Budget 2013: Idle Some More

Paul Wells on a chastened government’s tactical retreat

Patrick Doyle/CP

This budget marks a tactical retreat by a chastened government whose recklessness a year ago bought it a year of trouble it did not want.

Advisors to Stephen Harper say most big departures from business-as-usual in his government come straight from the big guy. This includes both the exploits of diplomacy and the excesses of bitterness. His budget last year was an example of the latter Harper. My blog post a year ago called it a Very Political Budget: the document sought to institutionalize Harper’s sense of outrage at Barack Obama’s decision to delay approval of the Keystone XL pipeline project. That delay was announced in November. By December Harper was promising “major transformations” and a shift in Canada’s trade strategy from the U.S. to Asia. In January Harper visited China and delivered his Davos speech. In March the budget featured, for the first time, a chapter on natural-resource development and included language about reducing environmental protection, penalizing environmental groups that tried to meddle in resource extraction, and speeding the approval of big resource projects.

More from Maclean’s:

To press the point home, PMO staffers were on hand at the budget lockup for reporters, to point out the resource-export/ demonize-environmentalist parts of the big budget book.

It’s not too much of an exaggeration to say the 2012 budget was inspired by, and might as well have been written by, Ethical Oil, the oil-patch advocacy group inspired by an Ezra Levant book, and by Vivian Krause, a British Columbia blogger who spins tales of foreign meddling in Canada’s mineral wealth.

And what did it get Harper? A year of hellish relations with aboriginal groups; a possibly fatal public-relations cloud over the Keystone project, based precisely on the Harper government’s poor environmental record; serious opposition in Europe to any extension in Canada-EU relations at the very same time we’re trying to negotiate a trade deal; and a set of controversies that still motivate NDP supporters and the NDP caucus today, another year closer to a federal election. Meanwhile the Northern Gateway project is no closer to getting built; China remains a problematic trade partner; oil prices are depressed; and new technologies are transforming the U.S. from a ravenous energy consumer to a massive energy producer.

So much for major transformations. Today’s budget left skid marks across the Government Conference Centre lockup as Harper backtracked from almost all the most controversial elements of his 2012 budget. PMO staffers were thin on the ground at today’s lockup. They are in no mood to brag. Where the 2012 budget book had 12 pages on “Responsible Resource Development” and two more on “Investing in our Natural Resources,” this one has only four pages on “Responsible Resource Development,” none on “Investing in Natural Resources,” and six new pages on “Building Strong Aboriginal Communities.”

This retreat is highly characteristic of Stephen Harper. He likes the reputation he enjoys among his opponents, as a bruising fighter who single-mindedly pursues a lonely and extremist political vision. That reputation, frankly, helps him among his supporters, who wish he were that guy more often. (For all the fights the 2012 budget sought to pick with the Yankees and the environmentalists, there were a lot of hangdog expressions at Hy’s that night among Conservatives who had hoped for real small-government conservatism from a majority government and thought Flaherty had delivered thin gruel.) But in fact, Harper’s normal reaction to controversy is to seek calmer waters.

In 2005, he used the first policy convention of the then-new Conservative Party to take potentially divisive social-conservative issues like abortion off the party’s agenda. In November 2008, within 48 hours after Flaherty’s fall update sparked an opposition attempt to form a coalition that could take power from the Conservatives, Harper had sent his ministers to announce the cancellation of everything in the update that had upset the opposition — party financing, pay equity and more. It’s one of Harper’s best-kept secrets: if you push him, he steps back.

That’s because nothing matters to him more than political survival does. If he does not last he can’t do anything. If he survives he can do a little bit every year until his efforts begin to add up. This budget changes the government’s communications more than its direction. None of last year’s measures on resource extraction are cancelled, and the government has not seriously become more activist on the environment. It has simply buttoned its lip about activity that seemed worth advertising a year ago and has instead bought this government mostly trouble.

There are still surprises. Thirty-one pages into the budget chapter on “Supporting Families and Communities,” under the subhead for “Maximizing Opportunities for International Synergies” — still with us? — there are two sentences mentioning, in passing, the end of CIDA as a stand-alone government department. It will be rolled into Foreign Affairs to create a new Department of Foreign Affairs, Trade and Development.

Now it becomes clear why the government leaked all the stuff about tariff cuts for hockey equipment: it was a smoke screen.

Why survive? Why stay in power, beyond the fact that it is always more pleasant than being out of power? Our friend Stephen Gordon explains it in his own blog post tonight: because the Harper government has been able to progressively restrain the federal government’s scope and ambition for direct intervention into the lives of Canadians. Direct federal program spending is smaller, as a portion of the economy, every year. The decline is a little steeper every year. Federal taxes, as a portion of the economy, are lower than they have been for half a century. Last year Harper got too cute and he put all that in more jeopardy than he would have admitted, and a lot more jeopardy than he liked. This year he is not interested in messing around.

And next year? The first third of the budget is an ode to Canada’s sterling economic performance, based largely on comparisons to that notorious international 21st-century losers’ club known as the G7. (We’re doing better than Italy!) But at least by that palsied standard, we really are doing relatively well, and that’s better than if we were doing even worse than all those guys. So I was unsurprised to see that, after yesterday’s UK budget cut the Cameron government’s GDP growth projection by more than half, from 2.0 to 0.6, today’s Canada budget does not amend GDP projections at all.

Then I looked more closely. In fact, it’s the average for GDP growth over the next five years that is unchanged from the 2012 budget. GDP growth for this year, 2013-2014 — the year we’re actually living through — is down one-third from the 2012 projection. But growth for next year is actually projected to be up a touch.

That’s handy. We’re eight and a half billion dollars deeper in the hole today than Jim Flaherty expected to be only a year ago. But he expects the economy to get better all by itself, after it seriously didn’t get better this year. What if the incurably optimistic bank economists who were wrong about this year are wrong about next year too? Well then, Stephen Harper will need to cut billions from spending to meet the 2015 deadline for budget balance that Flaherty reaffirmed today. The big debate over government’s role that Harper sought to avoid for this year will be back, bigger than ever, just in time for a federal election.




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Budget 2013: Idle Some More

  1. Sounds fair. Will this be the Foreward to “The Longer I’m prime Minister”?

  2. This should hardly be surprising, when we consider that the conservatives have absolutely no idea how to manage an economy because they believe, as a matter of ideological faith, that an economy can’t be managed. Thus all they can really do when asked, “So how are you going to make things better” is to say, “We’re going to back off and things will magically sort themselves out.”

    I think there’s a further argument that can be made in that the reason for this is that they only type of management they seem to understand is micro-management. Hence why we get Mr. Flaherty calling banks directly, or the budget being concerned with minutiae of safety-deposit box fees, and even why they can’t actually list any of their plans and how much cuts are going to cost.. because they don’t actually know unless they can get right in there themselves and dictate what’s going to be cut and what’s not.

    • You realize that Manulife was the insurance company that almost blew themselves to smithereens during the global economic crisis, because unlike most other insurance companies, and prudent insurance companies, it had NOT hedged the exposure of its investment portfolio to global stock markets. (It asked for regulatory forbearance during the crisis to give it time for the stock markets to recover, so it wouldn’t have to dilute its shareholders to next to nothing raising capital.)

      So a phone call from the finance department to a company that didn’t have a clue 6 years ago about whether it is really, really sure about what it is doing is perhaps not a bad thing. It is perhaps something Paul Martin or Ralph Goodale should have done when Manulife decided not to hedge its equity exposure over a decade ago.

      • Ok – explain why he called BMO. (Heads up, he called BMO first).

      • How about Flaherty’s personal call to BMO last year?

    • not quite, conservatives believe the economy should NOT be managed, not that it can’t be. history has shown that they are right. However call Harper conservative is a joke so please don’t the government is 30% bigger now that it was when he took office… he is a ‘centerist’ mixed with socialist/facist. more commonly know as an authoritarians, just like the liberals and NDP, just different rhetoric…

      • Harper is not a “centerist” and certainly not socialist. He is a far-right corporatist totalitarian.

      • The proper spelling of ideology is as just stated, not h-i-s-t-o-r-y.

      • The Conservative Party of Canada tries to stay the least amount to the right of the left-wing parties as possible.

        That way, they remain the most right-wing alternative (barely) and therefore capture the conservative vote, plus they pick off some Liberal votes while minimizing opposition from those slightly to their left.

        It’s a strategy to remain in power rather than being ideological, just like the Liberal Party used to set their policy before getting bounced.

  3. The main reason we Tories support Harper is plainly and well put : Direct federal program spending is smaller, as a portion of the economy, every year. The decline is a little steeper every year. Federal taxes, as a portion of the economy, are lower than they have been for half a century! – come 2015 when he balances the books and we go to the polls he willl offer income-splitting, increased TFSA’s and the best part few know about is another reduction in federal income tax for the middle class – and he will win another majority – providing Justin wins as leader of the LPT which is as close to be a gaurantee as you can get in our system.

    • IOW, ideology and politics trump real leadership and sound economic management. Thanks for clarifying that.

      • How is a balanced budget with lower taxes not sound economic management?

        • I’m referring to the implicit notion that a small government is always the best government. That’s an ideological principle, not an economic one.

          • Lower taxes means more capital staying in the private sector to invest, which leads to higher growth and greater prosperity for all.

            This applies not only to large corporate direct investments, but also to anyone who invests in mutual funds for their retirement.

          • Oh, you mean like what’s happening now…

          • Trickle-down has been a failure everywhere it has been tried. What makes Canada different?

          • That’s little more than right-wing dogma, not a cause and effect relationship proven by any credible research.

        • And here I had been assuming you lived here in Canada, which has a massive federal deficit.

          So where do you live? Sweden? Norway?

          • “Massive”? The deficit will be 1% of GDP, which is minimal if compared to almost any other country on the planet. Canada’s one of very few countries that still have a AAA credit rating. But don’t let the facts get in the way of a partisan rant, right?

          • Well, $26 billion might not be a lot to a fancypants like you, but it’s a lot of money to most Canadians.

            It’s also $40 billion worse than when the Conservatives took power.

          • Yes, the deficit to GDP ratio is utterly irrelevant. It doesn’t matter whether you’re talking about the United States, Canada or San Marino, a $26 billion dollar deficit is an apocalyptic catastrophe. Everyone should hide under their beds, quiver in fear and cry for their mommies NOW.

        • That’s a very nice concept. Maybe someday we’ll get there – but I doubt we’ll get there with Harper / Flaherty.

    • But to what end? Direct federal program spending is smaller but how is that simply better? I honestly don’t understand how smaller is better; no more than I understand that bigger is better. What is the best size for a government? What is it doing that is so wrong that making it smaller, no matter how, is an improvement? What is the goal that shrinking is supporting?

      • Let me try to help you.
        If direct federal program spending is smaller in a relative sense from year to year, then our deficit will be smaller then if we had a free- spending party in power.
        Just think of your personal financial situation—better to owe the bank less then more.
        Your welcome.

        • Care to explain why the Harper govt is outspending the Martin govt then – and that was due to happen even before the crisis. The notion that Harper is somehow encouraging smaller govt is laughable. Transfer payments are not decreasing at all. All Harper is doing is hobbling the fiscal elbow room of future FGs for ideological reasons, and ripping the national fabric to boot – the guy’s nothing but a provincialist – no national vision at all.

          But he is changing nothing in terms of tax payer exposure. It ‘s just an ideologically motivated shift from one national govt to 10 or 11 little fiefdoms. What on earth makes you think the greater national good is served by such a move? If anything it just makes the old accusation the PQ used to throw in our faces – that Canada isn’t a real country – more credible, not less.

          • Sure, let me help you.
            Back in 2008 there was a global financial meltdown. Many countries, including the US and GB are still in critical deficit situations because of increased government spending since that time.
            Canada has managed to take a balanced approach to stimulating the economy while working toward a balanced budget. This has resulted in the global view that we have one of the more stable economies in the western world.
            Hopefully the provinces, especially Liberal Ontario will exercise more discipline and good sense in their spending of federal transfer payments.

          • Both the US and UK have imposed stronger austerity measures than Canada since 2008…

        • I’m not so sure I have been helped. Why is it better to owe the bank less than more? What are you doing that requires the borrowing? Is it better to live on the street and not owe the bank for a roof over your head? Of course not, and I don’t think you are saying anything as absurd as that, but I don’t get what you *are* saying. What is the goal that smaller government supports? What is the purpose of government at all and how is that best served? Is it by being small no matter what?

          I am reminded of a statement I came across once that went something like “Keep your government poor and weak and it is your servant; let it get rich and powerful and it is your master.” This is a statement of ideological principle not self-evident truth and I seem to be encountering the same thing in your reply to my questions. I am far less interested in yet another ideology that can be conveniently reduced to a bumper sticker — left, right, centre, anything — than in hearing how the elected officials of any stripe are making Canada a better place today than it was yesterday.

          Thank you for your attempt at helping me understand this.

        • Why do so many comments on the internet have to have a hostile tone? Does it weaken your point if you write in a civil and courteous tone?

    • no… taxes have gone up. IE premiums are a great example.

    • You stopped reading before the last para didn’t you?

    • Harper’s is the largest and biggest spending government in Canadian history. Program spending may be less but that’s just taking money from programs.

    • Merely balancing the budget isn’t enough to pay for those rather expensive new tax measures.

  4. The share of federal spending should go down, because the share of provincial spending, who have responsibility for health care, is going to go up dramatically. A responsible federal government should exercise restraint to create spending and tax room for provinces to take care of their growing and onerous constitutional responsibilities.

    There is only one taxpayer, after all.

  5. So, as i [admittedly an unrepentant confirmed pessimist on Harperism] i read that SH has a problem, in that he can almost never pass up the opportunity to move the ball down field, not by cooperation;consensus/persuasion, but rather by poking everyone around him who isn’t already naturally in his camp, in the eye. It may gain him temporary reprieve or advantage and cheers from the peanut gallery – but it almost never gets the job done. And meanwhile the opposition gets ever crankier, and larger.
    He can make all the strategic retreats he wants, but he will never gain even half the trust, the grudging acknowledgement of the practical necessity of trade offs, or of eased or consolidated standards that might arguably be needed in tough global times for Canada; compromises that are best hammered out in open Parliamentary committee. Rather he chooses to make two enemies for every friend. The guy just never seems to learn that lesson. He seems to honestly believe that the enormous power of his office during majority govts is a substitute for a leader that trusts Canadians to make the right choices or sacrifices if they are absolutely necessary. Can anyone really see this guy going to the country in a moment of national crisis and getting loyalty or trust?
    This PM has willfully squandered every single sou of goodwill that is still needed to move any kind of national project ahead in such a difficult and fractious country as this one.
    I’m convinced he wont get NGP, not without a major out break of civil disobedience, and that’s if he can even get past the courts. Anything that does get done is almost certain to be a poor second best choice. And i wouldn’t have believed it possible, but there’s still a very good chance he[we] wont get Keystone either.[ a new cross border FNs coalition is lining up to oppose it right now]

    And no small measure of the blame is his and that of those whose interests he chooses, almost exclusively, to listen to and advance.
    Sooner or later even those powerful business interests are going to lose faith in the bungling misanthropy of the guy.

  6. Can’t trust wee Flaherty. He stole me lucky charms.

  7. Harper has BET BIG on oilsands and LOST. Northern Gateway is dead. So is Keystone. They don’t need our oil and gas anymore. The US will soon be exporting gas. Canada already imports 40% of its domestic needs because it lacks the processing and infrastructure.

    Sending our raw product south at a huge discount so we then can buy it back world prices is about as third world as it gets. Who is paying for this pipeline again?

    It’s both comical and sad watching Joe Oliver and Alison Redford trying to pitch Canada’s environmental record and tar sands to the US. It leaves you wondering what planet they are from.

    There will be no balanced budget in 2015. Canada does not belong in any G8 club by any current measure. Meanwhile Canada has dropped from #1 to #11 on th UN’s Human Development Index and the speed of descent is only getting faster.

    Harper is hooped. Buh-bye and good riddance. It will take years to repair the damage.

    • Oh, there’ll be a balanced budget in 2015..
      ..just don’t expect to be able to afford water.

    • I read that the way the UN determines the rankings was changed. And if the same methodology was applied to past years, Canada would have not been #1 and in some years it would miss top spot by quite a bit.

      • So what’s your point? That Canada never, ever deserved top spot? Just another Lance Armstrong story?

  8. “It’s one of Harper’s best-kept secrets: if you push him, he steps back.”

    Spineless bully, eh? I bet there are a lot of social conservatives lately that would find that to be very useful information.

  9. Here’s my personal call to Flaherty . Reverse the Harper tax cuts to large corporations and balance the budget . Someday you might be paying 10% interest on that money.

    • Bad idea. When taxes go up on corporations, it’s the employees who get the shaft, not the shareholders.

      Reverse the tax cuts on dividend investment income instead.

  10. In the age of the permanent campaign in Canada the Conservative Party of Canada and the Harper Government have taken a highly market-orientated approach to campaigning and governing. It listens to, develops policies for, and delivers those policies specifically to the segments of the population that supported it in 2011 and it hopes will continue to support the party in the next election.

    You can read more of the analysis we did here: http://abacusdata.ca/?p=5759

  11. How did an Irish-Canadian Leprechaun become the most influential person in our country’s budget and finances?! Ireland – a historically poor nation – is essentially bankrupt right now, and Canada is headed down a similar path.

    Is it just a coincidence that Canada’s finances have taken a dramatic turn for the worse during the tenure of a devious Leprechaun(servative)? Think about this folks!!

    • Good one! Come to think of it, our finance minister is reminiscent of a leprechaun; all that’s missing is the hat and beard. He already has the pot of gold part covered!

  12. Canada’s Inaction Plan

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