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Hill Dispatches

karl nerenberg's picture
Karl Nerenberg has been reporting on federal politics from Parliament Hill for rabble.ca since September, 2011. In his long career, he has won numerous awards as a broadcaster and documentary filmmaker.

The House returns and Harper will have to answer for economic turmoil

| January 25, 2015
Photo: flickr/Stephen Harper

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Parliament is back and -- maybe, just maybe -- it will provide an opportunity for serious debate on the challenges Canada faces. 

There are enough of those challenges to warrant MPs' collective attention.

For a start, take the economic shocks brought on by the steep drop in fossil fuel prices.

A slumping dollar, declining tax revenues and tanking stock markets caused the Harper government to panic.

Finance Minister Joe Oliver decided to 'prorogue' his budget because of "uncertain market conditions."

Federal budgets are normally due in February or March. Oliver did not say exactly how long he might wait before delivering his. He only said he would not do so any "earlier than April." 

Somehow, despite the daunting market uncertainty, Oliver still claims he will keep to the Conservative election promise that the federal government will run a surplus by 2015. A previous Liberal Finance Minister once truculently declared that he would slay the federal deficit "come hell or high water." 

Oliver eschews such over-the-top rhetoric, but does intimate that, to fulfill the Conservative campaign promise, he might be forced to dip into the contingency fund created by that former Liberal Minister. 

Deficits and surpluses vs. Debt-to-GDP ratio

Too many Canadians -- including many in the media -- invest the goal of a balanced budget with a totemic significance that has nothing to do with good fiscal policy.

When it comes to deficits the important figure is not an absolute number, the dollar amount of deficit or surplus for a given year. 

It is rather a rate: the rate of change in the ratio of government debt to the overall economy (or, in other words, the Gross Domestic Product, the GDP).

Economists call it the debt-to-GDP ratio and if it goes up consistently from year to year there is good cause for worry.

If that ratio trends downward, however, even if governments run annual deficits, there is no reason to panic. 

Indeed, an obsessive concern with short term fiscal balance, especially in times of weak economic growth, can lead governments to adopt austerity policies that exacerbate rather than alleviate economic distress. 

Medieval physicians did the same when they bled patients who suffered from debilitating diseases, thus weakening them further and hastening their demise.  

Finance Minister Oliver is adamant that there is no need for fiscal stimulus now, despite the shock of declining oil prices (which, the TD Bank predicts, are likely to drop even further).

Canada's is a big, diversified economy, Oliver and his boss Prime Minister Harper now say. Even if one sector might be in trouble, they tell us, others might be about to thrive.

That mantra is new for the Conservatives.

Until now, when Harper and his colleagues talked economics they sounded as though they were high on gas fumes.

When he was Natural Resources Minister, Joe Oliver used to speak anxiously about the need to get Canadian fossil fuels, and especially tar sands bitumen, to market while there is still a market. 

There are emerging, energy hungry economies out there, Oliver said, and this is our chance to cash in -- ergo the need for a massive increase in pipeline capacity, and damn the environmental consequences. 

He did not say it, but one presumes Oliver was worried about the advent of non-emission producing and sustainable forms of energy. It seems he accepted that sooner or later the world would wean itself away from fossil fuels and decide that it would be best -- as scientists recommend -- to leave a good part of the planet's oil and gas reserves in the ground. 

Now, mutatis mutandis, Oliver and Harper have adopted Official Opposition Leader Tom Mulcair's "Dutch disease" analysis, in reverse. 

If high oil prices and a consequentially high Canadian dollar beggar the manufacturing sector, low oil prices, they say, must be good for manufacturing.

No new stimulus measures

Harper and Oliver now say that the new oil-price-and-Canadian-dollar reality will almost magically and all on its own spur growth in the non-petroleum economy. 

There is no need, the Conservatives argue, for any federal government policies to encourage such a development, or even to smooth the transition.

But notwithstanding the Harper government's complacency, the Governor of the Bank of Canada stepped in with a cut in the Bank's key lending rate that surprised just about everybody.

Governor Stephen Poloz does not seem to agree with Harper and Oliver's view that Canada's listing economy will right itself without any intervention.

Poloz thinks we need "insurance" against the "destructive" impact of lower oil prices.

Elsewhere on rabble.ca, economist Hugh Mackenzie makes a convincing case that monetary stimulus alone will not be enough.

We will need vigorous fiscal measures as well, Mackenzie says.

But the government is sticking with its voodoo economics, balanced budget talk. 

Opposition can counter the fiscal balance myth

When it finally does see the light of day, Oliver's belated federal budget will almost certainly forecast a surplus.

The key word, here, is "forecast."

As Mulcair has correctly pointed out, we will not know before the federal election whether or not that forecast is accurate.

Oliver is not being too-clever-by-half. He is just demonstrating that, although he is only a freshman MP, he is a true politician to the core.

With the House of Commons back in business, the Opposition now has a chance to probe the Harper government on its disingenuous, irresponsible and potentially dangerous plan to delay the federal budget. 

More important -- and this will require a greater measure of political courage -- the opposition parties also have the opportunity to question the blind, politically motivated obsession with balancing the federal budget, come hell or high water. 

NDP, Liberals and, yes, even Greens can use the resumption of Parliament as an occasion to put forward realistic, sensible and practical alternative fiscal policies, policies appropriate to this new age of cheaper oil and a lower dollar.

But will they do so? 

Stay tuned. 

Photo: flickr/Stephen Harper



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