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The Progressive Economics Forum

Election 2015: Liberals in a Hurry, Budget Policy and Time to Plan

Wow!  What an upset!   A Liberal majority!   From 35 seats to what are they projecting … 185!?

If the Liberals outflanked the NDP on progressive economic policy, it was on a single issue, that of budget policy.  With the Liberals promising three years of budget deficits to finance infrastructure spending and the NDP committing to four years of balanced budget (while introducing $15 a day childcare financed by corporate tax hikes), it seemed Lester Pearson’s famous quip had been turned on its head:  Liberals as socialists in a hurry?

Looking beyond this evening, here how’s things may play out over the next year, once the celebrations have drawn to a close.

  • October 19 to December 31, 2015: transition. Trudeau’s cabinet will named and staff, including advisors, will be hired.
  • January, 2016: The 42nd Parliament will commence with a throne speech, outlining the Trudeau vision for governing Canada.
  • February-March, 2016: A “thin” budget will be presented, probably featuring the promised cut to the “middle class” tax bracket.

What is important to keep in mind is that March 31, 2016 is the end of the 2015-16 fiscal year and the fiscal position will likely be in deficit.  This deficit is unfolding as I post this: with slow growth, including a contraction in the April to June 2015 quarter, less tax revenue is coming in, while spending, including what is paid out through the “automatic stabilizers” like EI, remains unchanged if it is not growing.   Congratulations, Prime Minister Trudeau, you have recorded your first deficit without having to lift a finger.

A consolation for Tom Mulcair, with his commitment to a balanced budget, is that he will now not have to figure how to square this circle had he formed the government.

  • March-November, 2016: Planning.

The period leading up to the fall 2016 economic update, if the Trudeau government chooses to have one, will be a critical one as it will allow the government to formulate its economic policy vision for its four years of governing.  It was in such an update in the fall 2006 where the Harper Conservatives unveiled Advantage Canada, its economic policy blueprint, that guided government policy, until the 2008 financial crisis upended that plan.  Here, we can expect to see details on the new discretionary spending programs featured in the Liberal campaign platform.

Unlike Tom Mulcair, who was rather vague about when the NDP would roll out its spending programs over the next four year, Justin Trudeau has been rather adamant about immediate public spending, such as on public transit infrastructure.  However, there are good reasons to not rush these spending initiatives, but instead take time to design and plan.  The Liberals do not need another procurement scandal like the Sponsorship imbroglio, but this could happen if contracts are rushed out the door and land in the laps of loyal Liberals.  Another consideration is that many of the Liberal spending promises, such as on infrastructure, require the cooperation of governments at the provincial and municipal levels.  Such consultations take time.  When was the last time there was a First Ministers conference?  Trudeau the Younger should avoid cues from Trudeau the Elder in this respect.

All is to say, with the intent of this new government to be more active in the economy, there are good reasons to take time to plan and get it right.  We’re not in a sharp crisis like in late 2008.  It is the longer term trend, this stagnating trend,  that needs to be addressed.

Good luck, Mr. Trudeau!

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Comments

Comment from Larry Kazdan
Time: October 20, 2015, 2:28 am

Society benefits with full employment. Not only do idle workers waste their talents but long-term unemployment often leads to pathologies such as sickness, substance abuse, and mental health issues which lead to family breakdown, more costs to society, and the reduction of the future productive potential of the workforce.

In the 1970s, Liberal federal governments funded the Local Initiatives Program with objectives of creating jobs for unemployed Canadians and improving the quality of life for communities. Projects sponsored by local organizations and citizen groups covered such areas as arts and culture, recreation, tourism, research and the environment.

There are many jobs in these areas that need doing today, and there are many people who would be happy to do them, even at minimum livable wages and benefits. The Federal government, working through municipalities and non-profit groups across the country, should guarantee such a job to anyone willing to accept one.

Infrastructure spending is not the only stimulus available. Precedents for direct job creation abound which hire “off the bottom”, and if the new Liberal government is serious about job creation, it should create a Job Guarantee program. As the Ernst and Young study of Downtown Eastside employment has shown, for every dollar spent on reducing joblessness, the social return, such as increased spending power and reduced criminal justice and health costs, is about three dollars for every one dollar invested.

Footnotes:

1. The Job Guarantee: A Government Plan for Full Employment
http://www.thenation.com/article/161249/job-guarantee-government-plan-full-employment

“The benefits of full employment include production of goods, services and income; on-the-job training and skill development; poverty alleviation; community building and social networking; social, political and economic stability; and social multipliers (positive feedbacks and reinforcing dynamics that create a virtuous cycle of socioeconomic benefits). An “employer of last resort” program would restore the government’s lost commitment to full employment in recognition of the fact that the total impact would exceed the sum of the benefits.”

2. Public service employment programs – what really have we got to fear?
http://bilbo.economicoutlook.net/blog/?p=20679

> Boondoggling and leaf-raking – it is the term that invokes the ultimate put down by the conservatives who laud the virtues of the private sector as they create hundreds of thousands of low-skill, low-paid, precarious and mind-numbing jobs but hate, with an irrational passion, the idea that the public sector could employ workers that the private sector doesn’t want and get them to work on community development projects at a minimum wage. And to put a finer point on it … on projects that can leave massive positive legacies to all that follow.

Comment from Angella
Time: October 22, 2015, 8:58 pm

Just to be a pendant, Mulcair never said he would make sure *this year’s* budget was balanced, he was clear that he expected it to be in deficit.

The NDP also had very specific phase-ins of their program spending, if you looked at the platform document that was released before Thanksgiving.

I agree the new government would be wise to take some time to set priorities (these were never clearly laid out), and not be in such a hurry to get the money out the door. Mostly, though, municipal infrastructure priorities have already been established by cities, so it’s not like they are starting entirely from scratch.

Comment from Bob
Time: October 23, 2015, 9:50 pm

Well said, Larry. What does the NDP have against full employment and a job guarantee? What did drinking the austerity kool-aid do for them? A distant third and likely to stay that way indefinitely.

The Galbraith lectures on this site are a perfect way to get back to basics, especially Mike McCracken’s (RIP) spirited advocacy of full employment.

As the incisive Neil Wilson wrote on 3spoken, let’s make the “bookend” our new progressive philosophy:

“- the state, as representative of us all, takes the resources necessary to create the critical public infrastructure and basic functions – all those that are a natural monopoly or are best treated as a natural monopoly, plus whatever is required to fulfil the critical public purpose of the people who elect them (a health service, education, etc).
– the private sector is then allowed to play with the rest of the resources as it sees fit.
– the state then takes what the private sector decides it doesn’t want to use and deploys them sensibly for the ‘nice to have’ public purpose.”

That’s so much better and more inspiring than Mulcair’s fatuous parroting of Conservative speaking points.

Comment from Pearce Tournier
Time: October 26, 2015, 2:45 pm

Interesting. But,
1) Was that quip not initially by Mackenzie King, not Pearson? Pearson was certainly in a hurry, whereas Mackenzie King did everything he could to sell himself as a progressive, while fighting a hard rearguard action against any increase of government spending. King’s distaste for the new economic approaches is evident from an entry in his diary:
“The world situation has headed the countries more and more in the direction of the extension of state authority and enterprise, and I am afraid Canada will not be able to resist the pressure of the tide. The most we can do is hope to go only sufficiently far with it as to prevent the power of government passing to those who would go much farther, and holding the situation where it can be remedied most quickly in the future, should conditions improve.” See Mackenzie King, Diaries (1 April 1938) 263, http://king.collectionscanada.ca, quoted in Thompson and Seager, 301.

2) The NDP loss was due to more than just its sound finance idiocy (although Syd Ryan’s recent post in the Sun deserves reposting here). However, that compounded lesser but still terrible errors that undermined the NDP’s claim to being progressive, including:
a) The NDP’s support for cap-and-trade, which has failed everywhere, over carbon taxes;
b) The NDP’s tolerance of asymmetric federalism, which made what few progressive promises the NDP proposed largely unrealizable;
c) The racist (towards First Nations) and undemocratic Sherbrooke declaration;
d) Mulcair’s (tacit or at least uncritical) support for Netanyahu’s policies towards Palestinians and the colonialists who settle beyond the 1967 green line;
e) The symbolic removal of socialism from the party’s constitution;
f) The NDP’s opposition to the Clarity Act.

Not every strategic voter was moved by every one of these, but progressive voters across Canada, and especially in Ontario, feel in their bones that defending national standards is essential to the maintenance of progressive social and economic programming, and all Layton and then Mulcair could offer was 1970s Joe Clark-style communities of communities nonsense.

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