In our review of 2013, we concluded with the following:

In 2013, the federal government continued, as in the past, to show its ideological arrogance; its unwillingness to confront major economic challenges; its disdain for Parliament; its aversion to openness and transparency; its rejection of a federal role in working with the provinces to strengthen the Federation; and its inability to adopt evidence based policy.
This has been the government’s method of operation for the past seven years. Why change now? Expect more of the same in 2014.

We still expect this to be the “modus operandi” of the Conservative government for 2014 and also 2015. This government is too ideologically driven to consider any change in behavior.

Finance Minister Flaherty is no doubt reading the media reports and departmental briefing memos that the U.S. economy is recovering and expected to grow by as much as 3 per cent in 2014. He should be happy because, without this, his goal of eliminating the deficit in 2015-16 would not be that assured. But he should be concerned that the EURO area, although not in a recession, is still not growing, and China, although growing, is doing so at rates well below past experience. As a result, global economic growth, although recovering from 2013, will still be sluggish in 2014 and 2015.

For the past seven years, the government’s growth and jobs strategy has been based entirely on events and policy challenges beyond its control. Hopefully, export growth will improve in 2014, but domestic demand will likely stay in the doldrums. Canada is running a trade deficit of about 3 per cent of GDP and this is unlikely to diminish in 2014.  It remains a big question as to whether the unemployment rate will fall below 7 per cent by the time of the next election.

The Conservative government has achieved one of, if not the most, important communications coups since the War. Despite all the evidence to the contrary, Prime Minister Harper and Finance Minister Flaherty have convinced Canadians that they are sound economic and financial managers.  In 2011, they convinced Canadians that, in uncertain economic times, it is best to vote Conservative.

But recent polling indicates that all that has changed. The majority of Canadians are no longer happy with the way the country is being managed. All the rhetoric about being the best in the G-7 isn’t good enough. If Harper and Flaherty are “sound economic and financial managers” then why is the unemployment rate still hovering around 7 per cent? Why does Canada have a youth unemployment rate of over 15 per cent; a federal debt $150 billion higher than when the they took office in 2006; a federation weakened by federal-provincial squabbling over health, training and pensions; greater uncertainty about retirement; widening income inequality?

In 2014 the Conservative government needs to find a way, no matter how difficult, to resurrect its “reputation” as the best managers of the Canadian economy and to make economic and financial management the dominant political issue. This will not be easy given all the other potential political problems that lie ahead, particularly the Senate and PMO scandal - better known as the gift that keeps on giving.

That is why the budget 2014 is so important. Clearly, in the 2014 budget, the government will show a surplus in 2015-16 and in every year afterwards. But simply showing a surplus will not be good enough. The government needs surpluses larger than what they showed in the November 2013 Update in order to allow them to fulfill their 2011 election promises. These promises include income splitting for families with children under the age of 18; expanding the fitness tax credit to adults; and, doubling the contribution to tax free savings accounts.

The government must decide what type of budget it wants in 2014. One option would be to deliver a stand pat budget in 2014 that simply updates the economic and fiscal numbers, surrounded by a lot of rhetoric on how well Canada is doing compared to other G-7 countries and how we should be happy we don’t live in Greece.

The benefit of this approach is that it would leave the government a period of time in which some better economic numbers might appear. This would lead to an Economic and Fiscal Update in the fall of 2014 followed by the 2015 budget in which the government would fulfill its 2011 election commitments and begin the 2015 election campaign.

A second option would be to formally include the 2011 election commitments in the 2014 budget as part of a longer-term economic and fiscal strategy, and in doing so begin the 2015 election campaign twelve months earlier. 

Unfortunately these commitments do not come cheap. The total cost of these three initiatives would be close to $3 billion annually, and would use up most of the surplus forecast by the government in the November 2013 Economic and Fiscal Update. Fulfilling these three promises would mean that the Conservative government would not pay down any meaningful amount of the $150 billion in higher debt accumulated since it came to office, hardly a claim for sound financial management. This would not be good news for a conservative government given that under the previous Liberal government, the debt actually fell by about $150 billion.

The main objective of this option would be to force the Opposition parties to respond, earlier than they would like, with their own long-term economic and fiscal strategies. It would force them reveal their plans for using the surplus. This would set in play a much needed debate over which party can best lead this country forward.

This is presumably a debate that the Conservatives feel they can win so why delay? Why not start the debate in the 2014 budget and keep the claim of “sound” economic management on the front burner for the next 12 months? Unless of course you are worried you might not win the debate.