The real campaign on the economy has been a long time coming. Through most of August, the Mike Duffy trial, with its revelations about how Stephen Harper’s aides handled the Senate spending scandal, often drowned out what the party leaders were saying out on the hustings. September began with the photograph of three-year-old Alan Kurdi’s drowned body on a Turkish beach drawing the attention of a shocked world—including campaigning Canadian politicians—to the Syrian refugee crisis.
But, from the outset, Conservative, Liberal and NDP strategists agreed the Oct. 19 election would probably be won and lost on economic themes. That leg of the tight three-way race is now under way, in earnest. Harper’s message turned darkly defensive, warning that only Conservatives can protect a fragile economy. The NDP’s Tom Mulcair released his plat- form’s itemized costs, lest voters worry he’s secretly a socialist spendthrift, rather than a calm, experienced public administrator bent on making Canada a fairer place. And the Liberals’ Justin Trudeau took aim at both his rivals for valuing balanced books over the more ambitious, sometimes more expensive, policies he’s pitching. As the contest enters this new phase, Maclean’s looks at what all three leaders are offering on taxes, spending and Canada’s prospects for prosperity.
Click the images below to see each leaders’ economic vision and the word that defines the framing of their plan.
STEPHEN HARPER: PROTECTION
‘Canadians will choose [a leader] in whom they have confidence to manage and protect this fragile economy’
As far back as 2012, on the one-year anniversary of his government’s first majority victory at the polls, Stephen Harper was already polishing the key campaign message he would take into this year’s election battle. “[Canadians] gave us a mandate to do one thing above all else. They gave us a mandate to secure their prosperity,” he told his caucus, before going on to list the ways he felt his government had accomplished just that. Until this past week, that is the line Team Harper has firmly clung to in its quest for re-election—that by leaving more money in peoples’ pockets and ensuring a stable fiscal environment, the Conservatives have a proven record of strengthening the economy and delivering prosperity to Canadians, regardless of what the headlines threw at them. Crashing oil prices? The economy remains strong. Dismal exports? The economy remains strong. A collapse in the loonie? Volatile stock markets? A recession in the first half of the year? Strong. Strong. Strong (at least in June).
But somewhere between last Friday and Sunday, between campaign stops in Victoriaville, Que. and Stittsville, Ont., Canada’s economy took a dark turn, at least as far as Conservative messaging goes. “Canadians will choose [a leader] in whom they have confidence to manage and protect this fragile economy,” Harper told a Stittsville crowd of supporters waving large signs, all of which bore the words: “Protect our economy.”
“At the beginning of the campaign it was about, ‘We’ve done a good job, lowered taxes, balanced the budget, and if you change course, you risk all that foundation and that strength,’ ” notes David Coletto, the CEO of Abacus Data, a polling firm. It was a message meant to instill fear of change, and yet voters didn’t seem all that scared. In fact, when Abacus asked voters which leader had “the right policies to grow Canada’s economy and create jobs” Harper placed third after the NDP and Liberals. However, when the firm polled Canadians on which leader would best “protect Canada from the effects of economic turmoil in other parts of the world,” Harper was the clear winner. And so amid economic uncertainty, and disappointing poll results, the Tory economic message has come more in line with its broader security theme, Coletto observes: “Harper will keep you safe from the bad economic bogeymen and from the criminals and terrorists.”
“Fragile economy: handle with care” is clearly not the economic message on which the Tories wanted to be campaigning, and for good reason. It invites uncomfortable questions like: “If the economy is so precarious, whose fault is that?” Or perhaps more problematic, should Conservatives point to their Action Plan stimulus program for helping Canada emerge from the Great Recession relatively unscathed: Didn’t the NDP and Liberals drag you into that kicking and screaming?
With more than four weeks left in the campaign, it’s too early to tell if the new, more defensive message will aid the party any more than the last one. What is clear is that the Conservatives have yet to match the shift to its gloomier message with much in the way of bold, new policy.
Consider two of the new election promises on offer so far, both of which were rolled out before the campaign shift. Canadians can be excused if they don’t draw much comfort from the introduction of a tax credit for those volunteering their time. Likewise, for Canadians worried about global volatility, news that they could be in line for a permanent tax credit on new kitchen countertops is not exactly earth-shaking. (The renovation tax credit is actually a rehash of a measure rolled out in the 2008 stimulus.)
Canada’s lobster fishery is no doubt chuffed to learn it will be in line for $20 million in federal funds from a re-elected Harper government. Likewise the mining industry, which will see the Mineral Exploration Tax Credit (METC) be extended, was also pleased as punch, even if economists like Lindsay Tedds at the University of Victoria have shredded the measure. “There is no evidence that the METC induces increased exploration activity over that stimulated by commodity prices,” she wrote at Macleans.ca recently. “On the investor side, the METC subsidizes high-risk investments and appears to be predominantly used for tax-planning purposes by high-income taxpayers.”
The Conservatives have offered some surprises on the tax front. Harper announced a $45-million plan to double the grants offered to low- and middle-income families who put money aside in their children’s RESPs. And on Tuesday he unveiled a $400-million tax credit for single, widowed seniors. But there has been nothing on the scale of the tax promises announced during the 2011 election campaign, such as income-splitting, or the doubling of contribution room for Tax Free Savings Accounts (TFSAs), both of which came to life in the last federal budget. Meanwhile, a key part of the Tory campaign has focused on the threat Justin Trudeau’s Liberals pose to businesses, particularly after the Grit leader suggested a “large percentage” of small businesses are set up to help their wealthy owners dodge taxes. In blasting Trudeau, Harper vowed to cut Employment Insurance premiums by 20 per cent to $1.49 per $100 by 2017, and reduce the small business tax rate from 11 per cent to nine per cent by 2019, yet both plans were originally announced in the April budget.
Rather than a grand vision for how it would protect Canada’s “fragile” economy, the Conservatives are offering a steadfast continuation of the policies that defined their time in office and served them so well before—lower taxes, micro-promises of aid to specific groups and a dollop of populism mixed in for good measure.
In this way, how voters judge the Conservatives in this campaign is likely to depend more on what the party delivered in the past than what it’s promising to do going forward. For Harper right now, there is no bigger accomplishment he wants to focus on than the news delivered in this week’s fiscal update—after running six straight annual deficits, Canada’s books now show a surplus for 2014-15 of $1.9 billion, and, Harper says, Ottawa is on track for another surplus this fiscal year. “This is incredibly good news,” he said during a campaign stop in Kamloops, B.C. “Look, in spite of all the problems of the world, this country has a balanced budget, has had it all along and the other parties are going to have to explain why they think now would be a good time to throw us into deficit.”
The psychological allure that a balanced government budget holds for Canadians is strong, particularly among those of a certain age who recall the country’s debt crisis in the 1990s. However, given that Canadians have for several years now been trained to expect a balanced budget come this election, it’s an open question whether the surplus will carry the electoral oomph the Tories are hoping for.
The dogged pursuit of a balanced budget has also led to troubling imbalances in the economy. “Right now we are calling on monetary policy to work too hard with very stimulative, very low interest rates,” says Paul Boothe, a professor of economics at Western University’s Ivey School of Business and a former federal Finance bureaucrat. That easy money has contributed to a large increase in household debt, and skewed the economy toward the real estate sector. “At the same time, because of the deficit elimination promise, we’re getting a contractionary fiscal policy even though we’re in a recession. So how does it make sense to be stepping on the gas with monetary policy, and on the brakes with fiscal policy?”
Economists like Boothe are also uneasy about the Conservatives’ penchant for boutique tax measures. Canada’s tax regime has become terribly inefficient over the last few years. While Boothe gives high marks to the corporate tax cuts that began under the Liberals and continued under Harper, he says many of the government’s other tax measures, such as the GST cut and income-splitting, fail the pro-growth test. “What you want is low taxes on a broad base but the Conservatives have really focused on very targeted tax cuts that seem to have a stronger political rationale than economic rationale,” says Boothe, who would like to see the next government, whichever party it is, overhaul the country’s tax laws. “Tax systems collect barnacles just the way ships do. Every so often they need to be scraped down if we want them to be streamlined and fast in the water.”
What of other aspects of Harper’s record? There is no question that in the early years after the Great Recession, Canada’s economy was the envy of the world, in terms of job creation, economic growth and wealth. Today, if you compare Canada’s economy to that of Spain or Italy, we still look strong. But Canada’s lead over the U.S., in terms of job creation (relative to the Great Recession) is narrowing fast.
What will ultimately motivate Canadians on election day, though, will be a more personal economic question: Am I better off? It’s not saying much to assume that those groups who have reaped the biggest economic rewards will be the most receptive to the Conservative claim to be the only party that can protect their prosperity. Those who feel prosperity has left them behind—a growing cohort, polls suggest—not so much.
The Tories may face another challenge to their message before the campaign is over. Later this month the GDP figures for July will be released, and many economists expect the rebound that began in June will continue. Normally, that would be good news for an incumbent candidate, but Harper may find himself back in the position he was at the start of the campaign, contending with an electorate that desires change at a time when making a change might seem less scary.
—By Jason Kirby
THOMAS MULCAIR: FAIRNESS
‘We need to give our kids a better start, ensure our young people get opportunities they deserve, and our seniors get benefits they deserve’
As the marathon federal election campaign rounded its halfway mark this week, Stephen Harper wanted nothing more than to sharpen the contrast between his Conservatives and the New Democrats on the topic of the economy. That used to be easy, back when the NDP was officially allied with unions and tended to argue that deficits weren’t a big worry. Harper seemed to be hearkening back to those old days at a rally staged in a factory just outside Ottawa that makes ventilation equipment. “Their views reflect a deep hostility to private business,” Harper said. “We have always known this about the NDP; it is their ideology.”
But Tom Mulcair isn’t giving the Tory war room much of an opening to attack on the anti-business ideological front. For instance, the NDP leader’s platform includes cutting the small-business tax rate as much as Harper promises, from 11 per cent down to nine per cent, but two years sooner. Of even greater totemic significance is the NDP’s pledge to balance the books, a stance that created an odd harmony early this week between Harper and Mulcair. News that the federal government posted a slight surplus in 2014-15 of $1.9 billion, instead of the projected small deficit, was touted by Harper, naturally, as great news. Mulcair blandly concurred. “It shows that the NDP is going to be starting off on the right foot,” he said.
Still, any impression of a true convergence of Tory and NDP attitudes is deceptive. While Mulcair offers that small-business tax cut, he proposes hiking the corporate tax rate to 17 per cent from 15 per cent, netting $3.7 billion a year, and eliminating the tax break for business executives’ stock options, which the NDP figures is worth $500 million. Mulcair casts these moves in terms of companies and their top earners paying their fair share. His playbook for spending also leans heavily on the fairness theme, including a low-cost daycare plan designed to make it easier for women to go back to work, and increased benefits for low-income seniors.
Mulcair doesn’t try to sell these policies in fiery, old-school, social-democrat terms that might draw the mind to tensions between rich and poor. Any notion of class conflict is suffocated under layers of grandfatherly Mulcair verbiage. “We need to give our kids a better start in life, ensure our young people get the opportunities they deserve, and our seniors get the benefits they deserve,” he soothingly intones in a new TV ad, which the NDP labels “I’m ready,” but might have been more accurately titled, “I’m reassuring.”
Mulcair is calling for nothing that could seriously be derided as heavy-handed interventionist economic policy. But his platform isn’t without heft, or substantial costs. On infrastructure, for instance, the NDP would gradually boost spending on transit to $1.3 billion a year by 2019-20, while raising the gas tax Ottawa transfers to municipalities, to spend as they choose, by about $420 million next year, rising to $1.5 billion by 2019-20. That’s serious money, but perhaps not enough to make pulses race, especially when overshadowed by Liberal Leader Justin Trudeau’s plan to spend $60 billion over a decade on public works.
Like the Liberals, the NDP proposes to give a post-Harper government spending room by taking away some Tory tax breaks. The biggest such move would be cancelling Harper’s “family tax cut,” as the Conservatives like to refer to the income-splitting policy he announced last fall, under which the higher-earning spouse in a couple with kids can transfer up to $50,000 of income to the lower-earning spouse, so it’s taxed in the lower bracket, for a tax saving of up to $2,000. Getting rid of income splitting would save an NDP (or Liberal) government $2.2 billion.
These and a few other tax measures give Mulcair some leeway to put significant social spending promises in the window. The pillar of his platform is, without a doubt, a national daycare program, which he announced almost a year ago. He talks of creating a million new child care spaces that would cost parents just $15 a day. But details of the policy raise nagging questions about how likely it is that an NDP government would actually achieve those goals, and how soon.
Mulcair’s plan relies on provinces agreeing to share the costs, and some provincial governments, notably, Ontario’s and B.C.’s, have balked. As for how many daycare spaces would be created, the NDP plan proposes to create 370,000 by 2018-19, at a cost to Ottawa of nearly $1.9 billion a year, assuming the provinces fully buy in. Getting all the way to the promised million spaces would mean electing the NDP to a second full four-year term, and assumes that a high level of federal-provincial co-operation on the file carried on.
Feasible or not, Mulcair argues that his daycare plan marries sound social policy to sound economic policy. According to the NDP, it would be fairer for families with kids, but also good for the economy, because it would bring more women into the workforce. Other NDP social-policy platform planks fall more squarely on the side of fairness, rather than fostering growth, such as Mulcair’s promise to boost the Guaranteed Income Supplement for low-income seniors by $400 million, while also putting a stop to the Conservatives’ plan to raise the eligibility age for seniors’ benefits to 67 from 65. “No one should have to grow old in poverty, insecurity or isolation,” Mulcair says. Another big-ticket item, also drawn from a deeply rooted NDP conviction, is Mulcair’s pledge to boost spending on affordable housing by $650 million a year.
Beyond marquee policies on infrastructure, daycare and housing, though, Mulcair has made other seemingly major commitments that don’t feature nearly so prominently in his campaign. The party’s official policy calls for dramatically increasing Canada’s foreign-aid spending to the United Nations target of 0.7 per cent of gross domestic product, up from just 0.24 per cent last year. The Liberals estimate that hitting that ambitious target would cost an NDP government upward of $15 billion over four years, which alone would make balancing the books unlikely.
However, Mulcair had not specified how fast an NDP government would ramp up overseas assistance—until this week. The answer came when the party released details of the costs of its platform. The NDP is earmarking mere tens of millions for increased overseas development assistance in Mulcair’s first full year in power, rising in four years to a few hundred million. That’s far less than the many billions of additional aid dollars some outside observers—including critical number-crunchers in the rival federal parties—had previously pencilled into their calculations of the true costs of NDP promises.
Similarly, the NDP is in no rush to restore, as promised, the growth in transfers to the provinces that help pay for health care. The former Liberal government had set that guaranteed increase, called an escalator, at six per cent a year. But the late Jim Flaherty, when he was Harper’s finance minister in 2011, surprised the provinces by unilaterally reducing the health-transfer hike to mirror the country’s rate of economic growth, including inflation, likely no more than four per cent a year. NDP strategists, though, are cagey about how fast growth in health transfers would be ramped up again, although they say provinces could expect hundreds of millions more. Even that, Mulcair says, depends on Ottawa running surpluses.
Overall, the NDP budget track tends to emphasize modest early down-payments on pledges, with plenty of potential to grow much bigger over the years. Brad Lavigne, a senior Mulcair adviser, says his boss is “in Roy Romanow’s tradition, rather than Bob Rae’s,” contrasting the former Saskatchewan NDP premier, who balanced the books, with the former Ontario NDP premier, who ran big deficits, and later jumped to the Liberals. The allusion to Rae’s reputation is pointed: Ontario remains the weakest link in the NDP’s standing in the polls during the current campaign. Some top Mulcair strategists say they suspect the lingering memory in Ontario of Rae’s run as premier, in the economically troubled early 1990s, is an NDP brand burden they must still jettison.
Mulcair’s challenge is to keep dispelling anxiety about the NDP’s real agenda, while doing more to excite voters eager for something new. Back in mid-August, the polling firm Abacus Data gave the NDP a 12-point lead over the Liberals among voters who want change. By this week, Abacus said the Liberals had caught up to the NDP among those crucial time-for-a-change voters. If Mulcair seems to have struck the right tone to ease anxieties, he may now need to find a way to inspire, too.
— By John Geddes
JUSTIN TRUDEAU: AMBITION
‘This election is a clear choice between smart investments that create jobs and growth, or austerity and cuts that will slow our economy’
It takes a brave—some say desperate—politician to campaign on a platform of budgetary red ink when seeking to become prime minister of a risk-averse country like Canada. Yet Justin Trudeau surprised many when he declared he would run a “modest short-term” deficit of up to $10 billion per year over the next three years as part of the Liberals’ decade-long plan to nearly double federal investment in infrastructure.
In punditry circles, the break from balanced budget orthodoxy was viewed as a bold gambit to differentiate the Liberals from both the Tories and, oddly enough, the NDP. Conservative Leader Stephen Harper, of course, talks about balanced budgets with near-religious zeal; he predictably rushed to brand Trudeau as someone “who has no idea what he’s talking about.” Meanwhile, Tom Mulcair doubled down on his pledge to balance the books in a bid to reassure nervous voters the NDP won’t leave a smoking fiscal crater on Parliament Hill if it forms a government.
Yet a growing number of experts have questioned Ottawa’s fixation on surpluses when the country, as we now know, briefly dipped into recession during the first half of the year, forcing the Bank of Canada to cut its already low trend-setting rate twice since Jan. 1. Nor is the overall picture likely to improve anytime soon, at least not dramatically. Oil prices remain stuck at US$45 a barrel. China’s growth is slowing. A falling loonie has failed to light a fire under Canada’s export manufacturing sector. Economists predict, on average, growth of 1.1 per cent this year and 2.1 per cent next year. “It’s like looking down the road and all you can see is another 100 miles of bad road,” says Ralph Goodale, a former Liberal finance minister and the current MP for Regina–Wascana. “The country, I think, has a real desire to be ambitious and aspire to excellence, but Mr. Harper and, largely, Mr. Mulcair, offer nothing but continuing gloom.”
Trudeau, by contrast, is hoping to woo Canadians with a more aspirational agenda. He’s not only promising to power the country out of its economic funk with three years of deficit spending, but to set up the country for years of growth with an extra $60 billion in infrastructure investments over the next decade—everything from more subway trains to more affordable housing.
While there’s a sound argument to be made for investing in infrastructure—just as a factory might invest in new, high-tech equipment—it’s doubtful it will yield the short-term economic payoff the Liberals have promised. Just as the Harper government’s meagre $1.9-billion surplus in the most recent fiscal year can’t be blamed for tipping the country into recession (blame the rout in oil prices), neither will Trudeau’s modest deficit spending protect us from another unexpected economic shock.
The Liberals’ deficit-spending plan seems to have been ripped straight from a paper written last year by former Bank of Canada governor David Dodge. In it, Dodge argued that governments should take advantage of historically low interest rates to borrow and invest in infrastructure that will help improve the country’s long-term growth prospects—even if it means running deficits. By some measures, Canada has an infrastructure deficit totalling $123 billion, which is weighing on the country’s anemic productivity. “Balanced budgets are not critical at this point in time,” Dodge recently argued during an interview with Maclean’s Evan Solomon. “We should have been having relatively expansionary fiscal policy rather than the relatively contractionary fiscal policy that we’ve had since 2011 or 2012.”
Dodge argued that, at today’s interest rates, there’s room for the federal government to take on additional debt while still whittling down the debt-to-GDP ratio—the best measure of a country’s debtload—provided the economy continues to grow. Canada’s federal debt-to-GDP ratio stands at about 30 per cent, less than half what it was in the 1990s when Liberal finance minister Paul Martin embarked on his deficit-slaying program.
The Liberal plan calls for nearly doubling the current spending on infrastructure to $125 billion over 10 years. In the next two years, spending will double to $10 billion from the $5 billion already planned in a bid to “kick-start” job creation and economic growth, according to the party’s platform. The money is to be spent on public transit, “social infrastructure” like affordable housing and seniors homes and “green infrastructure” like water treatment plants and clean energy. The party is also promising to establish the Canada Infrastructure Bank to provide low-cost financing to municipal infrastructure projects. “The most effective way to create jobs and growth is through investment in infrastructure,” says Goodale, citing research done by the Finance Department. “It’s far more effective than any other tool the government could use.”
Though it’s arguably the centrepiece of the Liberal economic plan, infrastructure investments are just one part of the party’s ambitious policy platform. Trudeau has pledged to overhaul personal tax rates by cutting those of middle-income earners to 20.5 per cent from 22 per cent now, while creating a new tax bracket of 33 per cent for those who make more than $200,000 a year. There’s also a new child-benefit plan that will target lower-income families, spending on programs to help young people find jobs, more spending on seniors and changes to Employment Insurance that will make it easier for unemployed workers to collect benefits. On the other side of the ledger, the Liberals have promised to cut EI premiums to only $1.65 per $100 earned by 2017, compared to $1.88 now, whereas the Conservatives have promised to cut to an estimated $1.49. The change promises to generate about $2 billion more in revenue for a Liberal government to help pay for its extra spending, although their task is made somewhat easier by the fact that, unlike the other parties, they’re not promising to balance the books in the first place.
There are, however, several glaring inconsistencies in the Grits’ promises. For one thing, there’s little reason to believe that running a $10-billion deficit will provide much of an economic boost, regardless of where the money is spent. “We’re talking about a $2-trillion economy so this is like half a per cent,” says Paul Beaudry, an economics professor at the University of British Columbia. He compares the impact to Harper’s decision to cut the GST by two percentage points back in 2006, which is the economic equivalent of injecting another $14 billion per year into the economy (albeit on an ongoing basis). “In that case they were doing it through taxes, here we’re talking about spending,” Beaudry says. “That helps put it in perspective in terms of size.” At most, Beaudry predicts the Liberal deficit plan might increase GDP growth by one per cent: “People aren’t going to say, ‘Wow, the economy is really different.’ ”
The risk with the Liberal approach is Ottawa could easily find itself facing the same bleak economic picture in 2019 as it does today—particularly if Canada suffers a prolonged period of weakness thanks to its aging population or a structural change in the market for natural resources. That, in turn, might prompt calls for more spending. “When governments get into big trouble with deficits is when economic growth really slows down in a secular way,” says Beaudry. “So year after year, you’re trying to stimulate it, but it’s not picking up. [The debt] just accumulates. That’s the danger.”
At the moment, such a quandary is hypothetical. What’s not in dispute is that Canada is increasingly a country of crumbling bridges, overcrowded transit and aging utilities, and that the federal government can afford to borrow money to help municipalities pay to remedy such deficiencies. The question is whether voters trust the Liberals to keep their word. All other things being equal, which they almost never are in politics, Goodale says a Trudeau government will spend money wisely and is committed to rebalancing the budget three years from now. “You have to underpin that [investment], always, with strong, prudent management,” he says. “You can’t afford to be sloppy or wasteful. But assuming you can accomplish those virtues, then you can have a far more ambitious agenda. And I think the country is ready for it.”
— By Chris Sorensen