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Link: http://www.quebecoislibre.org/15/151115-3.html To the considerable relief of many Canadians, Stephen Harper’s term as Prime Minister ended this month after a sweeping Liberal victory in the federal election on October 19. Changes in government are an opportune moment for reflection, and in this piece I look back at Harper’s economic legacy. For a review of his social policy, you can read my other article in this month’s Québécois Libre. When the Conservatives came to office, there were high hopes for Canada’s economic policy: Economics is generally seen as the right’s strong point, and Harper himself holds a master’s degree in the subject from the strongly pro-market department at the University of Calgary. But if the government had any good intentions when it took office in 2006, they did not survive contact with reality. Taxes One of Harper’s first actions in office was to roll back an income tax cut enacted by the outgoing Liberals, in order to instead cut the Goods & Services Tax by one point (with another one-point reduction following in 2007). Since raising the cost of a thing causes there to be less of it, if the government must raise funds it makes far more economic sense to tax consumption rather than production. And yet the holder of a postgraduate degree in the field chose to do precisely the opposite. Unfortunately, that piece of economically-dubious policy was a harbinger of things to come. While Ottawa did implement some genuine tax cuts over the years, such as raising the basic personal deduction, hiking the upper threshold for some tax brackets and slashing corporate taxes, a list of their “tax relief” provided since 2006 makes plain the Conservatives’ favourite tool of fiscal policy: tax credits. The Harper government added or expanded countless exceptions to the tax code, allowing people to get some of their money back if they engage in certain behaviour. These include taking public transit, buying tradespersons’ tools, renovating their homes, and buying textbooks. Economists typically describe tax credits as “tax expenditures” since they resemble a subsidy in that they involve sending people tax dollars on condition that they do certain things. Real tax cuts involve taking less of people’s money in the first place, not offering some of it back to them if they conduct themselves properly, collect receipts, fill out an increasingly complex tax return and patiently wait for their cheque. Debt The financial crisis that began in 2008 left no country unscathed, bringing overwhelming political pressure on Western governments to adopt stimulus packages. And while the Conservatives deserve credit for not immediately jumping on the deficit bandwagon, they had the scare of their lives when the opposition parties reacted to their fiscal prudence by forming a coalition that threatened to bring down the minority government. Harper’s resulting conversion to Keynesianism was positively Damascene: After more than a decade of balanced budgets under Liberals and Conservatives alike, Ottawa ran six straight deficits, borrowing a total of almost $150 billion as government spending rose from $222 billion in 2006 to $289 billion in 2015. Every dollar borrowed in the name of a dubious economic theory will eventually need to be paid back, with interest, by tomorrow’s taxpayers. As an aside, Harper’s budgetary policy makes an utter mockery of his criticism during the recent campaign of Liberal leader Justin Trudeau’s pledge to run comparatively modest deficits to fund infrastructure spending. Bailouts While Canadian banks weathered the storm in 2008 better than most, any feelings of superiority over the Americans and their $700 billion bank bailout are sorely misplaced: Although it received little attention at the time, Ottawa quietly provided banks with over $100 billion in assistance through such measures as extending loans and buying mortgages. Three major banks received support worth more than their entire market capitalization in early 2009. If the bank bailout was under the radar, the auto bailout was anything but. In December 2008, the federal and Ontario governments joined the United States in extending a massive aid package to Chrysler and General Motors, consisting of almost $14 billion in loans and share purchases. Seven years later, the auditor general reports that Ottawa asked for little in the way of information before extending the aid and is in the dark as to how much of the money was used. Taxpayers are estimated to have lost $3.5 billion on the value of their shares of GM. Foreign Investment In 2006, Canada’s record on foreign investment was rock-solid: While the Investment Canada Act empowered Ottawa to block investments by non-Canadians on the grounds that they were of no “net benefit” to Canada, the chances of rejection were virtually zero. Foreigners could choose to put their money into Canada without fear of being blocked, thereby promoting job creation, innovation, and wealth. During Harper’s tenure, the Conservatives turned away foreign money not just once, but repeatedly. In 2006, Ottawa blocked a proposed acquisition of a division of MacDonald, Dettwiler and Associates. In 2010 it prevented a proposed takeover of Potash Corporation of Saskatchewan. Then in 2012, it said no to Petronas’ bid to acquire Progress Energy. The resulting uncertainty did nothing to sell wealthy foreigners on Canada as an investment venue of choice. The resulting loss of opportunity, though difficult to quantify, impoverishes us all. The Good It cannot be said that all of Harper’s economic record was bad. There were a few authentic tax cuts, mentioned above. During his time in office, Ottawa signed an incredible 39 free trade agreements, up from only five before 2006. The introduction of the Tax-Free Savings Account in 2009 was a passable second best to a reduction in the capital gains tax. And despite the deficits, federal spending was not totally out of control, dipping under his tenure from 15.1% of Canada’s GDP to 14.2%. On the whole, though, Stephen Harper’s Conservatives governed nothing like the prudent and rational economic managers that they claimed to be. They complicated the tax code, borrowed massive sums of money, adopted a corporatist industrial policy, and took a bafflingly hostile stance toward foreign investors. While there is no reason to expect Justin Trudeau’s Liberals to be any better, it remains to be seen whether they will be any worse. ---------------------------------------------------------------------------------------------------- * Adam Allouba is a business lawyer based in Montreal and a graduate of the McGill University Faculty of Law. He also holds a B.A. and an M.A. in political science from McGill. |