Reviewing Stephen Harper’s economic record as campaign for re-election gears up

Posted on October 17, 2014 in Debates – Full Comment –
October 17, 2014.   John Ivison

Canadians go to the polls a year from Sunday — the fixed election date is Oct. 19, 2015 — but the Conservative campaign for re-election is already gearing up.

The government would like to run on its record of good economic management, which it is likely to define as eliminating the deficit. The opposition parties claim the Conservatives’ image of sound economic stewardship is a myth.

So how does the Harper government’s record on the economy stack up?

I asked four prominent economists to rate the Conservative performance: Glen Hodgson, chief economist, Conference Board of Canada; Scott Clark, a former deputy minister of finance; Ted Mallett, chief economist at Canadian Federation of Independent Business; and Derek Burleton, deputy chief economist at TD Bank.


The facts are with the Conservatives when it comes to claims that they have returned the budget to balance, despite the malign influence of the great recession. We will find out if the deficit has been slayed when the government brings down its fall fiscal update. But the numbers re-inforce the idea that fighting the deficit was the government’s number one priority, after it turned off the stimulus taps.

Program expenses that rose to 16% of GDP in 2009/10 were reduced to more historically typical levels of 13.2% by 2013/14.

At the same time, federal debt levels, as a percentage of GDP, were lower in the last year than they were when the Conservatives took office in 2006. The plan is to reduce public debt to 25% of GDP in the next six years — a level many economists consider “a sustainable fiscal structure.”

Despite a turbulent period that saw the government record six deficits and do things that it patently found distasteful, like buying a stake in General Motors and setting up a Southern Ontario development agency, the books are (or soon will be) back in the black.

The government still says it will record a $2.9-billion deficit, but TD is forecasting a $5-billion surplus this fiscal year.

“I’d give the government a pretty good grade. It had a clearly laid out plan and stuck to its guns. It was a plan based on restraint and they stuck to it,” said Mr. Burleton.

Mr. Mallett said the government created a stable operating environment for businesses that allowed them to plan with more confidence. “They gave us a long range plan and kept to their targets,” he said.

The question posed by Scott Clark, a former deputy minister of finance, is whether the government should have focused on the deficit at the expense of other measures like jobs and growth. “There’s nothing in economics that says you have to do it [pay down the deficit] that quickly,” he said.

In a posting on the 3D Policy blog, Mr. Clark and his writing partner, Peter Devries, called “the neo-liberal experiment in Canada a dismal failure.”

They blame the austerity fixation of the late finance minister, Jim Flaherty, “for years of slow growth and job creation.”

His conclusion is that the government plan to eliminate the debt, shrink the size of government and hope the private sector would take up the slack has produced worse results than would have been the case if the Conservatives had pioneered a balanced approach that invested more money in infrastructure and job creation.

Glen Hodgson, chief economist at the Conference Board of Canada, said Stephen Harper and Mr. Flaherty did the right thing introducing stimulus measures but, when they were withdrawn, he said he would have preferred the tax structure be cleaned up, rather than the public service cut.

“Overall, though, they deserve a pretty good grade. The path was right and you can always debate the particulars.”

Scott Clark: C
Glen Hodgson: A-
Ted Mallett: A-


Tax Freedom Day — the day on which, theoretically, Canadians start working for themselves — fell on June 9 this year, two weeks earlier than in 2005, before the Conservatives came to office.

When coupled with budgetary revenues that were nearly two percentage points lower as a share of GDP last year than in 2005/06, it suggests the Harper government has been successful in letting Canadians keep more of the money they earn.

See Chart: “Key Indicators: The Conservatives’ Fiscal Record” < >

The Parliamentary Budget Officer looked int< the tax relief issue and concluded Canadians are saving more than $1,000 per person due to tax changes introduced in the last decade (including a point cut in personal income tax by the Paul Martin Liberal government).

The two-point cut to the GST and a range of personal exemptions have helped earners at all levels of income. Low earners, for example, profited from the Working Income tax benefit.

However, economists are united in the belief that the government should have cut income taxes, rather than reduced the GST and brought in a range of boutique tax credits.

“The GST cut doesn’t do a thing for economic growth,” said Mr. Clark.

Mr. Hodgson agreed that the revenue foregone by the GST cut would have been better spent on measures that yielded more investment.

However, he credits the Conservatives for getting rid of capital taxes, reducing corporate income tax and harmonizing federal and provincial sales taxes in provinces like Ontario.

“It’s a very mixed picture,” he said.

Scott Clark: D
Glen Hodgson: B-
Ted Mallett: A-/B+


The government’s boast is that it has created one million net new jobs since the depth of the recession — the strongest jobs growth in the G7.

Statistics Canada confirms that one million new jobs were created since July 2009 but that doesn’t account for population growth, and a number of other countries in the G7 have employment rates higher than Canada.

In truth, the Conservative record on jobs is unspectacular. Unemployment is almost exactly where it was when the Tories took office and the participation and employment rates are lower.

Critics point out that, at a time when money should have been invested in employment creation, the government was cutting more than 20,000 jobs from the public service to hit its deficit targets.

“They were on the verge of becoming part of the problem,” said Mr. Hodgson.

Neither has its trade agenda yielded concrete results yet, despite the soaring rhetoric. Exports, as a percentage of GDP, are six points lower than they were in 2006.

Mr. Mallett said he’d like to see more work by the federal government on opening up Canadian markets to Canadians business — internal barriers to trade remain a headache for many firms.

Growth remains tepid — Mr. Hodgson said the Conference Board is forecasting growth of 2.5% next year — and that’s the best in the past five years. “What can the government do to strengthen the growth profile?” he said. “I really do worry about chronic youth unemployment. We are nearing full employment but we still have youth unemployment of 13%.”

Scott Clark: D
Glen Hodgson: C
Ted Mallett: B+

The good news for low earners is that they are better off than they were when the Conservatives came to power.

In 2011, the bottom 20% of earners were making $15,100 after tax, up 9% from 2005 (all figures constant 2011 dollars). The middle 60% of earners saw their pay rise 7% to an average of $53,500.

But, while the top 20% saw their income increase a relatively modest 8% to $139,400, the gap with the bottom fifth (and even the middle three-fifths) grew.

“The fact that we had real wage increases for the average Canadians is pretty good. But income inequality is a fact and the middle class is having a hard time keeping up,” said Mr. Hodgson. “It’s not an easy fix. Taxing rich people is not going to solve inequality.”

Scott Clark: C
Glen Hodgson: B
Ted Mallett: B


The government is unlikely to be swayed from its deficit, debt and tax reduction course in the fall fiscal update, due later this month — unless current geopolitical and market shocks persuade Mr. Harper to hold off. He may yet reflect that the economic update in fall 2008 was quickly overtaken by events and had to be replaced by a “shovel ready” budget in January 2009.

Mr. Clark warns that Joe Oliver, the new finance minister, is “unbelievably optimistic” about federal spending, considering the falling oil price.

Mr. Burleton said that the federal government, unlike the provinces, doesn’t rely on direct resource royalties and thinks the Canadian economy will be resilient enough to weather the correction.

Peter J. Thompson/NP
Peter J. Thompson/NPFinance Minister Joe Oliver (above) is “unbelievably optimistic,” Scott Clark says.
If we do remain in a business-as-usual environment, it sets up a fascinating election. We know what the Conservatives are likely to offer — more of the same.

The NDP has already shown its hand — surpluses will be channeled into social programs like the $5-billion child care plan revealed by Tom Mulcair last week.

The Liberals have been silent so far, but at their conference in Montreal last spring, they tipped their hat toward the kind of infrastructure spending Mr. Clark advocates. Rather than demonizing deficits, governments should use the sustainable fiscal structure that Canada enjoys as a springboard for jobs — a “made-in-Canada growth strategy,” he says.

In Montreal, former U.S. Treasury Secretary Larry Summers gave his views on “secular stagnation.” This idea states that market mechanisms to ensure full employment and growth have failed, so governments must juice demand with “productive investment,” taking advantage of low interest rates.

Justin Trudeau, the Liberal leader, all but endorsed this idea of borrowing money and running deficits to fund large infrastructure projects when he said that it is “time for Ottawa to step up.”

It will take some peculiar political epiphany on the part of the electorate to recast the political orthodoxy. Even the fabled Trudeau charm may not be up to persuading voters to embrace permanent deficits as a force for good, after they have been warned for a generation they were the work of the devil.

This is not a government that does epiphany. Economic policy has always been guided by political considerations and, for now, they dictate balanced budgets, more tax relief and less government intervention.

Scott Clark: D
Glen Hodgson: B
Ted Mallett: A-

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