Politics Trumps Good Public Policy
Date: Friday, November 24 2006
Nov. 23, 2006. 01:00 AM
Economic updates are a lot like travel itineraries: They reveal a destination but don't take you far. So it is with the first mid-year financial review since Conservatives came to power.
Every Jim Flaherty phrase and decimal point will be parsed today for hints of where Prime Minister Stephen Harper and his recycled Mike Harris finance minister are going.
It's safe to assume the direction is first to the political right and then toward a federal election. That can only mean tax cuts, given a federal surplus that reached $13 billion last year and Flaherty's conclusion that Ottawa digs too deep into corporate as well as individual pockets.
But big tax cuts cost big money. As the Star's Les Whittington reported this week, one of the anticipated cuts is income splitting, a neo-conservative pet project that would reduce federal revenues by — holy smokes — $5 billion annually.
Is that good value? Or just family values reinforced with a tax break for stay-at-home parents?
Whatever it is, it's better politics than public policy. Throwing their money back at voters is a seductive short-term tactic for winning elections but hardly a wise long-term investment strategy.
Contrary to current mythology, countries that are doing well now while positioning themselves to do better in future aren't the ones slashing taxes or leaving it to self-interest to set collective direction. They aren't embracing the sovereign individual or relying on executives to establish a place in the research and development vanguard.
Instead, the go-ahead Scandinavian states are finding advantage in taxing in order to invest. They, and others like them, are using today's boom to prepare for tomorrow's challenges.
Canada is not one of those countries. This high-cost, high-energy consuming northern nation is a mid-pack economic performer more likely to lose than gain ground in coming years.
That may be unsettling; it shouldn't be a surprise.
Taxes that fell steadily since the late '90s — albeit from considerable height — haven't dramatically lifted competitiveness or productivity. Serial surpluses aren't financing creative social spending.
Innovation and education both set the country's tone and follow its negative trend lines. Writing smaller cheques to Ottawa isn't encouraging Corporate Canada to become, by international standards, a big R&D spender and less government cash per capita now finds its ways to schools and universities than a decade ago.
Other wonky priorities aren't helping either.
All the fevered talk about falling birth rates and the need to import skills, labour and consumers misses the central point that contradictory tax and support policies ensure the working poor aren't escaping poverty or contributing fully to the economy.
Part of the problem is that politics and life are on different cycles. A middle-class tax windfall is rich with immediate promise for the party in power while education's rewards are a generation away.
Even less appealing are the high costs and low returns of attacking something as significant, and yet as arcane, as the marginal tax rates that help keep the poor, well, poor. Parties know people struggling through life stay home on election day.
The exact opposite is true for business. While corporations don't vote, their executives shape opinion and can't be safely ignored by any government, let alone a minority that just broke a promise to torpedo income trusts.
[Proofreader's note: this article was edited for spelling and typos on November 27, 2006]