
They didn’t do much better on do-it-yourself projects. In the face of cost overruns, no buyers outside the RCAF and US displeasure, the Diefenbaker Government cancelled the Avro Arrow (photo below), which was only a couple of models away from being the most advanced fighter jet in the world. The fingerprints of the Arrow can still be seen in jet engines and aircraft design today.
History is divided on whether cancelling the Arrow was a prudent decision at the time. What’s not in dispute is that it cost Canada some 14,000 highly skilled jobs and our technological expertise went south. Over 30 top Canadian engineers left Canada for the US to head up NASA’s Mercury, Gemini and Apollo programs.
The next Conservative Government was Brian Mulroney’s. He inherited a debt of $200 billion from Trudeau, and turned it into $514 billion by the end of his term. His deficit was over $40 billion. To bring it down, the Mulroney Government started selling Crown assets and they introduced the Goods and Services Tax – the hated GST.
Oh well, at least Mr Harper cut the GST where Mr Chrétien did not. Now you can save $2.50 on the price of a new lawnmower. That’ll help when Johnny goes to college, or it would have if the Koreans or the Chinese, or whoever made the damn thing, hadn’t raised the price by $20 because shipping it is more expensive ever since the price of oil hit triple digits and it didn’t cost two bucks more for gas just to cut the back yard.
Speaking of foreign trade, we did have one profitable product for a while – medical isotopes that the world needs for the diagnosis of cancer, among other things. As with most manufacturing industries there were three parts to Canada’s: very costly production (at ACEL’s reactor at Chalk River), not so costly refinement, and very profitable selling. At the time, Canada was the world’s supplier of medical isotopes so they were a money maker, if managed properly. But Mulroney sold the refinement and the lucrative parts to MDS Health Group (now Nordion) and kept the money-losing, and quickly aging, reactor at Chalk River.
The reactor went right on aging through the Chretien years and plans were made to build a new facility to replace it. During the first term of the Harper Government, all parties ignored warnings from the regulator (Linda Keen, President of the Canadian Nuclear Safety Commission) that Chalk River was in trouble. Mr Harper went so far as to fire her.
When it finally did break, the world supply of medical isotopes was cut off. The Harper Conservatives did what Dief did to the Arrow – they cut their losses and got out of the medical isotope business altogether, abandoning two new reactors that were to take over production from Chalk River. But not to worry, it looks as though the Netherlands’ new reactors will pick up what we can’t do.
The whole thing was a very bad deal for Canadians. It still is. Thanks to Mr Mulroney’s bargain with MDS, we are on the hook for supplying the company (now Nordion) with radioisotopes. They’re suing us for breach of contract and asking for $1.6 billion.
Nortel followed the pattern. True, Nortel’s corporate executives got that great Canadian company into trouble before the Harper Government won the 2006 election. But instead of bailing it out (as Harper did for American companies during the Recession) the Conservatives allowed it to slip into receivership and refused to block the sell-off of Canadian technology to foreign companies.
If you are a laissez-faire economist, as Mr Harper is, so be it. But they have allowed Nortel’s greatest treasure, its technological innovation, to go on the auction block. Google, no fool they, have put in a bid of nearly $1 billion for Nortel’s patents. Meanwhile Canada’s RIM (of Blackberry fame) was effectively blocked from bidding on Nortel’s wireless technology unit and now that has gone to Ericsson in Sweden.
Never mind. If growing high tech industry is beyond Conservatives’ grasp, there are always their corporate tax cuts. And, they are cutting taxes – from 18% to 16.5% this year to 15% next year. Reducing corporate taxes rates create jobs and promote economic growth, right? Well, probably not.
The Globe and Mail reports that, instead of ploughing profits back into their business, as they did in the fifties and sixties, companies are now hoarding cash – and that includes anything that comes their way in the form of tax cuts and hand outs. They have even added $83 billion to their cash reserves since the recession in 2008. What’s in your wallet?
A recent study from the Canadian Centre for Policy Alternatives shows that, a decade of reducing federal and provincial corporate taxes has not created jobs. It has, however, helped to increase the profits of Canada’s 198 largest companies by 50% since 2000. Now you know where all those executive bonuses are coming from.
Another study by the CCPA looks at the cost of the Harper Government’s 3 point corporate tax reduction (from 18% to 15% in 2012) and concludes that the cuts would take $6 billion out of the public purse and stimulate only $600 million worth of new business. That’s like investing $6,000 of your income in the stock market and getting back $600.
Competing with other countries’ corporate tax cuts is a mug’s game anyway. Everyone rushes to the bottom line, dragging down their infrastructure and social programs. Remember the Celtic Tiger? That was Ireland before the Recession with its slashed corporate tax rates. The companies have gone, and all the Irish have to show for it is a big box of kitty litter.
By 2006, Canada had socked away a $42 billion surplus, but the Conservatives went through that even before the rainy-day Recession. Now we have the largest deficit in Canadian history. With luck, that might shrink to $10 billion by 2015, according to the Parliamentary Budget Officer. The International Monetary Fund is more generous. It projects the deficit in 2015 to be $5.4 billion. No one except the Harper Government says it will be zero.
But what else could we have done? We fell, along with the rest of the world, into the Recession and we chose, along with the rest of the world, to spend our way out of it.
Well, the Calgary-base Pembina Institute suggests that the Harper Government’s “Economic Action Plan” could have been a lot smarter. By putting more money into green technology, the report says, another 150,000 more jobs could have been created – jobs that would last and give Canada a leg up in the world’s fastest growing industry. We spent 8.3% of our stimulus package in the green sector. The US spent 9.8% and China spent 37.8%.
But wait. That sounds suspiciously like a certain defrocked Liberal leader’s idea for a “green shift”. Didn’t I see a picture of M Dion with bird poop on his shoulder a few years ago? Who says attack ads don’t work.
So, now that we’re out of the Recession (we hope) how’s the Harper Government doing? Not well, if you believe investment economists. Goldman Sachs is advising its clients to sell their commodities – the very thing the Conservatives are relying on to help reduce the deficit.
MRB of Montreal says that Canada’s record in cutting the federal budget has been “terrible” given the bonanza we are reaping from high commodity prices, chiefly oil. And, now, there are “some alarming structural imbalances building.” The investment consulting company adds that our non-resource sector, which includes the vital technology sector, is uncompetitive.
In other words, all our eggs are in one basket and people are starting to look them over and ask who laid them.
It’s a good question.
David McLaren has worked in government, the private sector, with NGOs and First Nations in Ontario. He is a writer living at Neyaashiinigamiing on the Bruce Peninsula in Ontario. He can be reached at david.mclaren@utoronto.ca. More of his essays can be found at his blog.
