Economic Questions for Conservatives

As the debacle on Wall Street continues to unfold, how will it all affect the election up here?  So far, Harper’s team is not “wearing” the uncertainty and insecurity that people feel regarding the economy, to nearly the extent that they should.  I think that partly reflects the lack of concerted attack on economic issues from the opposition parties, and the curious “have-it-both-ways” aspect of free-market economic ideology (namely, if things are going well it’s thanks to the government’s steady hand, but if things are going badly don’t blame government because after all we live in a free-market private-sector system). 

I hope that economic concerns will become more prominent in the remaining weeks of the campaign, and that voters begin to hold the Harper team to account for frittering away the proceeds of what was an inevitably time-limited resource boom on tax cuts and military spending – leaving us balanced precariously on the edge of deficit, just as government will need to spend more (not less) on EI benefits and public infrastructure. 

To that end, I have assembled some choice quotes from Prime Minister Harper and Finance Minister Flaherty, some related economic factoids, and some possible questions to pose on the economy to Conservative candidates:

On Canada’s Economic Fundamentals

On June 12, 2006, Finance Minister Jim Flaherty said that Canada’s fundamentals … are as solid as the Rock of Gibraltar.”

On February 27, 2008, Finance Minister Jim Flaherty said this: I’m proud as a Canadian to be able to say that we have the strongest economic fundamentals in the G7.”

Canada’s real GDP (the total goods and services produced in the economy) shrank slightly during the first half of 2008.  According to the OECD’s most recent Economic Outlook, Canada is expected to have the second-worst economic growth of all the G7 economies this year, with real GDP growing just 1.2 percent.  Among the G7, only Italy’s forecast growth is worse.  If we adjust for population growth (which is much faster in Canada than in Europe), our real GDP per capita is falling, and we are the worst of the G7.  According to Statistics Canada, average productivity (which many economists consider the most fundamental measure of economic efficiency) in Canada’s business sector has declined since January 2006.  And again according to the OECD Economic Outlook, Canada’s productivity growth over the 2006-2008 period has been the second-worst of any G7 economy (again, only Italy is worse).

Questions for Conservatives:

Do you believe that Canada’s economic fundamentals today are “as solid as the Rock of Gibraltar”?

What is the fundamental purpose of the economy, if not to produce more goods and services, as efficiently as possible?

With falling real output and declining productivity, how are Canada’s economic fundamentals strong?

On Manufacturing

On September 16, 2007, Finance Minister Jim Flaherty said this: “We’re seeing a lot of resilience in Canadian manufacturing businesses.”

Since the Harper government was elected in January 2006, 200,000 manufacturing jobs have disappeared from Canada.  That’s the loss of 200 jobs (or one medium-sized factory) every day.  Dozens of plants have closed.  Real GDP in manufacturing has declined in 7 of 9 quarters (three-month periods) since the 2006 election – and has now fallen by 9 percent in total since Harper came to power.  And Canada’s manufacturing trade deficit has more than tripled in just three years, from $16 billion in 2005 to over $50 billion this year.

Questions for Conservatives:

Do you accept that Canada’s manufacturing industry is crisis?

How do you define “resilience”?

Do you think that manufacturing has any special importance in Canada’s economy, or are other sectors just as important?

On The Canadian Dollar

On January 29, 2008, Finance Minister Jim Flaherty said this: “The Bank of Canada has targeted a range of 95 to 98 cents or so for the dollar, and that remains the target of the Bank of Canada, which we support.”

Apparently the Harper government officially supports a Canadian dollar near to par with the U.S. dollar.  Yet according to international organizations (like the Organization for Economic Cooperation and Development), the true fair value (based on purchasing power) of the Canadian dollar should be about 80 cents (U.S.).  With our dollar therefore about 25% above its fair value, Canadian products (especially manufactured goods) are too expensive to foreign buyers.  That’s largely why we’ve lost 200,000 manufacturing jobs during Harper’s term in office, and why our trade balance (for everything other than petroleum) has deteriorated dramatically.

Questions for Conservatives:

Do you believe that the Finance Minister should endorse a particular trading range for the Canadian dollar?

Do you support, as he does, the dollar being close to par with the U.S. dollar?

How can Canadian products compete in international markets when an inflated currency has artificially increased their costs by 25%?

On Supporting the Auto Industry

On February 20, 2008, Finance Minister Jim Flaherty said this: “These Band-Aids for individual companies…, it’s picking winners and losers. Governments aren’t good at that.”

In Windsor on September 4 (three days before calling the federal election), while announcing $80 million over 5 years in financial support for a Ford Canada investment, Prime Minister Stephen Harper said this:  “This is not money that is being thrown around on the eve of an election.”

For two-and-a-half years, the Harper government stated it was wrong to provide targeted aid to support key industries, companies, or projects, no matter how important their operations in Canada are to our overall economy.  Then, with the election about to be called, the Harper government announced important (and badly-needed) support for major investments undertaken by Ford, General Motors, Bombardier, and others.

Questions for Conservatives:

Which policy will the Harper government adopt toward supporting key industries, if it wins re-election on October 14?  The policy of “not picking winners” that it followed for all but one week of its term in office?  Or the policy of supporting key industries and investments, that it followed during its last week in office?

On the Federal Budget

On March 11, 2008, Jim Flaherty said this: “Our government told Canadians we would maintain a balanced budget and we intend to keep our word.”

From fiscal 2000-01 through fiscal 2007-08, the federal government ran large annual surpluses that averaged $10.3 billion per year.  For the current fiscal year, the Finance Minister had predicted a surplus of $2.3 billion, and for next year just $1.3 billion.  The federal surplus has therefore declined by over 80 percent, compared to the levels that prevailed earlier this decade.  And if economic growth does not match federal expectations (the government predicted real GDP growth of 1.7 percent in 2008 and 2.4 percent in 2009 – neither of which is likely), then the budget balance will be worse.  Indeed, the government did slip into deficit during April and May of this year – and it could end up in the red for the year as a whole if the economy worsens.

By allocating almost all of its spare fiscal room to tax cuts (including corporate tax cuts that will cost almost $15 billion per year when fully phased in by 2012), the government has left no room for contingency in its budget, and created a significant risk of future deficits.  But if the government encounters a deficit problem, Mr. Flaherty indicated he will cut spending, not restore corporate taxes.

Questions for Conservatives:

If an economic recession causes a federal budget deficit, which will you preserve?  Canada’s health care and social programs?  Or lower corporate income taxes?

On Investing in Ontario

On February 29, 2008, Finance Minister Jim Flaherty said this:  “If you’re going to make a new business investment in Canada, and you’re concerned about taxes, the last place you will go is the province of Ontario.”

In most countries, the Finance Minister does everything in his or her power to win new investment.  In Canada, to score partisan points, the Finance Minister actually discourages investment here.  He made these comments at the same time as suggesting that if Ontario had cut its corporate income tax rates (as he did with federal rates – cutting them by about one-third by 2012) then the province’s manufacturing sector would not be in trouble.

When a company is losing money, a reduction in its income tax rate actually hurts it – because it’s after-tax loss is larger than it otherwise would have been.

Questions for Conservatives:

Do you believe that the Finance Minister should publicly discourage companies from investing in Ontario?

Can you explain how a corporate income tax reduction provides any benefit to companies (like the major North American auto companies) which do not have positive profits and hence do not pay income taxes?


  • Good work, Jim. In terms of “the lack of concerted attack on economic issues from the opposition parties,” it is important to distinguish between the opposition parties.

    The centerpiece of the NDP campaign has been not implementing the corporate tax breaks. Of the dozen major policy announcements that the NDP has made so far, seven have been on “economic” issues: a moratorium on new tar-sands approvals, targeted support for manufacturing, training, climate change and green jobs, consumer protection, renegotiating NAFTA, and a forestry strategy. (The other five have been on important “social” issues: healthcare, childcare, homecare, crime, and arts/culture.)

    By contrast, Dion mostly espouses the same positions as Harper on economic issues. The Liberals presided over the first half of the manufacturing crisis, and endorse the same monetary and trade policies that have contributed to this crisis.

    The Liberals not only support the Conservative corporate tax cuts, but tried to enact half of them in their 2005 budget (until the NDP stopped them). Indeed, the Green Shift now proposes to cut even deeper than the Conservatives.

    Of the economic policies mentioned, perhaps the only one on which the Liberals differ from the Conservatives is government support for the automotive industry. With that exception, the problem has been a lack of concerted attack on economic issues from the Liberal Party.

  • These two responses are precisely why there is undoubtedly no sustained or focused economic attack on the conservatives.

    Divide and conquer, the tories are have had a free pass when it has come to organized resistance towards them. Too bad, there was so much potential.

    One common target yet, always too busy talking about each others arrows and whose are the best.

    Anyway, just a small point.

    In the midst of the largest financial disaster south of the border, one would think there would be some traction to fuel a fairly substantive critique of the Harper linkage to this meltdown.

    It is that that one must grab hold of, it is a campaign gift.


  • The tories have been maintaining that the US financial crisis will not have much of an impact on Canada.

    Well some new data today on the big three car makers showed dramatically plummeting US car sales.

    If that is not somehow going to effect our economy then who will be buying all these cars to?

    Some have suggested that the car sales drop are in part being effected by the tightening credit markets. Maybe, but I would tend to think it is more related to how fast the US economy has entered into a recessionary phase. The financial meltdown will accelerate the forces encompassing the recession south of the border which in turn will have more impact here. THe linkage, I would have thought would be straight forward, but again the tories do what they do best, deny anything is wrong. Maybe someday will start seeing more numbers such as this coming out in our own statistical vehicles.

    There is no doubt that Mr. Dion gained a few point tonight by showing that the liberals will act quickly if elected to try and minimize any effect the US meltdown will have on Canada. (of course he stole the idea from Jack Layton who was trying to get the tories to call an all party meeting yesterday and I think made some political gains by showing leadership. Unfortunately I think Dion stole his thunder tonight in the French televised debates.


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