The story the 2015 budget tells of the Canadian economy is not a happy one.
The budget may have gotten the majority of its headlines for its (mostly previously announced) boutique tax measures, such as doubling the limit for contributions to tax free savings accounts (TFSA), but this budget is much more than a catalogue of small-bore tax measures.
It also includes a description of the current state and prospects for the Canadian economy, and on that score it is brutally frank.
From the outset, the budget document adopts a mournful tone: “Since mid-2014, weak global growth, combined with continued steady increases in oil supply, has led to significant declines in crude oil prices. That is affecting Canada…”
It then offers the view that, despite our current turmoil, the economy will grow at a modest rate of about two per cent for this year and next.
But even that forecast is mitigated.
There are “risks” to the economic outlook, the budget document readily admits, although it quickly adds that those risks are “largely external, stemming from the uncertainty surrounding … the future path of oil prices…”
Indeed, the budget’s account of the past year’s economic performance reveals a near obsession with one economic sector, the oil and gas industry.
The government points out that the recent steep and unexpected drop in oil prices came about largely because of an increase in worldwide production, especially in the United States.
In the U.S. the oil story is all about the burgeoning shale oil sector. The budget document reveals that the global oil industry had been expecting U.S. shale oil production to peak and then decline, but that has not happened.
Nonetheless, the budget tentatively predicts that we might see declines in shale oil production quite soon.
One does not sense much confidence in that prediction, though. The budget document carefully hedges its bets.
Technology in the shale oil industry is “relatively new,” the budget says. And so “there is considerable uncertainty over the actual timing and magnitude of the expected decline…”
The budget also blames OPEC countries (among them Saudi Arabia, Nigeria and Venezuela) for the steep drop in oil and gas prices that has been such a drag on the Canadian economy.
In November of last year, the budget tells us, OPEC decided to maintain its production targets in order to “protect market share.”
Is Canada a petro-state?
If reading the 2015 budget’s economic analysis caused you to wonder when Canada became another one-industry petro-state, one couldn’t blame you.
You would hardly know from the way the budget describes it that the economy of this G8 country is complex and diverse.
There is an almost helpless, pleading tone in the government’s description of the current state of the Canada’s economy.
It is a sad tale of global conditions and exterior shocks. And all of that is the fault of U.S. shale oil producers, OPEC and other “external factors.”
We Canadians are as helpless as a ship on stormy seas, it seems, and no decisions we have made, over decades, are at all responsible for our current dilemma.
One hears that plea, in an even starker form, from the current Premier of Canada’s main oil-producing province, Alberta’s Jim Prentice.
During Thursday’s Alberta leaders’ debate Prentice talked frequently about the tough times his province has been going through. He spoke of the need to re-think Alberta’s economic model — and, notably, the need to “diversify.”
There was no mea culpa, however, for choices Prentice’s Progressive Conservative Party made over its more than four decades in power.
Equally, the Harper government does not seem to believe it has even the tiniest part of responsibility for the fact that the Canadian economy was totally unprepared for a steep and sudden decline in oil and gas prices.
Money for research and transit; tax breaks for the wealthy
When it moves away from analysis and description, the federal budget does focus on other sectors than oil and gas.
The 2015 budget proposes a grab-bag of measures that are supposed to encourage economic activities other than the export of raw natural resources.
These include more federal support for research, taking up an NDP suggestion to reduce the tax on small business by two points, and dropping tariffs on machinery and equipment for manufacturing.
Big city mayors have welcomed the budget’s promise of some deferred money for public transit, which ultimately could have a salutary economic impact.
But that money will not start flowing, and in rather small amounts at first, until two years from now. And the government’s insistence that the new transit fund be linked to public private partnerships worries municipalities. They fear the government will impose an ideologically motivated, one-size-fits-all model on all cities, regardless of their particular circumstances.
As for the signature Harper government measures that have drawn the most opposition ire, namely income-spitting and boosting the TFSAs — they have virtually nothing to do with fostering a more diverse and resilient economy.
As the Prime Minister made clear at a campaign style event in Winnipeg on Wednesday, those tax give-aways to mostly affluent Canadians flow from the Conservatives’ small government philosophy.
We want people to “keep their money,” the Prime Minister told his partisan audience, while the opposition wants to spend it on “government schemes.”
There is, however, plenty of talk about government spending in the Conservatives’ current budget.
And during the recession, when the Harper government (reluctantly) engaged in stimulus spending, Conservative politicians were happy to pose almost daily with giant Government of Canada cheques.
Never mind that.
When it suits us, the Prime Minister is saying, we are pure free marketers.
And it especially suits us, he could say, when we are giving money to folks who might consider voting for us — folks with high incomes, for instance.