Fiscal Statement: Credibility Lost and Opportunity Squandered
I wasn’t originally planning to write a longer analysis and critique of Flaherty’s fiscal and economic statement beyond our immediate response because, like most people, I expected it would at least show some reasonable recognition of the problem and at least the framework for a stimulus program (besides, I had young children to pick up from school, feed and put to bed!). Â Erin had also done a good quick analysis.
But what I read in the statement was such a disturbing affront to reason, public policy, and the economic challenges we face that I woke up in the middle of the night and wrote the following. Â
It’s a bit of a rant, but I think it helps to explain whyÂ CUPEÂ has called for this statement to be defeated in parliament and joined with theÂ CLC,Â other unions and civil society organizationsÂ in asking federal opposition parties to form a coalition government.
Constitutional experts agree there is no question that if the opposition parties, which gained over 54.4% of the popular vote in the last election compared to the Conservativesâ€™ 37.6%, can show that they have a serious agreement and plan to deal with the economic crisis, they deserve every right to govern as a coalition.
It is very rare for a federal government in Canada to be elected with over 50% of the vote. Â Mulroney just achieved this with 50.1% of the popular vote in 1984. Â Diefenbaker was elected with 53.7% in 1958, while Mackenzie King received 51.3% in 1940. Â I believe the only time a government has been elected with over 55% of the vote was when Borden gained almost 57% of the vote in 1917 with his Unionist coalition.Â
I just heard, that in a desperate bid to stay in power, John Baird has said his government has offered to back down on their promise to cancel public funding of political parties. Â The Conservatives seem to be so thoroughly blinded by their own narrow partisanship they don’t understand that this isn’t the real problem. It isn’t just what is in their statement in terms of attacks on democracy and workers; it is also what is lacking in it that is so disturbing.
Flahertyâ€™sÂ Fiscal Statement: Credibility Lost and Opportunity Squandered
Times of crises are also times of greatÂ opportunity.Â Â Â
WhenÂ much is at stake and the challenges are great, people are willing to make bigÂ sacrifices, explore new ideas and work together for the common good underÂ inspired and strong leadership.Â
TheÂ greatest Presidents and Prime Ministers in historyâ€”Lincoln, Roosevelt,Â Churchill, Pearsonâ€”are those who rose to the occasion in a time of crisis toÂ make far-reaching progress.
CrisesÂ can also be times of opportunism; a time when those in power exploit fear forÂ petty political purposes, create further divisions and set their countries evenÂ further back.Â History is not kindÂ to those who have taken this low road, either treating them with ignominy or forgettingÂ them at best.
InÂ the growing financial and economic crisis we are in, there were signs thatÂ Prime Minister Harper may have been ready to bend his narrow ideological viewsÂ and shift away from the political opportunism that characterized his firstÂ term.Â
AfterÂ the federal election, he responded to calls to meet with Premiers, listened toÂ economists who called for economic stimulus, and seemed ready to work with theÂ opposition.
HisÂ governmentâ€™s Economic and Fiscal Statement, delivered by Finance Minister JimÂ Flaherty, demolished these hopes.Â
InsteadÂ of presenting an honest picture of the federal governmentâ€™s finances, FlahertyÂ has engaged in fiscal fraud.Â HisÂ statement distorts private sector forecasts to put forward the fiction that CanadaÂ is not already on the path to deficits.Â
NoÂ respected economistâ€”on Bay Street or offâ€”places any credibility in Flahertyâ€™sÂ numbers.Â Patricia Croft, chiefÂ economist at RBC Asset management calls them a â€œmirageâ€ and â€œsmoke andÂ mirrors.â€Â TD Bank chief economist.Â Don Drummond commented that you had to turn them upside down to get a better
OneÂ of the business school economists whose forecasts were used and reportedly distortedÂ in this exercise reacted by saying, â€œMy cynicism has reached new heights. WhatÂ else can I say?â€Â
TheÂ Finance Minister doesnâ€™t even believe his own fiscal statement, telling CBCÂ Radio that he thinks it is probable that the federal government will go intoÂ deficit, just two hours after he forecasted five more years of surpluses.
If he doesnâ€™t believe his own statement and words,Â why should anyone else?Â
ItÂ may be hard to fathom, but Flaherty’s economic and fiscal statement goes downhill fromÂ there.Â
ThisÂ economic statement is as much a disgrace for what it includesâ€”in small-mindedÂ and vindictive measuresâ€”as for what it lacksâ€”the recognition of a need forÂ substantial economic stimulus measures, if not a roadmap for recovery or visionÂ for the economy.
LastÂ fall, when the economy was growing strongly, Flaherty caught everyone byÂ surprise by using the 2007 fall economic and fiscal statement to bring in andÂ accelerate tax cuts that will cost the federal government $60 billion over sixÂ years.Â These did nothing toÂ strengthen the long-term health of the economy and have instead pushed theÂ federal government into deficit.
UnderÂ Harper, Canadaâ€™s economic productivity has actually fallen,Â as Jim Stanford has pointed out.Â As a country we produce less for theÂ same amount of work than when he came into office.Â Â Harper is the first elected Prime Minister in CanadaÂ to preside over such a loss in the strength of our economy since StatisticsÂ Canada started collecting this productivity data in 1961.
AroundÂ the world, leaders are reaching across political party divisions to buildÂ coalitions in this time of economic crisis.Â Instead, Harperâ€™s government is trying to weaken and destroyÂ the opposition.
DespiteÂ only gaining the support of only 22% of registered voters (and less than 38% ofÂ those who cast ballots) in the recent election, Harper and Flaherty are usingÂ the poor economy and declining revenues as an opportunity to undermine publicÂ services and to attack public sector workers and other political parties.
CountriesÂ around the world are introducing economic stimulus programs to counter theÂ global economic downturn.Â Â Â The economic stimulus package of President-elect Obama is expected toÂ total $700 billion.Â The European Commission is working on an economic stimulus plan of $200Â billion Euros.Â In Britain, PrimeÂ Minister Brown has put forward a plan amounting to almost $40 billion, whileÂ Prime Minister Kevin Rudd of Australia is expected to use much of the $29Â billion they have in surpluses.Â ChinaÂ announced a $586 billion stimulus package in early November.Â Â
The crisis is expected to get so severe that even the International Monetary Fund (IMF),Â usually a very strong proponent of reduced government spending, has called forÂ governments to put in place economic stimulus programs equivalent to 2% ofÂ their economic output.Â In Canada,Â this would amount to $30 billion.
ItÂ is only in Canada that our national government has exploited this seriousÂ economic and financial crisis to exercise petty political opportunism.
EvenÂ the Globe and Mail, normally a stalwart supporter of Harper, called it â€œcynicalâ€,Â with a columnist saying that â€œit takes a special kind of immaturity to look atÂ an economic crisisâ€”one that has people worried about their jobs and their homesÂ and their life savingsâ€”and consider only how it might be turned to your
TheÂ federal governmentâ€™s economic and fiscal statement is based on private sectorÂ forecasts that are now out of date.Â Â It predicts that the economy will grow by 0.6% in 2008, by 0.3% in 2009Â and then rebound by 2.6% in 2010.
InÂ contrast, the recent released economic outlook from the Organization forÂ Economic Cooperation and Development (OECD) expects considerably slower growthÂ for Canada: 0.5% in 2008, -0.5% in 2009 and 2.1% in 2010.Â Â
LikeÂ the OECD, most Canadian economic forecasters are also now expecting worseÂ economic conditions than what the federal government reported.Â Even then, a number of theseÂ independent forecasters had assumed that the federal government would beÂ reasonable and would include an economic stimulus package of about $15 billionÂ in this statement.Â Instead, it isÂ planning to cut public spending by $6Â billion next year, which will mean even slower economic growthâ€”and thenÂ consequently lower revenues.
TheÂ economic statement claims that the slowing economy would have put the federalÂ government on track for a deficit of $5.9 billion next year.Â
However,Â the federal governmentâ€™s economic forecasts were always too optimistic.Â Â The real reason for this loomingÂ deficit was Flahertyâ€™s 2007 Economic Statement that put in place irresponsibleÂ tax cuts that will reduce federal revenues by $9.3 billion this year and byÂ $9.4 billion next year.
PayingÂ for tax cuts by attacking the public sector
ToÂ prevent a deficit, the Harper government announced in his statement that itÂ will:
- Privatize and sellÂ off public assets to gain $2.3 billion in 2009/10 and a total of $10Â billion over the next five years.
- Cut and slow downÂ planned program and public spending by $2 billion in 2009/10 and by moreÂ than $5 billion over the next five years.
- Reduce wages forÂ federal public servants by $4.1 billion over the next five years,Â including by rolling back increases and outlawing the right to strike forÂ federal public servants.
- Restrict the growthÂ of the Equalization Program. The amounts cut from this program are notÂ presented separately, but they are expected to total $2.8 billion inÂ 2009-10.
ThisÂ is the next step in their agenda: using tax cuts to create a deficit andÂ thereby to justify cuts to public services and privatization of federal governmentÂ assets.Â
TheseÂ types of cutbacks are the exact opposite of what governments should be doing inÂ an economic downturn.Â Instead ofÂ cutting back spending, governments should be stimulating the economy withÂ increased public spending and investment to counter a slowing private sectorÂ economy.Â
TheÂ IMF and most economists have called for an economic and jobs stimulus packageÂ of $15 to $30 billion, which would mean deficits of at least this amount.Â Â Tax cuts do not help much inÂ these circumstances; infrastructure and public spending is much more effective.
PoliticallyÂ motivated attacks
TheÂ fiscal statement also announced that the governmentâ€™s plan to pass laws to:
- Eliminate theÂ political party public subsidy program that was brought in to compensateÂ for limiting donations to political parties.
- Cut off the abilityÂ of workers, mainly women, to achieve pay equity through the human rightsÂ commission.
PayÂ equity legislation has been an important way for women to redress inequalitiesÂ in the workplace that result in them being paid an average of only 70% of whatÂ men are paid on average.
TheseÂ steps are clearly vindictive and politically motivated attacks against theÂ opposition, unions and the ability of women to achieve fair wages. The moneyÂ that the federal government would save from these is relatively so small thatÂ they are not even included in the economic statementâ€™s fiscal tables.Â
LimitedÂ stop-gap support for pension plans
TheÂ economic and fiscal statement does include two stop-gap measures to help copeÂ with the pension crisis: 1) allowing pension plans to deal with solvencyÂ shortfalls over a ten year, rather than five year period; and 2) allowing aÂ temporary reduction in minimum RRIF withdrawals for pensioners.Â
TheseÂ provide some temporary relief, but they donâ€™t deal with any of the fundamentalÂ problems with our pension system or the lack of retirement security for a largeÂ majority of workers.Â With highlyÂ unstable financial markets, Canadians can only gain real retirement securityÂ through improvements to public pension plans and old age security.
Ongoing Support for Financial Industry
WhileÂ workers are left out in the cold, the Harper government continues to provideÂ almost unlimited support for the financial industry: the same people thatÂ caused this financial crisis.Â TheÂ federal government has already earmarked $75 billion to take mortgages off theÂ books of the banks, and is providing tens of billions in other forms of supportÂ and liquidity to the financial industry with few conditions.
SomeÂ support to the financial industry may be necessary, but it should be providedÂ with conditions to reduce speculation, limit excessive CEO compensation, insureÂ that credit and support is ultimately passed on to households and businesses,Â and with a framework for much stronger regulation and enforcement to reduceÂ fraud.
NoÂ positive action on the economy
TheÂ economic statement lacks any sort of reasonable economic stimulus plan.Â
Instead,Â the â€œForward Agendaâ€ outlined provides nothing new, just a backwards-lookingÂ rehashing of the neo-conservative economic policies originally set out in theÂ Harper governmentâ€™s 2006 Advantage Canada Plan.Â These involve a far-reaching program of privatization,Â commercialization, cuts to public programs, deregulation, tax cuts and â€œfreeÂ tradeâ€ â€“the very same irresponsible and regressive policies that caused theÂ current economic and financial crisis.
ThereÂ is no new funding for infrastructure, just a promise to accelerateÂ already committed funding for infrastructure projects.Â There is already a $3 billion backlog inÂ already committed funding for infrastructure investment.Â This has developed because of theÂ Harper governmentâ€™s new Building Canada Fund that has introduced bureaucraticÂ and lengthy delays with its requirement for applicants to fully considerÂ public-private partnerships (P3s).
ThereÂ is nothingÂ to improve Employment Insurance.Â Â Cutbacks to the program mean that only 42% of the unemployed can now qualifyÂ for benefits.Â This program needsÂ to be improved and expanded so those who become unemployed as a result of theÂ economic crisis arenâ€™t forced into complete poverty.
Unfortunately,Â the Harper government is continuing to force P3s and privatization on to otherÂ levels of government, even though they are much more expensive, complicated,Â unaccountable, lengthy and cumbersome.Â
The Harper government has put very little new funding intoÂ infrastructure; most of the increases were put in place by the previous LiberalÂ government.Â Funding committed forÂ infrastructure will only grow by an average of 1.1% a year after 2009-10, lessÂ than the expected rate of inflation.
TheÂ rest of the economic agenda outlined in the economic statement is largely moreÂ camouflaged neo-conservative policies:
- Strengthening Financial Markets.Â This sounds like a good thing, butÂ the Harper government committed itself to â€œprinciples-based regulationâ€ ofÂ the financial sector in its 2007 Budget and appointed an expert panel ledÂ by industry insiders that will report in 2009.Â Principles-based regulation really means moreÂ self-regulation and deregulation, the same approach that caused thisÂ financial crisis in the United States.
- ImprovingÂ Competitiveness.Â This includes furtherÂ corporate tax measures, pushing for the harmonization of provincial salesÂ taxes with the GST, more far-reaching â€œfree tradeâ€ deals, streamlining andÂ reducing regulation for industry, and moving ahead with theÂ recommendations of the Competition Policy Review Panel, which willÂ actually lead to weaker enforcement of competition rules.
The economic andÂ fiscal statement should have included a forward-looking roadmap to recovery, anÂ ambitious economic stimulus program, measures to protect workers and seniors,Â and a framework for stronger regulation and consumer protection.
InsteadÂ what we got was petty political opportunism and rehashing of the failedÂ neo-conservative economic policies that created this economic and financialÂ crisis.Â
ThereÂ is clearly not just an opportunity, but also an urgent and pressing need, forÂ the federal government to move forward immediately with a serious economicÂ stimulus plan to deal with this crisis.Â Â Canada has very little breathing room before our economy deterioratesÂ much further.Â
WithÂ this economic statement, the Harper government has squandered its opportunityÂ to move forward in a constructive way.Â Instead theyÂ exploited the crisis to engage in petty political opportunism and attackÂ the rights of Canadians.Â In doingÂ so, it has lost the confidence not just of the opposition but also of economists andÂ people across Canada.Â