Where The Parties Stand: Economic Recovery

Jordan (Intro) Ask any group of voters what they care about and I promise this issue will be on there somewhere. I’m actually not even sure it’s an issue, frankly, more of a collection of policies that gather under a very broad banner. But whatever you want to call it, the economy and everything that represents, tends to be the surest way we judge a government’s success or failure. If the economy is good, you’ve got a good shot at reelection. If the economy is bad, you’re in trouble. Of course, good for whom, and bad for whom depends on who you talk to. And so then does your definition of the party that is, quote, ‘best fit to handle the economy’, which is a typical pollster question. Today, as we explore the economic platforms of the major parties, we will try to go beyond those typical pollster questions and the typical markers like the GDP or the question of ‘are we headed for a recession or not?’ Because if there’s one thing that we’ve learned in the past year, it’s that our economy might be more volatile than it’s been in a long, long time. And the rising threat of climate change promises to keep it that way. So with all that in mind, what is in those party platforms about how to grow the economy? How far has Canada’s COVID rebound come, and how fragile are the gains we’ve made? And, yes, balancing the budget has long been a marker of a party’s economic success. But does that even matter anymore?

Jordan I’m Jordan Heath-Rawlings, this is The Big Story. Ben Dachis is the director of public affairs for the C.D. Howe Institute. He spends, it’s fair to say a lot of time parsing economic policy, Ben?

Ben Yep. Sounds about right.

Jordan Well, why don’t we start with this? Since the economy is kind of a nebulous thing to discuss for most people, how is the Canadian economy doing right now?

Ben Well, to answer that, I’ll rely on what we call our Business Cycle Council, and they’re the main arbiter in Canada of whether we’re in a recession or when we ended a recession. That group just met and they decided that the first COVID recession, if it comes to that, did end in the spring. So in March and April 2020, we in Canada, had the most unprecedented fall in Canadian economic activity. But since then, we’ve had a pretty broad economic growth spurt since May of 2020, both in terms of GDP and employment. We’ve seen pretty much steady growth for the last year, and we’re back to where we were in about December of 2020. The big question will become, and this is maybe where we’ll go next, what happens going forward? And that’s fundamentally the question of the pandemic.

Jordan How does that recovery compare with some of our peer countries? Relative to the rest of the G7, or the G20? How well has Canada recovered?

Ben So it depends. It depends on what you’re thinking about. On the health side, we’ve done pretty well when you really sit back and think of it. But if you compare it to economic growth in some parts of the United States, they’ve outpaced us. But I think the key question now is going forward, and what it really fundamentally comes down to is at this point, controlling the pandemic is the route to growing the economy. So if we can keep our case counts relatively low, it’ll give us a chance to continue as normal, unlike places that will have to continue to take efforts to shut down the economy or take other measures that will lead to people not doing what they want to do. That’s the biggest concern relative to our peers, how well we control the pandemic.

Jordan Well, in a second, I’m going to get you to talk about what happens next with respect to the various parties economic platforms. But first, just as we’ve been in this election campaign, what are the economic issues that you see have been getting the spotlight? And are they the right issues to determine how we go forward?

Ben So let’s talk about one that is a very worthy policy debate and that’s child care. It starts off on the nuts and bolts of what is the right way to get more kids into child care. And there’s two very fundamentally different visions. One is a heavily state sponsored, state mandated increase in supply through government child care centers, and the other is on the question of is it best to put money in the hands of parents and have parents decide what kind of child care is best for them?

So both sides have pros and cons. But fundamentally, what it comes down to is whether it makes sense for the federal government to get involved in this sort of thing at all, when this is normally a provincial issue. So that’s been the primary policy debate, at least one where there’s a stark distinction between certainly Liberals and the Conservatives. I would also get into housing questions. But where I go from that, and where C.D. Howe’s work has gone, is that the government is really not the main player here. This fundamentally is in the hands of the cities and the provinces.

Jordan So housing and child care are two, I think, pretty huge issues. They’re certainly two of the things our listeners have told us they care about the most. I wonder if there’s anything you and the team at C.D. Howe see as critical to the future of our economy that’s not being discussed, at least in the headlines around policy.

Ben So we’ll talk about health care, but through a slightly different lens than is being discussed. Government is not in the business of the direct delivery of health care. They have mandates in terms of the Canada Health Act, and then they throw a bunch of money at the provinces to help deliver relatively uniform healthcare standards. Where things are really concerning is what the long term fiscal outlook is for provinces in particular, as it relates to their health care costs. So one of the things to really be concerned about is the extent to which the federal government, any federal government, is going to be on the hook for some kind of provincial support program for health care, whether that’s in the most severe fiscal cases like Newfoundland and Labrador, where they’re facing a severe fiscal crisis, and most of that is in the long term health care crisis, especially because they have a fairly old population.

But then there’s future ongoing costs. What’s going to be the discussion on Pharma care? How are provinces going to be financing future demands for more drug insurance? So there’s lots of things that we have to be thinking about on the health care front that will affect the federal government’s fiscal stance in 5,10, 15 years. That’s what I’m concerned about. It’s not necessarily federal finances as they stand right now. But it’s the implications for the federal government, with provinces in pretty rough shape.

Jordan Before we get to the various parties’ platforms and what they’re proposing to do. I always like to ask about past records. And so in this case, when the question is being asked by pollsters, ‘who’s the best party to lead Canada to economic recovery or to steward the economy?’, what can the Liberals point to, I guess, during the pandemic, but also they’ve got a six year record now. What can they point to to say, Canadians should continue to trust us with the economy no matter what the Conservatives say?

Ben So with all parties, it’s a mixed bag. You can point to the pros and the cons of things that they’ve done well and the things that didn’t work well. On the pro side, on the environmental side, for example, this is one of the things that’s kind of been off the table as well to a certain extent. But it’s something that was addressed kind of pre election, with both sides coming out in favour of a price on carbon. This government has implemented a serious price on carbon that will be the core of the plan to tackle greenhouse gases. You can debate how much one should rely on carbon pricing versus other tools, what the right target is, is the price set going to meet that target? These are all very, very important discussion points, but at its core, relying on carbon prices as the main tool to reduce greenhouse gases is going to be the right approach. So good on this federal government, and to a certain extent, some of the other parties for relying on this as well.

Jordan And what are they proposing to do for the rest of this year, if they get reelected, or for the rest of their mandate, that voters who vote with the health of the economy at the top of mind should consider when they go to the polls.

Ben So that’s a great question. And this was something that I think hasn’t really come up a lot, at least in the public space. But it’s an interesting element of both of their platforms. And what I’m talking about is a dedicated plan for serious economic growth, a boost to economic growth, and most importantly, business investment.

So let’s talk about business investment having a couple of key components. One of the things that we often think about is machinery and equipment, or buildings. Regular tax policy is a key component of this. What we need to see a pretty comprehensive reform to the tax system, that’s going to be a key part of boosting investment. One thing that both the Liberals and Conservatives have both said in their platform, which is a really important element of this campaign so far that hasn’t really gotten a lot attention is reforming out of date R and D and intellectual property tax.

The federal program is called the ‘SHRED’ Credit. It’s the flagship program for R and D support. And both the federal Conservatives and the Liberals have committed to a review of that. And that’s a big deal, because if both parties are aligned on this, we can now all look to an agreement whether it’s a minority or a majority government, as well. This is the sort of thing that could potentially get support on both sides of what a reform should look like. What that comes down to is supporting economic growth, because innovation and then that kind of fundamental research over time is going to be really fundamental to growing the Canadian economy.

Jordan And what do the Conservatives propose that approaches it from a perspective different from the Liberals? A key part of their campaign message has been hammering that they’re the ones to bring back the economy. And is there any fundamental way in which they propose a different path?

Ben So one thing that we at the institute have focused on is telecommunication policy. We’ve talked about how the degree of penetration of digital technology is going to fundamentally shape Canadian productivity growth, and just how competitive our goods and services sectors are. So this is especially important with the rollout what’s called ‘5G’. This is the next generation of telecoms infrastructure. And what’s really important here is that this is going to be an absolutely huge rollout of infrastructure.

So the Conservative platform to increase the degree to which foreign telecom companies can come in is a really interesting new approach to thinking through how we can get this investment. There’s lots of debates as to how we can get this investment in place. But what we should all be focused on is just how much investment is needed in the sector, and that this rethinking of being fixated on keeping costs artificially down, which is where the debate went on telecoms last time around, which is the wrong approach because costs are coming down anyway. By the way, costs will come down so much they happen to meet the federal government’s target of a price reduction of 25% relative to the baseline going back to 2015/16 and actually beyond that target. So prices are coming down.

But we really need to reorient our telecommunications discussion to be about investment and how we do it is going to be open for debate. But there are some good ideas already forming.

Jordan What about where the NDP can play in this space? I think it’s pretty clear at this point they won’t be forming government, but they will hold a significant balance of power. Where does their platform see them working with either the Liberals or the Conservatives? And what are their key economic points?

Ben So the key thing here, if they have a role, is to ensure that the things that they’re focusing on aren’t the kinds of things that are going to have long term economic consequences. So let’s go back to cell phones. For example, if you have the price cap, extreme limit on what companies can charge on anything, you’re going to a shortage of it. You’re not going to have enough of that thing. So if we have limits on cell phone bills, that’s going to create a problem for investment.

And same thing on tax policy. If they have a stake and start having a strong decision making role on tax policy, they should be thinking about how they can achieve some of their goals that they’re looking for in terms of more equal economy. But at the same time thinking through what are the kinds of tax changes that we need to do as well to keep our economy competitive, to not drive away critical investment. Because that’s going to be what in the long term is going to create the kind of robust economy that’s going to be able to help us afford the kind of social services that we all demand.

Jordan One of the questions we got most often around economic policy was about inequality and which party’s platform best addresses the widening gap between rich and poor or even rich and middle class. So what’s on the table there? And also just I would ask you in terms of the work you guys have done. Is there any compelling reason not to raise corporate taxes and tax the wealthier more? Because from what we hear and what you see in the polls, they’re wildly popular ideas.

Ben Right. You have to keep in mind the old adage, which is, ‘don’t tax you, don’t tax me, tax that man behind the tree’. We don’t want to see ourselves pay taxes. I don’t want to look you in the face and say, you know what? I’d like you to pay a higher tax, we can instead put the tax burden on some faceless entity. But at the end of the day, a Corporation is just a piece of paper. A corporation is a device that we use to move money from one group of people, customers, to another group, employees, shareholders. And when you put a higher tax corporate profits, there are ramifications, for all those stakeholders. Some of the increase in the cost is going to be passed on to customers and higher prices. Some of it’s going to be passed on to workers in lower wages because the company won’t be able to afford to be able to invest in new tools that will make a worker more productive, and some of it will be passed on to the shareholder.

So the question really becomes, if you’re really targeting shareholders, what’s going to be the broader economic effect of Canada as a small, open economy, on companies here having to attract investors from all around the world, if these investors know that investment in the bank or investment in another sector is going to get them a lot less after tax, they’re not going to invest here. And then you see that ramification back to customers into employees. So we got to be really careful about the exact tools that we use to try to meet these goals.

We have to tailor these tools to tailor how we tax and transfer back to low income Canadians because they have real needs we can’t ignore, but be very careful of how we do it. And this is why broad based taxes that as many people as possible in Canada pay, through things like a GST increase or, the way I’d rather see this, is actually more room at the provincial level, for the provinces to increase their taxes gradually to finance health care cost. That’s going to be a much better way to make sure that Canada, Canadian companies, Canadian workers stay competitive. But making sure that we don’t leave anyone behind.

Jordan What about, and I’m just asking this because it’s not quite the same thing as corporate taxes. What about taxing the super rich? We have some of those in Canada. This is something the NDP is proposing.

Ben Right. Sounds good in principle. They are the people behind a tree that you think you can go after. But these kinds of examples are like wealth taxes, for example, have a pretty poor track record around the world in terms of real implementation. When the stakes are very high for high income, high wealth people to get around these taxes, guess what? They do it. So I think we should be skeptical about real economic practicability of wealth taxes like that.

Jordan So if somebody’s biggest economic concern is rising inequality, what kind of platform position should they be looking for?

Ben Where it goes is along the lines of where we’re talking about telecom, which is competition is free, a powerful tool for making sure that we don’t have protected incumbents who are able to support their sectors on the backs of competitors or on the workers who don’t have much choice in terms of their employers. And we see this in a bunch of sectors where more competition would be helpful. Telecom would be one example, but more importantly, the things that are going to really help regular people, is tackling things like supply management. That’s very much in the federal realm of things that they can open up to get more investment, and fundamentally lower costs for Canadians. I think about being able to open up the Competition Act to make it possible for what are called private actions, which is, rather than relying on the Competition Bureau to be the only voice of consumers and be limited by the political cycle, be limited by their resources and only being able to file so many cases of anti competitive conduct. If we open this act up to private entities to be able to start class actions, for example, or competitors to be able to point out anti competitive action, that’s going to have a really powerful effect on competition across the Canadian economy.

Jordan Last thing I want to ask you, maybe a dumb question, but it’s just something that we hear so often over the course of a campaign and that’s, who will balance the budget, when they’ll balance the budget, is it okay to run a spending deficit? etc. Etc. This is a fight that Liberals and Conservatives have been having forever. Does it matter in the context of our immediate recovery from COVID? Does it matter down the line? I think there’s a lot of conversations being had right now about, like, does national debt…is it even relevant to the average citizen?

Ben Yeah. So these are the exact right questions and very reasonable people can disagree. Someone with a very hawkish view, like Don Drummond, would take one stance. And one of our fellows and residents, who is an instrumental part of our team, is taking the opposite view, Kevin Milligan, who thinks there isn’t an immediate crisis, and that the harsh cure would do more damage than good. He’s also someone who we work very closely with on fiscal policy. So two people, two very solid economists can have very different views on this question. The question will become, right here right now, most people agree that during the COVID resession, we need to take pretty dramatic actions. But there’s a lot more disagreement in terms of how long we should go before taking serious action to reduce deficits. What the right debt burden is, et cetera. So there’s lots more to be said and lots more to be done.

Jordan Thank you so much for this. I really appreciate it. I think all of our listeners know a lot more now.

Ben Thank you very much for having me on.

Jordan Ben Dachis, director of public affairs at the C.D. Howe Institute.

That was The Big Story, for more from us, including all of our policy analysis ahead of the election, you can head to the thebigstorypodcast.ca. You can comment anytime you have something to say to us on Twitter at @TheBigStoryFPN. You can also email us at [click here!] and we’re in every podcast player and every Smart Speaker, just tell your smart speaker to play the Big Story Podcast. Wherever you find us, leave us a rating. Leave us a review. Send a link to one of your friends.

Thanks for listening. I’m Jordan Heath-Rawlings we’ll talk tomorrow.