Pointing fingers

Not long ago, as Canadians were about to vote in the federal election, Prime Minister Steph­en Harper was emphatic about his Conservative government not running a budgetary deficit.

Now, barely a month later, he wants us to believe that he’s being driven toward unavoid­able red ink by sudden inter­national circumstances beyond his control. It’s all the fault of a collapsing U.S. housing mar­ket, bank failures, a global cred­it crunch, and continuing turmoil in financial markets world-wide. That’s the Con­ser­vative spin.

So now, with other major economies, the Canadian gov­ernment has no choice but to sell off capital assets, or cancel programs and services, or run a federal deficit – or a combi­nation of all three – if it’s going to safeguard Canadian pen­sions, salvage jobs in the manu­facturing, automotive and for­es­try sectors, and kick-start economic growth.

But wait a minute.  This Conservative story just doesn’t add up. Yes, the economic crisis that began in the United States is very real, and it will indeed inflict significant dam­age in Canada and around the world. But the fact that this country is not in a better posi­tion today to weather that storm is entirely Mr. Harper’s domes­tic responsibility.

The best economic forecast­ers in the private sector and within government have been warning successive finance ministers since at least 2003 about the huge downside risks posed by the precarious Ameri­can situation. Previous Liberal governments took those warn­ings seriously. Stephen Harper did not. 

From his Liberal predeces­sors, he inherited the most robust fiscal position in all the G-8 group of world-leading economies, including an annual surplus of more than $12-bil­lion and projected financial flexibility of close to $100-billion over the coming five years.

But as soon as he came into office, and long before any U.S. crisis materialized, Mr. Harper began frittering all of that away.  His debilitation of Canada’s fiscal security was deliberate and home-grown.

He increased federal gov­ern­ment spending to an unpre­cedented level.  He eroded the fed­eral tax base, without bol­ster­ing productivity or improv­ing disposable incomes.  And he eliminated the extra pru­dence and the contingency re­serve that used to be built into federal budget-making as “fiscal shock absorbers” to pro­tect against sudden nasty sur­prises.

You always hope those sur­prises will never actually hap­pen, but inevitably they do. Until Mr. Harper arrived on the scene, Canada had the where­withal to defend itself.

We withstood the conse­quences of major international currency crises in Mexico and Asia, the SARS pandemic, mad-cow disease, and the fall­out from 9-11, while still cut­ting taxes, paying down debt, investing in health care, education, innovation, and in­frastructure, and staying solidly in the black at the same time.

But no more. Mr. Harper has squandered Canada’s fiscal capacity.

So the first external crisis to come along on his watch re­sults in a deficit. And that’s entirely his responsibility.