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A missed chance to build toward Canada's future

From Wednesday's Globe and Mail

Tuesday's federal budget succeeds in giving a well-placed priority to lower-income Canadians, but does not choose enough public investments of the kind that will help create a truly modern Canadian economy that could – and should – emerge from the current recession.

On the face of it, a huge bludgeon seems to have wielded to crush a mouse – an expected contraction in real GDP of 0.8 per cent. The Harper government proposes a series of deficits adding up to $80-billion over the next years, with total federal spending rising to a crescendo of $294-billion in fiscal 2013-14.

While it is indeed prudent to spend substantially now, the government's duty is also to spend wisely, and imaginatively. Only that would justify such a dramatic run-up of debt. The chief goal is to enhance productivity and competitiveness, with at least one eye to the future.

There is no single great, stirring national project in this budget, no compelling direction. Many interest groups are being appealed to here. Some of them, to the Conservatives' credit, do not belong to their party's base (aboriginals and the arts community come to mind), but the whole leaves the impression of a miscellany.

What will the citizens of Canada have to show for all this, when surplus is returned to in 2014, if all goes according to the government's somewhat optimistic estimates?

The world's economic meltdown should be taken as an opportunity to achieve great things, not just many things for a lot of money.

The budget's infrastructure proposals, however, show a decided preference for more or less ready-to-go bricks-and-mortar projects, rather than ideas of the digital age – for repair of what already exists, rather than innovation. Much of this will require the co-operation, including matching money, of provinces and municipalities, and some may not really happen in consequence.

There are honourable exceptions to this old-economy pattern: $500-million for digitization in order to move closer to the goal of one-patient-one-medical-record health care, which is certainly a great way of enhancing both productivity and health, and $50-million for the Institute for Quantum Computing in Waterloo, Ont.

Aside from that, research is not truly favoured by this budget. Quite a lot is done on the physical side, for university buildings and laboratories, but the government has done little to help research councils provide direct grants to actual operating research programs, the very area where Canadian public policy has fallen behind (though there is a modest addition of $35-million to support promising graduate students).

Otherwise, Canada's research granting bodies appear in the budget plan, paradoxically enough, in an austere appendix that nods toward spending restraints at the tail end of a budget that aims to massively stimulate.

Though many of the budget's numbers are large, there is nonetheless evidence of Stephen Harper's and Jim Flaherty's all-too-familiar propensity for political engineering: $750 for first-time home-buyers, $50-million spread over three years for increased slaughterhouse capacity, $50-million a year for marquee festivals and similar events.

A $750 incentive seems unlikely to make the difference for someone thinking about buying a house for the first time. By contrast, among the financial-system measures, $50-billion for insured mortgage purchase may well do something substantial for the real-estate market.

One small amount, however, that may eventually serve Canada's economy and society very well is $50-million (spread over two years) toward a foreign-credential recognition framework to be agreed upon with the provinces, which mostly govern such licensing matters.

As it stands, this country is not making good enough use of the skills of its recent immigrants. Some are demoralized and alienated as a result. Given Canada's slow population growth, the nation's economic growth – and indeed the existing population's own retirement savings – will depend on highly productive immigrants, not underemployed or under-deployed ones.

The removal of quasi-monopolistic licensing barriers would be progress – a large multiplier effect, in Keynesian economic jargon , though it will take quite a while.

The link between the budget's fondness for solid concrete, on the one hand, and what left-wingers in the 1970s and 1980s used to call a preferential option for the poor, on the other hand, is the considerable support for social housing, particularly for aboriginal Canadians, for people with disabilities and lower-income seniors, and for energy retrofits for social housing as a whole. This is welcome in a budget not strong on environmental measures, apart from the interesting but speculative carbon-sequestration projects to which the Conservatives have been inclined for some time.

Mr. Harper and Mr. Flaherty deserve credit for combining compassion with economic reasoning to put money in the pockets of those in greatest need, who are also those with the greatest propensity to spend and consume, precisely because they have to do so to cover necessities.

They apparently restrained their ideological preference for tax cuts. Most of the tax relief is targeted toward lower-income Canadians, and the government has rightly improved the Working Income Tax Benefit, to assist the working poor.

There are no new tax reductions for sizable corporations (with the significant exceptions of some specific investment tax credits and capital-cost-allowance incentives).

Likewise, the improvements to Employment Insurance benefits and qualifications, together with large amounts for training and retraining, by definition direct money to those who have recently lost their working income.

The government could have gone further in the same directions. Many observers had called for the elimination of different treatment of different regions for EI eligibility and benefits, which has hitherto benefited the Atlantic provinces.

It is true that as the recession increasingly kicks in, more places could qualify as high-unemployment areas, with more favourable EI treatment. Someone who has lost a job in Oshawa, Ont., for example, may now do better than a person in the same predicament in Halifax.

Even so, a jobless person in a rich part of the country such as Alberta has much the same need and much the same propensity to spend as someone in a depressed town where a factory has closed, and thus the same ability to contribute to the overall level of consumption. The failure to get rid of this regional disparity amounts to a missed opportunity, and the same can be said of the budget as a whole.

Mr. Harper has clearly brought in a highly political budget. It is a budget that seeks to simultaneously scratch all the political itches, and the result is consequently scattershot. The Liberal opposition is unlikely to find a politically compelling reason to instigate another election, or resurrect the proposed coalition. But the budget lacks a big anything, beyond debt.

What direction is the government taking us in? Every direction. It is meant to address macroeconomic problems, but it is determinedly micro in its partisan aims.

The budget's overall reasoning, discernible in spite of the confusing hodge-podge of its sundry themes, is a combination of explicitly gloomy assumptions for the near term (worse than most private-sector forecasts), which form the basis for incurring a lot of debt in the coming years, but quite sunny assumptions for rapid recovery; revenue is supposed to rise again in fiscal 2010-11.

If the economy does rebound soon, then our all-important debt-to-GDP ratio will not be unduly thrown off by the deficits incurred before Canada returns to surplus. But one does not have to prophesy a depression in order to worry about a prolonged period of very little growth.

Tuesday's budget will certainly administer some relief, and will provide some overdue replacement of old assets. But much will be spent, and much debt incurred, with little assurance of an inspiring and constructive transformation of the Canadian economy.

The government forecasts $80-billion in debt, but what will we have to show for it when the economy does recover, beyond debt itself? The government had the opportunity to take the global economic crisis and turn it into an opportunity to do more than throw public funds around. In that, it has fallen short.

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