WHO WILL BE THE BIGGEST LOSERS IN THIS ELECTION ? YOUNG CANADIANS
The longest election in over 100 years has now formally started and all three political parties have rushed to stake out their campaign slogans on the economy. The economy and jobs have always been the priority election issues for most Canadians, but the possibility that the economy could be in a “technical” recession (two quarters of negative growth) has made it even more so.
Canadians have every right to be concerned. The economy has been seriously underperforming its potential for the past seven years and there is little to suggest that this will change over the next five years. Business fixed investment as a share of GDP is virtually unchanged since 2008. . The unemployment rate remains stuck around 7 per cent, and both the labor force participation rate and the employment rate are below their 2008 levels. These trends are dragging down the growth potential of the Canadian economy, which is estimated to be around 2 per cent a year, down from 3%.
The Canadian economy is in a period of secular decline. The policy challenge, and the policy debate that we should be having, is “how to halt and even reverse this decline in our growth potential?” Addressing this issue now will be fundamental to determining the well-being of future generations of Canadians.
Rebuilding our growth potential will be critical to our ability to fund future health care needs; to build our education and research capacities; to close the “gaps” between aboriginals and non-aboriginals; to modernize our social and capital infrastructure; to provide quality care for veterans; and, to make the investments needed to protect the environment. It would be very easy to expand this list.
Indeed for the past nine months, the focus of political debate has been over which political party is providing the best programs to support Canadian families with children, as if somehow the economy will “inevitably” produce the income needed to finance them.
The same goes for the NDP promise to increase funding for development assistance to 0.7 % of Gross National Income (GNI) and the Liberal commitment to eliminate the “gaps” between aboriginal and non-aboriginal communities.
All of these promises will cost billions of dollars. All political parties are assuming that economic growth will recover despite the reality that it hasn’t been happening and despite warnings from the IMF that the global economy is at risk of economic stagnation.
For years, the IMF, OECD and the World Bank have been reducing their forecasts of global economic growth. The recent collapse in the Chinese equity market should be a clear warning that the Chinese situation is going to get worse before it gets better. Don’t expect the EU and the EURO areas to drive the global economy and don’t expect the U.S. to do it on its own.
Where does that leave Canada? It means we can’t continue to blame our economic circumstances on a “fragile” global economy and do nothing. We cannot simply wait for a recovery in the global economy and in commodity prices, particularly oil prices, to drive our economy. Nor can we rely on new free trade agreements, no matter how important they may be in the long run. We need a “built in Canada” long-term economic growth strategy.
No political party has even attempted to articulate such a strategy. Instead, they offer piece meal “nickel and dime” strategies including cutting small business taxes (not helpful)), providing renovation tax credits in the future (definitely not helpful), extending accelerated depreciation on business investment (hasn’t helped so far), and new incentives for research and innovation (very expensive incentives already exist).
The growth strategy of the Conservatives has always been clear -cut taxes, cut spending, balance the budget, cut the size of government, hope the U.S economy recovers, and pray for higher oil prices. The entire April budget is based on this failed strategy. The economic and fiscal projections underlying the April budget can only be described as “pure fantasy”.
What is strange is that the Liberals and the NDP are twisting themselves into knots to put together economic growth strategies that are supposed to be different from that of the Conservatives, while at the same time adopting the Conservative orthodoxy that all deficits are bad, all debt is bad, and small government is good.
A credible long-term economic growth strategy should focus on strengthening the economic efficiency of the Canadian economy. Such a strategy, to be successful, would require renewed federal-provincial trust and cooperation, with strong federal leadership, something that has been painfully lacking for years.
There is a lot that could be done to improve economic efficiency. For example, the tax system has become a serious impediment to economic growth and must be simplified, but it will take real political courage to remove ‘inefficient and unjustifiable” tax entitlements.
If we can negotiate international free trade agreements then why is it so difficult to create a real economic union in Canada, with free movement of goods and services among provinces? Our infrastructure at all levels of government (especially municipal) is collapsing and a national financing strategy is needed to begin rebuilding it. We need a national environmental protection and energy development strategy that includes the development of new energy saving technologies along with the development of energy resources and their transportation to new markets.
An economic growth strategy is, by definition, a public investment strategy in the future. In 2014, the IMF recommended to G20 leaders that governments with sustainable fiscal situations should take advantage of historically low interest rates to borrow (e.g. 30 year bonds at less than 2.5%) and invest in “efficient” infrastructure. According to the IMF, efficient infrastructure investments can pay for themselves and benefit both current and future generations.
The federal government clearly has a strong sustainable fiscal structure, thanks to actions taken over the past 20 years, whereas many provinces do not. The federal government is in a position to act and should do so by adopting the recommendations of the IMF and take the lead in financing a new strategy to strengthen potential economic growth.
Is any of this likely to happen? Probably not. Except for a lot of empty rhetoric from all three parties, a new “built in Canada” growth strategy does not appear to be on the agenda for this election.
It is young Canadians who will suffer the consequences.