Thursday, January 03, 2008

Conservatives Show Little Foresight

First, you hand out billions in tax cuts, lauding Canada's financial circumstance, then a mere six weeks later you start sounding the alarm bells and warning of economic uncertainty that demands belt tightening. Welcome to the bizarre world of Conservative tax policy, which seems to lack any consistency, not to mention very poor political strategy.

Terence Corcoran article today, which argues that the Tories have "lost the tax edge":
The Prime Minister's strategists appear to have stumbled on a novel election strategy and slogan: "Tory Times are Tough." In year-end interviews, both Stephen Harper and his Finance Minister, Jim Flaherty, took what looked like unseemly delight in highlighting economic uncertainty. The United States is in a slump, said Mr. Harper, and it will spill over into Canada. That means fiscal tightness in Canada, a stand-pat fiscal stance, and no room for new tax cuts. Adding to the glooming of the Canadian economy, Mr. Harper warned that the Conservative climate-change measures will begin to "bite," further slowing growth.

Some taxes were cut. As promised, the GST was reduced to 5% this week, and a few other tax measures were rolled out in Mr. Flaherty's last fiscal statement. But now we learn there's nothing more to come, news the government seemed all too keen to deliver.

Flashback to the mini-budget, where Flaherty decided to introduce tax cuts straight away, instead of waiting for next year's budget. A curious decision, because there was little to suggest the Liberals were ready to fight an election over the mini-budget. If you want to maximize the political benefits of tax cuts, it seems pretty basic that you unveil the goodies just prior to an election. Instead, Flaherty delivers tax relief, debatable as it may be, in an environment that generated little momentum, and even worse, leaves little room to move when it may matter most.

The more confusing part, the Conservatives deliver the mini-budget which conveyed a very optimistic message, and then almost immediately the tone changes to negativity, which became quite clear in the year end Prime Minister interviews. All of sudden, the government is warning of lightening's, uncertainty, diminishing revenues, a pessimistic forecast. How do you reconcile this stance with the spirit of the mini-budget? Did things change so fundamentally in a matter of weeks? Would Harper and Flaherty be forced to offer negativity, if they hadn't sold the farm in the mini-budget? In many respects, the government actually set the stage for the negativity we see know, through their earlier actions.

Clearly, the future economic situation was relatively the same at the end of October as it was prior to Christmas. Why the Conservatives would rush all these tax cuts, make many retroactive, with full knowledge that it would handicap any further movement in 2008 is politically suspect. Instead of presenting a feel good budget, the government is now faced with arguing negativity to justify the tightening financial picture. I'm not sure anyone could argue that the Conservatives have handled the taxcut issue very well, in a bizarre way they are now on the defensive. Instead of room, we now are faced with doom and gloom, and most of it comes as a result of the government's own decisions. Strange.

17 comments:

Mike said...

Hey, these are the guys that want to prosecute a war on the other side of the earth to "protect our way of life" and "western civilization" but still give out tax cuts and use all of the surplus to pay down the debt.

Economics is not their strong suit.

They don't care about the soldiers in Afghanistan, or the people there, or what is really in the best economic interests of Canadians (ie and income tax cut NOT a GST cut) - they just want to get a majority. This is nothing but one big long campaign stunt after another and to hell with the long term effect.

Idiots.

900 ft Jesus said...

I think it is possible that this bizarre enthusiasm to spread bad news is being done to lay the groundwork to attack the Liberals. It started just before Christmas with the CONs doing that study to show the Libs, if in power, could not afford to fulfill their pre-platform promises.

Harper’s campainging is largely based on why you shouldn’t vote for the Liberals, not so much why you should vote for him. Dion is finally coming out with what he plans to do as Prime Minister, if elected. So, there goes old fatso, on the attack because he is always in campaign/attack mode.

Steve V said...

That's certainly one angle, that the Cons will paint Dion as a big spender, themselves as prudent. I'm not sure that was the motivation though. The government was reacting to the prospect of a much bigger surplus than they projected, which would make them look bad in the short term. I think that is where this rush for tax cuts, particularly the retroactive part, came from. A pretty short-sighted reaction, because Flaherty still could done a few things, maybe minus the GST, while promising something in the next budget. None of the pundit class would have crucified the government if they offered something straight away, more to come.

I think the problem here, the government reacts with their immediate interests the primary concern. A problem arises, they try to disarm it, but they don't seem to look too far ahead. This mentality explains the rapidly changing rhetoric.

Woman at Mile 0 said...

Exactly. A bunch of second rate hucksters.

Mushroom said...

Hmmm. Which is the tax cutting party now?

The truth is that Dion can now go on the campaign trail promising substantial tax cuts than what Harpo and Flaherty will be willing to do. This is what Dion will do:

1) Expand on the child tax credit and Harper's $100 a month for childcare to $100 a week. Part of the "war on poverty" strategy.

2) Possibly repeal the tax on income trust, if McCallum becomes Minister of Finance.

3) No carbon tax. There will be a cap and trade for carbon emissions.

Is this taxing and spending? All the Cons can paint us with is Dion will lead Canada to debt.

Flaherty can still cut taxes, as part of the income splitting measure. This would mean rallying the so-cons and letting the House fall. However, he needs to do it smart. Without expanding on the child tax credit substantially (in a way to exempt most single moms from taxation), Dion can go on the campaign trail calling the Cons dinosaurs for favouring stay-at-home moms while doing little for lone parent families. Then you can have the ad of Baird letting the environment and single parent die as the kicker.

Tomm said...

Mike,

Your comments are ridiculous, fluffy, rhetoric.

I usually don't comment on other posts but I just can't let this rush by me.

"they don't care about..."

What are you smoking? You have actually been convinced that what the CPC has been doing are campaign stunts? and that they are idiots?

They are trying to solve problems, and fix-up the "one off" management.

We have had 10+ years of huge budget surpluses sloshing around Ottawa with only minimal debt write-offs and minimal tax breaks. They are trying very hard to get rid of this surplus mess. And I do mean "mess". What have politician's done in the past with multi-billion dollars dropping in their lap without plans?

That's OK, I'll take a stab at an answer.

What has occurred are large beaurocracies that don't manage anything. We also have money thrown around like packing styrofoam funding one inane little project after another. All of this while the soldiers aren't being funded, aboriginal land claims are 20 years behind, cities are decaying, and one off deals are being cut with provinces and regions.

The longterm plan... well, there wasn't one. Excepting the "red book".

You may not like the ideaology of this government, but attack their direction with thoughts and facts and not just spout whatever comes to mind. If Harper said the sky is blue, and Dion said the sky was a nice nuanced shade of mauve...

I know where you'd be.

Tomm

Tomm said...

Steve,

I think the comments about belt tightening is a bit of a warning to Canadian's that we cannot pretend not be tied directly to the US economy.

If the US economy goes in the tank we can kiss most of our manufacturing, forestry, and likely other export markets goodbye. Those sectors have to re-commit to an international re-alignment.

Harper needs Canadian't to know that you can't fix forestry/manufacturing by throwing money at it, if it's market doesn't exist. The sector needs to downsize and re-tool for other more lucrative markets. Thank God he settled the trade dispute on countervail before the US economy tanked.

In regards to general perceptions around what he is doing, he seems to be of the school that under sells and over delivers, given his past practice. I would expect he still thinks the Canadian economy will deliver significant growth in important areas.

I hope he starts investing more heavily in green innovation. I agree with you about the importance of selling a softer environmental footprint.

Tomm

Gayle said...

Maybe he is just trying to con the liberals into waiting for the budget before they bring down the government?

In any event, with all this doom and gloom he is currently spouting, I wonder how he will be able to afford those tough on crime initiatives he has been selling. The Dangerous Offender bill alone will add millions of dollars to the cost of the justice system (although since it is likely to be unconstitutional that expenditure will be short lived - just enough to make a few lawyers a lot of money on our dime as they fight this through the courts).

Steve V said...

tomm

I agree about the warnings, because we are tied to the American economy somewhat. What I don't understand, why the Cons decided to give away the farm in the mini-budget, with full knowledge of the circumstances you cite. The result, the Cons have now boxed themselves in, without getting any real political punch. The mini-budget was far too reactionary politically, instead of thinking what happens next.

gayle

"Maybe he is just trying to con the liberals into waiting for the budget before they bring down the government?"

I hadn't thought of that, which is a pretty interesting theory.

mushroom

The Liberals have to be careful in this environment, Dion can't promise the moon because it gives the Cons an angle. That said, I'm pretty sure the platform will be costed out to ensure a balanced budget, it may be a give and take scenario.

900 ft Jesus said...

"the government reacts with their immediate interests the primary concern...This mentality explains the rapidly changing rhetoric."

You're probably right, Steve. That certainly has been their method. Also, several analysts (don't have them at hand) agree with you.

Mushroom said...

Gayle,

I've said it many times. Harper cannot let the House fall on a Liberal non-confidence motion. Martin fell because of Layton's about turn and by late November of 2005, he was Mr. Dithers drifting endlessly. It is a death knell and more a case of a government wanting to commit suicide by a thousand cuts.

Will Harper get himself outmanoeuvred? The Grits never said the budget is "dead on arrival" and the Bloc is offering a list of demands that may weaken the Canadian federation in order to get the budget through. At the same time, there is no incentive for Harper to limp into the Fall of 2009 with such an unambitious agenda. Thus, I don't think there is any interest in most parties of getting a budget through.

Mike said...

Tomm,

I'm not a Lib, but a libertarian, in case you hadn't noticed. I pretty much despise them all.

I am pointing out the hypocrisies of this government. Look, they can pay down the debt and give us tax breaks OR they can prosecute a war that, according to their own ridiculous rhetoric, is to protect our way of life from the islamofascist hordes. Take a look down south. You can't do both.

What that now means is they are making a conscious choice to not give money and resources to our soldiers to fight this, according to them, dire threat to Canada. Or give it to land claims, or cities or whatever else you mentioned.

So either the threat isn't that bad and our guys are dying for nothing or it is that bad and our guys are dying because our government is more interested in ideological driven tax cuts. Cuz they want a majority.

That sounds like pandering and electioneering stunts to me.

What they should have done was either:

1) It isn't that much of a danger. Bring our troops home and give us a tax cut. And pay down the deficit.

or

2) The danger is very real and we must sacrifice. So, in order to help the war effort, no tax cuts and minimal debt repayments.

That they did neither means they only care about looking good to voters in the short term on certain issues, not about actually governing Canada for the long term.

And no, that the Liberals didn't do the right thing while in office does not let you or the Cons off the hook. The CPC has been in government going on 3 years...are they ever going to take responsibility for anything?

Saskboy said...

Considering Corcoran is an enemy of fair copyright and the Internet, I'm going to have a hard time taking what he writes seriously.

Tomm said...

Mike,

Thoughtful comment.

I would propose that if the US can't be the world's gunslinger, than clearly Canada can't even be the sidekick.

We've got 2,500 troops in Afghanistan and we're max'd right out. Most standing armies, even most LDCs have greater exportable armies. The most we can ever do is play a role where we perceive the need is greatest. It happens that our government commited to Afghanistan.

This commitment isn't a CPC commitment, it is a Canadian commitment. Harper has commited to putting extensions in front of the House and letting them decide. Given its a minority parliament, that makes the decision Canada's and not Harpers.

In regards to tax cuts versus other spending priorities, you leave the impression that you can do one thing, but it would be to the exclusion of something else.

That is always the case, what we argue about is where the balance is. The LPC under Dion has clearly stated they want less tax cuts and a different balance (e.g. GST less important than income). Dion has also intimated that he would reverse the military expenditures and is not comfortable growing our standing army. Where precisely he would spend the money is unclear because the LPC has refused to release a platform. Without that, it appears that he is for maintaining and perhaps even growing, all the programs the Tories have reduced budgets for.

Neither one has confirmed their commitment to a carbon tax, but that might be just a matter of time.

A government has to do a variety of things.

Harper's dropping support for the Status of Women, the Court Challenges Program, the commitment to have better relations with the Bush White House, the strength of the commitment to Afghanistan, and the soft policies on Kyoto and the positioning in Bali are ALL not popular with the Canadian people. They are all vote losers. He would not be making these decisions if he was trying to get elected as a majority government or if his party was in permanent campaign mode.

He's doing it because it is his ideaology and he thinks its in the best interests of Canada in the long term.

When the CPC government makes an unpopular decision, how can you twist that into it being a short sighted campaign "trick"?

Tomm

Oldschool said...

ONe of your fellow bloggers was just lamenting on the demise of the US dollar . . . .
Do you lefty folks actually think that a slowdown in the US economy won't effect Canada? The housing situation has already hit the BC forest industry quite hard!!!
What about the manufacturing segment in Ontario and Quebec? They have been struggling since the dollar got past 85 cents.
But you lefties still buy your junk from China at the dollar store. If you want to have an economy buy Canadian whenever you can and maybe we can keep a few things other than a Toyota plant that bolts together parts from abroad.

T-Roy said...

Maybe the mini-budget wasn't supposed to actually get passed. It was designed to and all the rhetoric around it was to create an election. That didn't happen and the Cons got stuck with the dare. Now they have ruined their only opportunity to entice the self absorbed with tax cuts.

They were supposed to fall on the mini-budget and then go to election and win on the cuts they were forced to give in the stupid game of chicken they played.

Good on the libs for abstaining. The conservatives got caught in their own trap and may very well have hindered Canda's ability to ride out an economic storm. Unfortunately it'll probably require 13 years of liberal rule to once again fix the problems conservatives tend to stick us with.

Steve V said...

t-roy

If the Tories thought the mini-budget was a prelude to an election, then they seriously misread the landscape. You could be right, when there were crafting the statement, Dion was outlining demands and sounding tough. However, by the time parliament came back, it was pretty clear that the Libs would fall on their swords for the time being, so the government is guilty of not reacting to the changing winds.