Peering into tomorrow, blind as a bat

PAUL WELLS on Jim Flaherty's "tough budget"

“Let’s be clear,” Jim Flaherty told a news conference during today’s budget lockup for journalists. “This is a tough budget.” Several journalists watching in the room next door burst out laughing.

Like its predecessors, the 2010 budget (“Leading the Way on Jobs and Growth” — the rhetorical inspiration here comes for once not from Australia, but from Paul Martin circa 1994) features a few killer charts that seek to tell the whole story. One of the big ones this year is titled “Rapid Decline In Deficits.” It begins with a rapid increase in deficits, from $5.8 billion in 2008-2009 to $53.8 billion in 2009-2010, wafting gently down to $49.2 billion in 2010-2011, then to $27.6 billion, $17.5 billion, $8.5 billion, and finally to $1.8 billion in 2014-2015. Hey, that’s a rapid decline in deficits.

It had better be. For once I packed away a couple of old budgets to keep me company in the lockup. And here’s what those deficits were projected to be, only a year ago: $1.1 billion in 2008-2009, $33.7 billion in 2009-2010, then $29.8 billion, $13 billion, $7.3 billion and $0.7 billion in 2013-2014. So: over the six years where the two forecasts overlap, Flaherty is admitting he screwed up his forecasts last year by an aggregate total of $76.8 billion.

That’s really bad.

You kind of need to watch this guy Flaherty. “We are going to eliminate the deficit,” he said, sternly, all serious-guy like. “I’m the guy who paid down $37 billion in debt in my first three years as finance minister.”

And that’s true. The figure includes $13 billion in surplus from Ralph Goodale’s last budget. Flaherty had been Canada’s finance minister for six weeks when he cashed Goodale’s check. So Flaherty is the guy who swiped one-third of his bragging rights from the Liberals.

And now, every few months, he gets into a feud with Kevin Page, the Parliamentary Budget Officer. Page says the deficit will be bigger than Flaherty projected. Flaherty puts on his little Irish-cop smirk and says, poncy little crat doesn’t know what he’s talking about. And then the deficit turns out bigger than Flaherty projected.

Every time.

It’s clockwork, like Lucy with the football, but Flaherty’s poker face never wavers. There’s something almost admirable about it. Which is handy because when it comes to the sort of thing you’d like to be able to admire a finance minister for, like, say, being dependable, he’s got nothing for you.

These kinds of outcomes are to be expected because in the delicate work of projecting economic growth, Flaherty is out here commando. The hated Liberals used to use “prudent” projections, which meant they assumed growth would be lower, by a set amount, than the average of private-sector forecasts. Then they added a “contingency” fund of, typically, $3 billion a year, which would protect program envelopes if the growth forecasts were wildly over-optimistic.

Almost every year the only surprise that resulted was substantially lower deficits or higher surpluses than expected. A high-class problem, especially in retrospect. Flaherty throws out both the belt and the suspenders. He takes the average of the private-sector forecasts, uses no contingency, gets it all badly wrong, digs the country a little further into the hole, rinses and repeats.

Anyway. Colleagues Coyne and Geddes, elsewhere in our coverage, will tell you how little credibility there is in the details of Flaherty’s deficit-elimination strategy, but beyond that micro-incredibility, I thought it’d be useful to belabour the minister’s (and by extension his boss’s) macro-incredibility. They have consistently failed to hit a barn door with their most basic forecasts.

But we were not only told, in the festival of leaks and briefings that preceded this budget, that it would be tough on the macro numbers. We were also told it would cast the eyes of the government and nation forward into a bright and shiny future: with innovation, productivity, science, technology, all that jobs-for-tomorrow stuff.

Wrong again.

In among various other bits of Kafka-meets-Orwell language (“Responsibility for conducting environmental assessments for energy projects will be delegated from the Canadian Environmental Assessment Agency to the National Energy Board…”) there is indeed a lot of talk about the Future. But the new sums allocated for science and technology — always a fairly small amount of any year’s budget — are strikingly smaller this year than in recent budget years, let alone in the heyday of the late 1990s. Budget 2010 gives the very strong impression of a national science-and-technology effort that is grinding to a halt in exhaustion and confusion.

For example. A PMO guy buttonholed me in the cafeteria lineup and asked what I thought of what the budget document calls “a new and prestigious post-doctoral fellowships program to attract top-level talent to Canada.” And indeed: the budget provides $45 million over five years to fund up to 140 grad fellowships a year.

That’s worth doing. It’s also about one-third (in any given average year) of the $87.5 million over three years the 2009 budget allocated to Canada Graduate Scholarships. They’re different programs, but you see the difference in scale.

Similarly, the motor of basic research in the country is the three granting councils, SSHRC, NSERC and the CIHR. Budget 2010 gives them $32 million a year in new funding, beginning in 2010-11. Which is great (not really; it’s very modest) until you remember that last year’s budget imposed a $43 million cut on the three councils for ’10-11. So now they’ll only have to find $11 million in cuts next year. Hooray.

There are other funding announcements in the budget, but they don’t go toward the kind of breakthrough-potential basic research the granting councils support. There’s nearly $400 million over five years to develop new RADARSAT remote sensing satellites. That’s like buying a new laptop: it replaces off-the-shelf technology from a few years ago with new off-the-shelf technology that has benefitted, automatically, like falling off a log, from Moore’s Law in the interim. Let other countries support the cutting edge of science; Flaherty will put his bets on the dull edge of technology.

Now, two big reports last year from the Council of Canadian Academies and the Industry department’s Science and Technology Innovation Council pointed out that the real drags on Canada’s productivity aren’t in Canada’s labs, which are well-funded and produce research that receives disproportionate attention from Canadian scientists’ peers around the world. No, the real drag is in the private sector, which fails to implement new ideas into the development of products and processes as a matter of routine. That’s a tougher nut to crack. The new budget demonstrates this by making big moves that won’t help.

Very nearly the largest line item in this budget is the $457 million over two years to make Canada a tariff-free zone for manufacturers. It’s an interesting idea. It’ll allow, say, a razor-blade manufacturer in Moncton to import steel and machinery tariff-free. Eliminating those tariff lines will cost $457 million over the next two years, but I’m willing to believe that cost will be covered in tax revenues from new economic activity.

But what that activity won’t be, necessarily, is innovative or extra-productive. If I want to import my materials and machinery from Slovakia or Japan to run the same lazy-ass domestic-market-obsessed innovation-blind company that dominates the Canadian business landscape, it’s not this tariff-free scheme that’ll kick me out of my rut.

The good news (he said warily) is that, four years after it was elected and two years after it released its science and technology strategy, the Harper government is getting ready to think about science and technology. Here’s the relevant language in the budget:

“To ensure that federal funding is yielding maximum benefits for Canadians, the Government, in close consultation with business leaders from all sectors and our provincial partners, will conduct a comprehensive review of all federal support for R&D to improve its contribution to innovation and to economic opportunities for business. This review will inform future decisions regarding federal support for R&D. The Government is currently developing the terms of reference for the review.”

It is never easy to get excited about a review. This budget announces a lot of reviews to not-get-excited about. It also announces reviews of the Canadian Payments System, aboriginal infrastructure, and airport security (I like to think of this as the Helena Guergis clause). Summoning what may be an excess of optimism, I note that this R&D review, with provincial and business participation, looks a little like what the presidents of Canada’s five major research universities were asking for last summer in a much-remarked interview with Maclean’s. But I note that the budget calls only for input from business, not from the research community.

To repeat: every study shows that Canada’s researchers out-perform the world, not only in their level of funding but in their ability to produce research that influences international peers. It’s Canada’s businesses that underperform, even though they, too, already benefit from generous tax treatment of private-sector R&D. A review of our science strategy that ignores our scientists would amount to a decision to put the weakest performers in charge of strategy. In the international competition for the best ideas and minds, that would be a decision to flee the podium.

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