Monday, January 26, 2009

On coalitions, budgets and deficits

Note that I write this without having read or listened to any coverage of the throne speech, or the throne speech itself. That will come tonight. Going into the throne speech though, as I continue catching-up on my blogging here are a few thoughts on the next few days, and the way forward.

* The phrase Coalition if necessary, but not necessarily coalition has come to make more sense during the weeks since perogy madness. The fact is, things have changed a great deal since then.

Last year, based on the economic update, bringing down the government and replacing it with an opposition coalition was absolutely a justifiable play, and the right thing to do. The Conservatives had shown themselves unwilling to be reasonable and to address the real economic concerns of Canadians. They escaped that judgment by the skin of their teeth, and bought themselves time.

Now with the budget we’ll have an entirely different set of circumstances to judge than we did last time, and just because a toppling/coalition was right then doesn’t necessarily mean it’s right now. And we need to frame the question correctly. Do I think a coalition government would be better for Canada that the Conservatives? Sure. But that doesn’t mean we should go ahead and topple Harper, budget be dammed. Canadians won’t accept such a move.

Only if Harper comes in with a budget that, like the economic update, fails to rise to a level of action and seriousness needed can we contemplate bringing them down. And even if the budget doesn’t do everything we want can't just bring it down. It won’t be a Liberal budget. But if it moves far enough in the direction we want then we need to let is pass, considering the coalition threat a success and continuing to hold Harper to account in the future. And yes, over time, the coalition becomes less of an option, so going forward we need to demonstrate our readiness, and willingness, to force an election if necessary, particularly if Harper decides to play the confidence game again.

I’ll say it again though, Canadians will not accept a coalition that's a mere power grab. It needs to be justified on policy grounds based on Harper’s action, or inaction. This isn’t our chance to simply do what we couldn’t in an election. That dog just won’t hunt.

* A few points on deficits. First of all, yes, the opposition has been advocating spending increases that will necessitate a deficit, and most observers have accepted the need for a period of deficit spending until we’re out of this economy. The fact is, though, the $64 billion deficit over two years figures that the Conservatives pre-leaked is higher than it need be because of Conservative financial incompetence, their inability to see this storm coming until a month or so ago, and their complete squandering of the substantial surplus the previous Liberal government left them.

The Conservatives squandered the surplus on high spending that doesn’t seem to have bought us much (I can’t honestly say where it went, but went it did), and hugely expensive cuts to the GST that took many billions of dollars out of government coffers. And they eliminated the Liberal tradition of a $2 billion contingency reserve to cushion unexpected difficulties.

A deficit at this point would still have been largely inevitable, but it need not have been near as big. Conservative mismanagement, and their ideologically-driven crusade to strangle the federal government’s fiscal capacity, has left them with very little room to maneuver now that times are tough, and an even bigger hole to climb out of than would have been necessary.

* Finally, the budget. It certainly seems like the spending will be there. The question, though, is where will it go. I’ve already outlined at length my preferred methods of fiscal stimulus, and the problems inherent in the broad-based, and permanent, middle class tax cuts Harper has been signaling he favours.

In addition to the method of stimulus, I’m going to be looking for a plan and roadmap to get back out of deficit, and permanent tax cuts would make that doubly difficult. Infrastructure projects are a one-time expense. But tax cuts, besides being ineffective stimulus, are permanently lost revenue that can’t only be made-up by tax increases (politically unsaleable) or why cuts to program spending.

And that’s my fear with this budget. It’s no secret Harper wants to strangle the federal government’s fiscal capacity, rendering it permanently unable to play a strong national role. I’m fearful they will use the guise of this economic crisis to push through large permanent tax cuts that, while ineffective as stimulus, will neuter the federal government and force massive cuts to program spending down the road.

Such a move, while more wily than the political gamesmanship of the economic update (voting against tax cuts is much harder than voting against ending pay equity), would be just as dangerous to Canada, and would have to give the opposition serious pause.

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Anonymous said...


I'm sorry, but "permanent tax cuts"? How are any tax cuts "permanent"? Is Harper proposing a constitutional amendment entrenching the tax rate that I'm unaware of?

Every government tweaks taxes - raises and lowers them, adds some and takes some away - and they do so at their leisure. Suggesting that any tax cut (or tax increase, such as Dion's supposedly "permanent tax on everything") is "permanent" makes no sense whatsoever. And you used the term or its derivatives 5 times in this post, which leads me to think it was quite intentional. When you start to veer into the CPC War room's rhetorical territory, you might be pushing credibility somewhat.

Otherwise a good post.

Greg said...

All the budget is is words. We know from experience that Harper is a liar. Why give him even more time to cause harm to Canadians?

Jeff said...


I used the phrase permanent tax cuts not as some sort of war room communications strategy, but that is the phrase Stephen Harper himself has been using. Two examples:

"I think that if we're talking about tax cuts, these measures in most cases have to be permanent to be effective," the Conservative leader said in an interview with La Presse, the French-language daily.
-- Jan 24, Reuters

"There will be some tax measures and some of those measures will be permanent, but the tax measures are modest and they're affordable in the long term," Harper said.
-- Jan 23, CanWest

Google Harper "permanent tax cuts" and you'll get plenty of more examples.

You are correct, of course, that any tax cut can be reversed. But in this context, a temporary tax cut would be intended to stimulate the economy and it would be stated at the outset it would be reversed at a fixed date when the crisis has passed. A tax holiday of sorts, if you will. A permanent tax cut, in this context, is one the government is stating is not intended to be temporary, but will not (as far as anything is ever permanent in this world) be reversed once the crisis passes.