The Conservative itch to cut government can't stay repressed for too
long, even when they are in government and in charge of a full-blown
economic crisis.
In mid-June, Finance Minister Flaherty went
off to meetings with the G8 talking up the idea that it was "time to
have a discussion on how to disengage from the fiscal stimulus." Last
week in Italy, Prime Minister Harper reluctantly agreed with other
world leaders that things were still too shaky to start cutting back on
government help.
Back home, as requested by Parliament, the
Parliamentary Budget Office posted its second Budget Progress update,
an arms-length assessment of the Conservatives' quarterly report card
on how their plan for dealing with recession is going. The PBO
summarized the latest private sector forecasts and economic indicators
– including those that affect people the most, trends in the labour
market.
The PBO's reality check showed how rough things are,
pointing to declining, but large, deficits for each of the next five
years. It called a spade a spade. We now face a structural deficit: not
enough revenues for ongoing expenditures when we get to the other side
of the recession.
In contrast, official budget documents
promised in January that today's deficits would become surpluses in
five years. By June's quarterly report the government just stopped
talking about deficits entirely.
Softening the blow of the
economic crisis faced by hundreds of thousands of Canadian households
and businesses is, without question, the immediate priority; and the
job is nowhere near done. But, in time, we'll need to dig out of the
deficit hole and, as this "heads up" from the PBO noted, it won't be
easy.
There are four ways to get out of the hole – more revenues, less spending, real economic growth, or price inflation.
Everyone
agrees: When we get there, recovery will be very, very slow. So we
won't be growing our way out of the hole in any hurry. That blocks the
road to the most painless policy option.
Canadians will say no to
higher taxes, fewer services, or inflation; but "no" is not a strategy.
Which strategy will the government of the day lean toward?
Inflation
seems an easy out, but escalating prices don't mix well with a large
and growing swath of Canadians struggling with stagnant or falling
wages, or living on fixed incomes. The biggest cohort of retirees we've
seen in history, and a disturbingly large group of young families and
newcomers, will get bitten hard if we go that route.
When
Liberal Leader Michael Ignatieff mused, in passing, that one option
could be to raise revenues, he was aggressively attacked by the
Conservatives.
It's worth noting that the size of the hole in
five years, as projected by the PBO, is roughly in line with the drain
caused by the 2 point cut in the GST that the Conservatives brought in.
That decision now looks like a self-inflicted wound.
If growth, inflation or more revenue are not answers for the Conservatives, that leaves one last solution – shrink government.
That's
exactly what Ted Menzies, parliamentary secretary to the finance
minister, said was the plan all along, in his response to the PBO
report: cut spending and sell public assets – assets the government
can't name, sold into a market that hasn't yet seen bottom.
What
cuts are on the horizon? About 30 per cent of federal spending goes to
income supports for the elderly, the unemployed and children. Another
20 per cent gets transferred to the provinces to support social
programs. The other half funds First Nations, justice, security,
defence, trade, foreign aid, national infrastructure. Who were they
planning on creaming first in a jobless, growthless recovery?
Apparently not defence. In 2007-08, defence accounted for close to 8.5
per cent of federal spending. It's gone up since. Last week, Defence
Minister Peter MacKay announced $5 billion more to purchase armoured
combat vehicles as a "renewed commitment to domestic security." He even
linked it to stimulus measures, suggesting a new approach to
procurement would create jobs for Canadians.
Meanwhile, the
$6.4 billion in federal "stimulus" for community infrastructure
projects – needed well before the crisis hit – may be cut off before it
is all spent. In a carefully crafted message to Canadians, Flaherty has
only committed to 80 per cent of the budgetary announcements for
stimulus (though the tax cuts in the package, worth $20 billion over
the next five years, are 100 per cent guaranteed). The PBO has
elsewhere noted that the Conservatives have only spent $2 of every $3
announced in its budget plans for expenditures.
When Prime
Minister Harper first came into power he spoke bravely of Canada not
having a tradition of cutting and running, his explanation for keeping
our troops in Afghanistan for "the long haul".
He's changed his
mind on Afghanistan, but has remained true to his original vision for
the people of Canada. Cut and run government was the game plan all
along.