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No pain, no gain

Andrew Coyne on Jim Flaherty’s deficit elimination plan


 

gracefully descending bars.png I took a chance and wrote about Jim Flaherty’s deficit elimination plan for this week’s issue, in advance of actually seeing the document. Indeed, I did not then know when precisely it was to be released. Perhaps neither did he: today’s event was announced … today.

Anyway, here is what I wrote, in part (the whole thing will be posted with the usual several-day delay to infuriate you make you buy the mag):

If history is any guide, the “plan” will consist of a series of bars on a chart tracing the deficit’s graceful descent to zero by the year — well, we haven’t been told that yet, but let’s assume it will be some years after the government’s present forecast of fiscal 2014. Which, for those with long memories, is five years after the government insisted it would never run a deficit at all.

But as to just how the deficit will be coaxed into submission, we will be told very little, except to say that it will require no tax increases, nor any specific spending cuts — though there will be plenty of “rigorous spending discipline” and another round of “program review,” that exceptionally rigorous exercise that in several previous rounds has slashed spending to an all-time high.

Just about bang on, I’d say, having now had a look at it — minus even the pretense of rigour.

I had wondered, on hearing that the plan was to be unveiled today, whether the Tories had concocted some fiendish plot to do the right thing: a robust, no-apologies program to eliminate the deficit by way of serious cuts in spending, the better to a) rally their base, b) set themselves apart from their opponents, by going where the Liberals could not follow, c) buttress their attacks on Michael Ignatieff’s alleged tax-hiking proclivities by providing a credible, no-tax-hike alternative, and d) give the opposition no choice but to defeat the government, on an issue chosen to the Tories advantage, calculating that at least 40% of the population, in an election that became a referendum on “should we, like, get serious about the deficit, or what?” would side with them.

But no, it appears that none of this is the case. This will depress the base, erases any difference between them and the Liberals, and makes their no-tax-hike pledge about as believable as Flaherty’s deficit forecasts. The only good news is it confirms me in my belief that there will be no fall election. This is not a document you run on.

It’s difficult to do justice to how empty this thing is. My colleagues John GeddesKady O’Malley, and Aaron Wherry have all taken good whacks at it. But I think Flaherty himself put it best in his speech today. “If a politician tries to tell you that getting back to surplus will be pain-free,” he said, “they are simply not telling you the truth.” Fair enough. Because while Flaherty is indeed promising no pain of any kind — he’s also not promising to get back to surplus. It’s deficits as far as the eye can see: $56-billion this year, $45-billion the next (the numbers were $34-billion and $30-billion, respectively, in the January budget). In 2014, when we were originally promised the budget would be balanced, the deficit is now forecast to be $11-billion, and in 2015 — that’s seven straight deficits, if you’re scoring — it will still be $5-billion.

And the plan to get us even that far? No spending cuts of any kind. Not in transfers to provinces or persons: they go on growing just as rapidly as before. Not even to departmental budgets: though they are allegedly flatlined for five years, this is entirely due to special one-time spending items — you know, “stimulus” projects — dropping out of the budget totals as they are completed. Ordinary departmental spending is slated to go on growing at about 4% per year.

But back to my eerily prescient column:

And that’s the rosy scenario. That is, it assumes no double-dip recession, or spike in interest rates, to say nothing of war or natural disaster or the hundred other things that can turn those majestically declining bars upside down in a flash.

Indeed, the economist Dale Orr has projected — again, in advance of seeing Flaherty’s new non-plan — deficits would continue through 2017 under such a merry “grow-out” scenario. If “growing out of it” sounds familiar, it should: that was the prescription Jean Chretien and Paul Martin came to power promising in 1993: no spending cuts or tax increases were required; the deficit would just melt away on its own. It didn’t work out that way.

Still in weirdly self-contradictory mode, Flaherty was all about the”sustained discipline” and “growth restraint” his no-cuts, no-surpluses plan would entail. It’s going to take, he said, “a lot of saying ‘no’ to pet projects and special interests.” Uh-huh. Can he name one, perhaps?


 

No pain, no gain

  1. I look forward to the return of At Issue tonight. You three will definitely have quite a bit to talk about.

  2. Can he name one, perhaps?

    Yup. Any that end up being in Iggy's platform.

  3. I asked this in another thread but nobody took a shot at answering it. Why are future tax cuts so sacred that they can't be delayed in order to balance the budget sooner?

    • My guess: because in a climate where everybody is worried about that election that may or may not be lurking around the corner (and if it's not around this one maybe it's around the next one, who knows!) to say "We're not going to reduce taxes like we said we would" is seen as political suicide.

      In short, the watchwords seem to be: don't do anything that might startle the voters.

      • You're exactly right. I'll add this: it would take a Conservative or Liberal majority before the governing party had enough courage to impose the rude fiscal discipline (or tax increases) that would be necessary to eliminate the deficit within a few years.

        • Precisely. A minority government (or, at least, minority governments of the sort we've been having) would almost certainly be defeated and forced to campaign on such actions, whereas a majority has the space of several years in which to hope that the voters forget their immediate anger over it.

    • Good question. Also, why are tax cuts in the recent past so sacred that they can't be reversed in order to balance the budget sooner?

      According to the PBO, the GST cut is responsible for ~$13B of the deficit. It's an unfunded tax cut, equivalent to an unfunded program spend. The sort of unfunded tax cut that "fiscal conservatives" are famous for.

      • I just returned from a focus group on the Flaherty FU. Assuming the eight people in the room somewhat fairly represented Canadians, or at least Waterloo Regionites, the answer of why recent tax cuts can't be reversed is depressing. a) They can, we'd mostly be fine with a return to the GST at 7%, but we're not going to actively lobby for it b) Because if things continue on the way they are, I'm soon going to be one of the financially seriously in trouble, and its every man and woman for himself. I only care about me, and I like paying 2% less for things, even if that doesn't amount to anything.

        The second is depressing because this divisive political culture has made what I'm sure is a very nice new mother into someone who takes and takes, and gives nothing (not even 2% back) She had no problem that her husband still had his job in the auto sector because of that bail-out. And she's completely lost sight of the fact that this debt load will be born by her son.

    • A delayed tax cut is one that will never happen. Not only that, a delayed tax cut is a broken promise.

      • A delayed tax cut is one that will never happen.

        Why do you say that when both the Liberals and Conservatives are trying to outdo each other on cutting corporate taxes.

  4. "It's difficult to do justice to how empty this thing is."

    I disagree. Watch this.

    *ahem*

    This plan was written by Jim Flaherty.

    There, see? Nothing says "read the fine print" like the signature of Jim Flaherty.

    • TJ, both Coyne and you have this mislabeled. It is not a plan, but it is an update to fiscal projections. Of course, Diamond Jim is probably as good at updating as he is at projecting and assuming, so it is best that we remain, shall we say, vigilant.

    • Seriously, I'm flabbergasted that this 'report' saw the light of day. This could be the worst PR move out of Ottawa since Dion's YouTube-ish response to Harper's TV message back in December (depending on how the public responds to it)

  5. As per usual with AC's columns I find myself being torn between what I strongly agree with and what I strongly disagree with. While I am in agreement with the thrust of this piece I think he gets two parts more or less wrong.

    first, I am not sure why he seems to feel that the Libs can't go down the path of serious spending cuts and as such disagree that all the CPC has done is to erase "any difference between them and the Liberals". I think the Libs can, and if they had a link of common sense (the jury is out) would be on the hustings tomorrow talking about how they have done it in the past and will do it again now to once again turn around the Canadian economy, noting that the supposedly fiscally conservative Conservatives cqn't for the life of them manage the finances of a lemonade stand.

    As or his skills as a prognosticator, while he definitely can't be worse that Feschuk and Reid, we shall see. But his reasoning is weak. While he is right about it being "difficult to do justice to how empty this thing is" he is not in asserting that "[t]his is not a document you run on". AC did you already forget the SH photo album the CPC called a platform last election?

  6. As per usual with AC's columns I find myself being torn between what I strongly agree with and what I strongly disagree with. While I am in agreement with the thrust of this piece I think he gets two parts more or less wrong.

    First, I am not sure why he seems to feel that the Libs can't go down the path of serious spending cuts and as such disagree that all the CPC has done is to erase "any difference between them and the Liberals". I think the Libs can, and if they had a lick of common sense (the jury is out) would be on the hustings tomorrow talking about how they have done it in the past and will do it again now to once again turn around the Canadian economy, noting that the supposedly fiscally conservative Conservatives can't for the life of them manage the finances of a lemonade stand.

    As for his skills as a prognosticator, while he definitely can't be worse that Feschuk and Reid, we shall see. But his reasoning is weak. While he is right about it being "difficult to do justice to how empty this thing is" he is not in asserting that "[t]his is not a document you run on". AC did you already forget the SH photo album the CPC called a platform last election?

  7. As per usual with AC's columns I find myself being torn between what I strongly agree with and what I strongly disagree with. While I am in agreement with the thrust of this piece I think he gets two parts more or less wrong.

    First, I am not sure why he seems to feel that the Libs can't go down the path of serious spending cuts and as such disagree that all the CPC has done is to erase "any difference between them and the Liberals". I think the Libs can, and if they had a link of common sense (the jury is out) would be on the hustings tomorrow talking about how they have done it in the past and will do it again now to once again turn around the Canadian economy, noting that the supposedly fiscally conservative Conservatives can't for the life of them manage the finances of a lemonade stand.

    As for his skills as a prognosticator, while he definitely can't be worse that Feschuk and Reid, we shall see. But his reasoning is weak. While he is right about it being "difficult to do justice to how empty this thing is" he is not in asserting that "[t]his is not a document you run on". AC did you already forget the SH photo album the CPC called a platform last election?

  8. As per usual with AC's columns I find myself being torn between what I strongly agree with and what I strongly disagree with. While I am in agreement with the thrust of this piece I think he gets two parts more or less wrong.

    First, I am not sure why he seems to feel that the Libs can't go down the path of serious spending cuts and as such disagree that all the CPC has done is to erase "any difference between them and the Liberals". I think the Libs can, and if they had a lick of common sense (the jury is out) they would be on the hustings tomorrow talking about how they have made the hard choices in the past and will do it again now to turn around the Canadian economy, noting that the supposedly fiscally conservative Conservatives can't for the life of them manage the finances of a lemonade stand.

    As for his skills as a prognosticator, while he definitely can't be worse that Feschuk and Reid, we shall see. But his reasoning is weak. While he is right about it being "difficult to do justice to how empty this thing is" he is not in asserting that "[t]his is not a document you run on". AC did you already forget the SH photo album the CPC called a platform last election?

    • The Liberals have a proven track record when it comes to taming runaway deficits so I have never understood why conservatives get so much credit for being such competent financial managers. Their track record indicates that they are a bunch of stublebums who would be hard pressed to run a corner without making it go bankrupt. When the choice is between electoral advantage and economic probity guess which one wins out with the Harperite crowd. One need only point to the ludicrous reduction in the GST as a fine example of the Mickey Mouse policies of a person who is supposedly a trained economist. It may be no coincidence that Harper has never actually held a job in his chosen profession.

      • exactly. thus i really don't understand why Andrew thinks the Libs 'cannot go' there.

        • Because Canadians want all the perks of socialism without paying taxes. Mathletes, we aren't.

          • While i tend to agree with your assessments of our fine fellow citizens, I am not really sure this ties the Libs hands. it certainly didn't in the mid-90s Sean.

          • You may be right, but I think they were able to pull off a lot of that through the combined forces of boom economic times and downloading/cutting transfers. That's not meant to be fully critical of them, since Conservative governments have proven rountinely unable to maximize the potential of boom periods. But there's not a lot of room left to shift the load to the provinces,

            And even the Chretien-Martin platforms didn't centre on raising taxes, if memory serves me. Canadians are quite simply too stupid and short sighted to accept that kind of realism in a platform (I mean that in the nicest sense, fellow citizens!).

  9. This is not a document you run on.

    I don't know about that Mr. Coyne. Did you see the platform they ran on last election?
    Nor did I….

    • If is if its intent is to try and leave as little fiscal room as possible for whatever it is that constitutes Ignatieff's "Big Canada" platform.

        • Let me try that again. lol. Its intent is to….

          Goodnight, folks.

          • Use the edit feature, Dennis. You can go back and correct such typos without having to create a new post.

          • Can't edit unless you actually sign in and risk having people's judgement of your opinions tallied.

      • This is an idea that would make for a very interesting democratic reform. Instead of being allowed to pitch their platforms based on their own economic forecasts, on the first day of every election campaign, each party would be required to submit their economic forecasts in sealed envelopes. Then based on the drawing of lots, each party would be required to make their platform fit someone else's predictions. "Sorry Mr. Ignatieff, there isn't enough money in the Conservative guess for your Canada to be so big."

  10. "Just about bang on, I'd say, having now had a look at it — minus even the pretense of rigour."

    I was going to suggest a conspiracy theory concerning advance copies of your article and the lack of imagination of a certain Minister of Finance, but then I thought – hey, I wouldn't want to discourage this. At least if they plagiarized your articles, we would have something like a coherent fiscal policy – even if it were wrong (in my opinion), it would at least have the benefit of being consistent.

  11. Flaherty and his conservatives collegues remind me so much of the Dilbert cartoon gang. Dilbert does a presentation with a graph, but the graph doesn't mean anything. This plan would be good in the Dilbert strip, unfortunately this is the Canadian government.

  12. "Can he name one, perhaps? "

    Perhaps that little train of his to Peterborough

  13. In early 1996, Chretien was polling at 53%. In the 1997 election he won 38.5% of the vote. Making cuts is never painless for a political party. True, the Harris PC's and Alberta PC's all managed to win re-election on a spending cuts platform, but that is because they presided over periods of rapid growth, and promised tax cuts. Moreover, Chretien (and Harris and Klein) were cutting from much higher levels of spending, as a % of GDP (during a time when governments around the world were behaving similarly).

    To expect the same outcome now as then is silly, because the circumstances are so different.

    • Cogent points, to which I'd add neither the Harris nor Klein PCs were minority governments. AC clearly views deep spending cuts as a potentially winning platform, but even he woulld concede it's a calculated risk for any party in the current "spend our way out of recession" environment, (especially for the CPCs who are still battling perceptions that they are hard-right nasties). Harper's perspective, as reflected in the infamous video speech, is that the CPCs must gain a majority or they will be too fettered to govern effectively, if indeed they govern at all. From that perspective, it is understandable that the risk that a deep spending cut platform may not be the majority "winning ticket" is too large and the stakes are too high to accept. If I were AC, I'd temper my criticisms until after Flaherty's first majority budget.

  14. I've now read the thing, and two issues jump out at me.
    1. Anybody else scared to death by Chart 9? By the look of that, economists are still living in dreamland.
    2. Why we shouldn't believe any of it. "the Government's fiscal position is now expected to be weaker than that projected at the time of the 2009 budget." contrasted with "the Government is staying the course that it has set since 2006" contrasted with FU 1.
    I'm also highly disappointed that the disciplined restraint in spending is not even contemplated as far as legal fees, and other administration expenses, go for this government. You know, if you stopped suing everybody in sight, that expense would go down.
    I will say there is more explanatory meat here than I expected, insofar as why the numbers previously projected have to be revised.

  15. I think the Conservatives are losing their way. Unfortunately the Libs/NDP don't seem to be much better.

    • Ignore the parties, talk to the candidates in your region, and vote for the one that best supports ideas you agree with.

      Or if you must vote for a party, vote for the Rhino candidate, because at least there you're getting truth in advertising. If there's not a Rhino candidate in your riding, consider becoming one.

  16. More than half of the Federal Government's revenue comes from personal income taxes. Yet there's such a focus on cutting corporate income tax. This is goofy. For a decade from 1996-2006, Canada's corporations set records for profitability — often posting double digit increases year over year. They did so under the old tax regime, so clearly, corporate taxes were not a drag on growth. Canada has been shown in study after study to be one of the most competitive regions in the world in terms of business costs. Yet still, this drum beat for corporate tax cuts … So Harper cuts a consumption tax? Twice? And sets records for spending growth for three years. No wonder our Federal books read like a horror-comedy.

    • I don't understand the focus on the corporate income tax rate, either. I would understand a cut, or even elimination, of the capital tax, and I'd certainly understand a cut to payroll taxes, but the corporate tax rate itself? Not so much. Oh, I get the theoretical concept that since a corporation isn't a *real* person, it shouldn't be taxed at all (the corporation is made up of shareholders who are taxed as persons). Funny how this doesn't equate when we're talking about box seats to sporting venues, millions to "sponsor" events the CEO or major shareholder is interested in, etc.

  17. This is truly disappointing. It's time to seriously consider dumping Flaherty. The CPC has a least one other cabinet minister that has a better track record of running the finances of a province than Flaherty did.

  18. I think Coyne is right in one sense, but there is a lack of perspective there. There is little difference between running deficits of less than 3% of GDP for 5 versus 6 years (we look pretty good next to the US right now). Paying the fiscal deficit off rapidly at the cost of deficits elsewhere (eg. in infrastructure) is unwise. It could risk turning a hockey stick recovery into another recession. I think there is a tendency to assume that the 90's saw rapid growth because there was no deficit, when in fact, much of the reason we had no deficit was because the 90's saw rapid growth (driven by technological change more than anything).

    At the same time, I do want a government that is able to keep its fiscal house in order in the long-run. I am skeptical that the government can keep spending increases to 4%/annum or less, given their track record, the hockey-stick recovery and the presence of a minority government.

    In that there is a larger problem. We can't trust politicians to make small cuts and move incrementally towards a balanced budget. Instead we wait till the situation is very bad, and face radical cuts. In other words, we binge and then we purge.

  19. Flaherty has got to go.

    What they need is a credible, calm, pragmatic problem solver with outstanding people skills…… a charismatic visionary who can both devise and sell a strategic plan for long term success…..a "uniter" who uses diplomacy to bring divergent views together in pursuit of a greater good…..

    I can think of only one man on Team Harper with those qualifications……… John Baird

    • Agreed Flaherty sinks.

      But people skills, charisma and calmness aren't really going to help – we simply need an astute economist.

      If you compare what Flaherty did in Ontario to what Martin did at the federal level during the same period of unfettered economic growth you can see that Flaherty is just not the guy for the job.

      And anyone with those the right smarts isn't a good fit for a Cabinet who are trained not to breathe out of turn….

    • Agreed Flaherty sinks.

      But people skills, charisma and calmness aren't really going to help – we simply need an astute economist.

      If you compare what Flaherty did in Ontario to what Martin did at the Federal level during the same period of unfettered economic growth you can see that Flaherty is just not the guy for the job.

      And anyone with those the right smarts isn't a good fit for a Cabinet who are trained not to breathe out of turn….

    • Agreed Flaherty sinks.

      But people skills, charisma and calmness aren't really going to help – we simply need an astute economist.

      If you compare what Flaherty did in Ontario to what Martin did at the Federal level during the same period of unfettered economic growth you can see that Flaherty is just not the guy for the job.

      And anyone with those smarts isn't a good fit for a Cabinet who are trained not to breathe out of turn….

      • To set the record straight, during the time that Paul Martin was making cuts to federal transfers to the provinces, Flaherty, Harris, and co were increasing spending on things like education and healthcare while cutting taxes.

        • Dennis, I guess that is my point – Flaherty did things that were not fiscally responsible. To spend and cut taxes = deficit and that is exactly what he is doing again. One of two things needs to happen, taxes need to increase or there need to be cuts elsewhere.

        • Dennis, I guess that is my point – Flaherty did things that were not fiscally responsible. To spend and cut taxes = deficit and that is exactly what he is doing again. One of two things needs to happen, taxes need to increase or there need to be cuts elsewhere that offset the current costs.

          • Actually, the Harris government turned around the province. Economy was booming, budgets were balanced for most of the years they were in office, and McGuinty promised not to change it.

            "Socially conscious" and "Red Tory" Eves came in and blew it all in one year – literally.

            Again, I guess I sometimes feel a need to set the record straight on some of these things.

  20. Where it says "corner" it should read "corner convenience store". Sorry for the omission above.

  21. It seems that we will have a deficit of $56 billion this year and I truly don't know where this money is being spent. Sure there were a few billion bucks given to GM and Chrysler, but where goes the rest? Let us remember that with all the entitlements and transfers to the provinces, etc., at the end of last year Flaherty predicted an essentially balanced budget. Even with all the changes that came after the prorogation, I find it difficult to understand how one can go from a ballance to a hole of 56 billion in a few months? I really can's support such government.

    • Can you support the opposition party that approved it all, and hasn't given any indication that it would have done things differently?

      I know, "wait and see."

      Canadian election platforms generally don't offer up much, in large part because, if they did, they'd offend a region, constituency, and so on.

      So, either Iggy bucks the trend and offers the most super-duper extra-special election platform we've ever seen, or it'll be much like the other duds he's produced so far as leader.

    • Just a few items
      – $22 billion in Afghanistan
      – cutting the GST and kissing away $26 billion of revenue per year for the benefit of $50 to $150 in savings per household.
      – and the stimilus package…
      – pre-recession spending like a drunken sailor which eliminated the surplus
      – $100,000 to bring Brenda Martin back from Cuba in a private jet
      and on and on…

  22. Those who enjoy a party never wash dirty utensils. It is usually done by others. So the Liberals have to roll sleeves and put on an apron. As for us – canadian people – do not expect to drink champain after serios illness. Get ready for a bitter medicine…

  23. Those who enjoy a party never wash dirty utensils. It is usually done by others. So the Liberals have to roll sleeves and put on an apron. As for us – canadian people – do not expect to drink champain after serios illness. Get ready for a bitter medicine…

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