Budget 2012: Jim Flaherty is structurally incompetent

Please chip in to support more articles like this. Support rabble.ca in its summer fundraiser today for as little as $5 per month!

Ideology makes you stupid and if someone gives you power it makes you dangerous. That makes Jim Flaherty, Canada's finance minister, one of the most dangerous people in Canada as he prepares to deliver one of the most draconian and irrational budgets in recent years.

Finance ministers have a huge amount of leeway in deciding what economic or fiscal issues they are going to devote the most time to in a budget. They can focus on economic growth per se, or employment, or productivity or shifting the macro-focus of the economy to anticipate future developments, or decide to build a modern infrastructure to enhance the country's competitiveness -- or any combination of the above.

But all those actually require an activist government -- using real policy tools to intervene in the economy. Jim Flaherty and his boss Stephen Harper would rather stick pins in their eyes than actually behave like a government. They are, in effect, an anti-government. And while they need to be seen to be doing something, reaching some goal, it cannot be seen to be messing with the "natural" evolution of capitalism. Its base in rural Alberta, Saskatchewan, B.C. and the 905 region hate government and have had their hatred legitimized and reinforced by the Harperites. They now expect a steady dismantling of government.

So, the easiest possible thing to do as an anti-government is to simply lop off $8 billion, mostly by laying off employees and doing that in a strategic way that targets the programs and services most hated by the all-important Tea Party North.

There will be absolutely no benefit to anyone economically from this budget -- it is purely political. Everyone will suffer: business, small and large, individuals, families, the barely-employed, the infrastructure everyone uses, pure science and technology where 90 per cent of innovation comes from, environmental monitoring so we know what's poisoning us and where. You get the idea.

The deficit-cutting is purely the result of the massive tax cuts implemented by Flaherty starting in 2007 with his $60 billion, five-year plan and his decision to lop two points off the GST (worth about $14 billion). These tax cuts gave the federal government a structural deficit (which means it persists even in good times). The corporate tax cuts (to 15 per cent, lower than half the U.S. rate of 35 per cent) were supposed to result in a huge flowering of new corporate investment and jobs but of course this project has been a spectacular failure. Large corporations are sitting on some $800 billion in idle cash (equal to about half the country's GDP). This accumulation of cash has been going on since the 2008 crash and yet the corporate tax cuts kept coming -- more evidence that they were purely ideological.

This addiction to libertarian ideology has, however, backed the Harper government into a corner. If there really is a structural deficit, created by the huge voluntary reductions in revenue, then Flaherty does have to address the deficit. That's because even if he can stimulate growth, the tax base is now too thin to get rid of the deficit naturally.

But by going after the deficit, Flaherty gets the worst of both worlds. Eight billion off the deficit is not that significant but its deflationary impact on the economy could be considerable. Flaherty puts economic growth at risk and almost ensures that government revenue (personal and corporate income taxes, GST, payroll taxes) will decline further and government expenditures (EI) will increase -- meaning the net deficit reduction could be much less than $8 billion. Flaherty's dogged commitment to corporate and high-income-earner tax cuts means that an economic slowdown is almost inevitable.

Even though Flaherty's economic and fiscal policies actually hurt the corporate sector, don't hold your breath waiting for a critical word from Bay Street. Government spending is one of the key factors in many sectors of the economy. While the numbers are old, a 1985 study by economist David Robertson is still revealing and shows just how important government spending can be to the private sector.

In that year, all government spending represented 6 per cent of the private economy: 16 per cent of transportation and communications; 18 per cent of advertising; 21.5 per cent of publishing and printing; 48 per cent of concrete; and 20.2 per cent of shipbuilding and repair. Government spending in the private sector maintained one million jobs -- 12 per cent of the total. Another half million private sector jobs were created by the (then) $30 billion spent on government salaries. Transfer payments to individuals accounted for $30 billion spent on private sector goods and services. The study did not even add to the total the multiplier effect of all this spending or the impact of UI payments.

The Harper government regime has such a visceral hatred of government that it has completely lost sight of its role in maintaining the health of his revered capitalist economy. And it goes well beyond just the implications revealed in the 1985 study. Government spending on medicare, infrastructure, education, child care and all the other services we have established, allow business to externalize many costs that they would otherwise have to pay -- key elements in making them competitive internationally. One dramatic example is medicare -- which allows the Canadian Big Three automakers to produce the identical car for $1,500 less than their U.S. counterparts.

Imagine how much stronger and more stable the Canadian economy would be today had governments, starting with Jean Chretien's and Paul Martin's, not (along with their provincial counterparts) slashed taxes for corporations and the wealthy. As a result of those cuts, federal and provincial governments' tax revenue has fallen from a high of 45 per cent as a share of GDP in 1998 to 33 per cent today. Most of that lost revenue has ended up in the pockets of large corporations and the wealthiest 10 per cent of Canadians. In effect, as the wealthy can only spend so much, and corporations refuse to invest, that money is effectively out of circulation.

If you want to get some sense of how much better off we could be, look at the Nordic countries, which routinely collect over 50 per cent of their GDP in taxes. They have all weathered the economic crisis far better than their developed-nation counterparts engaged in the tax-haven race to the bottom. And they have done it while remaining, according to the World Economic Forum, in the top 10 countries in the world in terms of economic competiveness.

When the government, the media and almost the entire economics profession have all drunk the free market Kool-Aid it's almost impossible to even have a debate about the wisdom of deficit slashing in a near-recession. I suppose we will have to wait until this idiotic policy drives us into a sustained recession that we can legitimately pin on Flaherty and Harper -- and then get rid of them.

Murray Dobbin is a guest senior contributing editor for rabble.ca, and has been a journalist, broadcaster, author and social activist for 40 years. He writes rabble's bi-weekly State of the Nation column, which is also found at The Tyee. He is the curator of rabble's Reinventing democracy, reclaiming the commons series.

Related Items

Thank you for reading this story…

More people are reading rabble.ca than ever and unlike many news organizations, we have never put up a paywall – at rabble we’ve always believed in making our reporting and analysis free to all, while striving to make it sustainable as well. Media isn’t free to produce. rabble’s total budget is likely less than what big corporate media spend on photocopying (we kid you not!) and we do not have any major foundation, sponsor or angel investor. Our main supporters are people and organizations -- like you. This is why we need your help. You are what keep us sustainable.

rabble.ca has staked its existence on you. We live or die on community support -- your support! We get hundreds of thousands of visitors and we believe in them. We believe in you. We believe people will put in what they can for the greater good. We call that sustainable.

So what is the easy answer for us? Depend on a community of visitors who care passionately about media that amplifies the voices of people struggling for change and justice. It really is that simple. When the people who visit rabble care enough to contribute a bit then it works for everyone.

And so we’re asking you if you could make a donation, right now, to help us carry forward on our mission. Make a donation today.


We welcome your comments! rabble.ca embraces a pro-human rights, pro-feminist, anti-racist, queer-positive, anti-imperialist and pro-labour stance, and encourages discussions which develop progressive thought. Our full comment policy can be found here. Learn more about Disqus on rabble.ca and your privacy here. Please keep in mind:


  • Tell the truth and avoid rumours.
  • Add context and background.
  • Report typos and logical fallacies.
  • Be respectful.
  • Respect copyright - link to articles.
  • Stay focused. Bring in-depth commentary to our discussion forum, babble.


  • Use oppressive/offensive language.
  • Libel or defame.
  • Bully or troll.
  • Post spam.
  • Engage trolls. Flag suspect activity instead.