What Harper has planned for Ottawa

The PM plans to continue shrinking government; health care transfers will help

What Harper has planned for Ottawa

Frank Gunn/CP

What if this election were about something big? What if it were a fundamental debate about the role of government in a modern society? Maybe it is and you just have to scratch a bit to find it.

With their backs to the wall, Michael Ignatieff’s stalled Liberals have finally begun broadcasting the sort of attack ads that always feature in the later stages of Liberal campaigns. “Stephen Harper is demanding more time in power,” this year’s ads say, over pictures of the Conservative leader in an unphotogenic moment of repose. “Can you trust him with your health care?”

Well, why wouldn’t you? In reply, the Liberal ad rehashes some scare quotes from 2000 and 2001, when Harper was beating the right-wing drums at the National Citizens’ Coalition. Then the breathless voice-over adds: “Last year, Harper’s finance minister called for massive cuts to increases in health spending. Now Harper has a risky plan to cut $11 billion from government spending. Where would Harper’s cuts leave your family’s health?”

Some of this is true. Harper has announced plans to cut $11 billion—well, $1 billion next year, doubling to $2 billion the year after, then $4 billion in each of the next two years, which adds up to $11 billion in total—from spending. It is also true Harper has offered few details about where he would cut. Well, that’s good enough for Michael Ignatieff. When they get this way, just before one of their occasional defeats, Liberals always imagine nothing can be cut except health spending. So they’re trying to turn this election into a referendum on “saving” health care.

This message gets close to Stephen Harper’s real plan—which is not secret because he has cheerfully advertised its every element—while still managing to miss the point.

Harper insists he has no plan to cut health spending. “You make it your highest priority,” he said in the English leaders’ debate. “That’s what we’ve done . . . We’ve been very clear. We’re not going to cut the rate of increase in transfers for health care, education and pensions. That is job number one.”

Now, of course leaders sometimes say one thing in a campaign and do something else afterward. Harper’s done that himself once or twice. But I am quite sure he does intend to keep letting health care transfers to the provinces grow. For two budgets in a row, 2010 and 2011, he made modest cuts elsewhere without cutting transfers to individuals and the provinces. The 2011 budget is on hold because of this election, but it’s still a good indicator of Harper’s plans.

A chart in that forgotten budget shows major transfers to individuals—Employment Insurance and benefits to children and the elderly—holding steady as a fraction of GDP for the next four years. Cash transfers to the provinces, which fund health care, will hold steady too­ (and even increase given the campaign promise to keep hiking them six per cent per year). But direct program expenses—services and programs Ottawa delivers itself, in its own areas of jurisdiction—are slated to decline.

Now here’s the thing. Direct federal program spending is already low by the standards most Canadians have known in their lives. Lakehead University economist Livio di Matteo has written that, until the 2009 budget with its temporary “stimulus” spending, federal spending as a share of GDP was lower than at any point since the early 1960s. It has been declining since Brian Mulroney left office in 1993.

Harper’s plan is to continue shrinking the federal government. It’s not a hidden agenda. He’s announced every part of it. Health care transfers will actually help. They’re just blank cheques to the provinces, good mostly for getting money out of Ottawa. The Liberals in government would make a lot of noise about enforcing the Canada Health Act, but mostly they’d just keep writing the cheques. Harper will write bigger cheques, worry even less about the Canada Health Act, and leave himself less money every year to run programs out of Ottawa.

On the other end of the ledger, he’ll keep squeezing his revenues. That process began with the GST cuts after the 2006 election. It will continue with two policies Harper announced in this campaign’s first week. Income splitting will allow a higher-earning taxpayer to transfer part of his salary to a spouse for tax purposes—and cost $2.5 billion a year in foregone revenue. Doubling contribution room to tax-free savings accounts (TFSA) will cost even more. Economist Kevin Milligan has estimated a “revenue cost” of $6.6 billion a year once the TSFA increase is fully phased in.

Add the cost of those growing health transfers and the foregone revenue from Harper’s new tax promises, and you get more than $10 billion a year in reduced fiscal capacity for the federal government. And if Ottawa is locked into a few multi-year spending increases—on military equipment and prisons—there’s progressively less room for everything else. Economist Frances Woolley has said that to reach Harper’s projected savings without cutting defence, public safety or the Canada Revenue Agency, he’d need to cut everything else by one-third.

“Everything else” here includes departments like Environment, Fisheries and Oceans, Industry, Transports and Veterans Affairs.

The Liberals used to talk about the choices implied here, way back at the beginning of the campaign. They had some snappy lines about a government that prefers “jets, jails and corporate tax cuts” to programs for Canadian families. But in the home stretch, they have resorted to scare tactics, and Harper is winning the campaign’s big argument without real opposition.

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