We get it: electoral campaigning entails bright, shiny objects to parade in front of sound-bite-driven media. However, the extent to which the Conservative Party of Canada is dangling gimmicks before voters threatens to undermine any meaningful economic recovery.
Some of these offers in the “recovery plan,” such as a sales tax holiday for December, are silly but temporary and relatively harmless. Others, such as rewriting bankruptcy laws, are serious and would harm Canada’s ability to attract investment and grow its productivity.
To their credit, the Conservatives have offered their plan in great detail. Right from the campaign outset, any voter could peruse it for himself.
The Fiscal Elephant in the Room
The overarching and prickly theme that stands out is an unwillingness to face up to Canada’s unsustainable finances at the federal and provincial levels. The policy announcement of Aug. 27 is typical: doubled employment insurance for the seriously ill, from 26 to 52 weeks.“Canadian workers and their families deserve better,” reads the press release. “It is time for the government to stand up for workers and their health.” With such abandon, why not make it 100 weeks? This sort of generosity contest, without a clear funding mechanism, contributes to regime uncertainty and is imprudent.
Those looking for the light touch of limited intervention will have a hard time stomaching the platform’s numerous pet-project spending and lending plans, coupled with a variety of targeted tax breaks. This is perplexing given the party’s stated commitment to a balanced budget within 10 years: “We can’t pass unsustainable debt on to future generations. Once the recovery starts, we will need to get spending under control.”
Unfortunately, the Conservatives’ plan to achieve this modest target is not really a plan at all: (1) wind down the COVID-19 stimulus and support programs and (2) “Get the economy growing again.”
If only it were that simple. Even after post-COVID-19 stabilization, the Parliamentary Budget Officer projects a rising debt-to-GDP ratio. As noted by Ben Eisen of the Fraser Institute, “things are on track to get worse.” A rising debt-to-GDP ratio means higher interest costs and revenue siphoned off that could otherwise go to better services or tax relief.
The Canadian Taxpayers Federation has been even more forthright, saying the Conservatives have “no credible plan to balance the budget or find savings … and they’re barely paying lip service to reducing the deficit.”
One finds little to disagree with in the CTF statement. As economist Robert Higgs quipped, wanting a balanced budget without identifying spending cuts is like wanting a smaller building without removing a single brick. On Aug. 31, Conservative Party Leader Erin O’Toole even said “We will grow the economy so that we can get back to balance in a responsible and equitable way without cuts.”
Fundamentally Transforming Canada
There appear to be shifting economic priorities within the Conservative Party toward populist rhetoric, and not in the noble sense of the word. This shift, which vilifies companies and strikes at the heart of a free-market economy, is perhaps even more dangerous than Canada’s fiscal train wreck.Two specific policies stand out in this regard. First, mandatory worker representation on corporate boards of directors. Second, a pecking-order reversal in bankruptcy proceedings.
The mandate would apply to large, federally regulated firms and would interfere with the sacrosanct right of private property: for owners to be able to run their companies in their interests. Workers, however honourable, are not company owners. This policy seeks to push them into a de facto ownership position and embolden unions.
The bankruptcy change would place pensioners above creditors in line for payment. The ploy seeks to protect defined-benefit pensions, since some have had to take a haircut in recent years. O’Toole wants to stop executives from “paying themselves large bonuses while managing a company going through restructuring if the pension isn’t properly funded.” His plan would not stop the bonuses, but it would politicize the legal procedure.
Defined benefit pensions, akin to the Canada Pension Plan, are inherently unstable and more often than not carry unfunded liabilities. Propping them up is a fool’s errand. They deserve to fail and give way to defined contribution pensions, for which there can be no unfunded liabilities.
Worse, upending the pecking order for payment during bankruptcy would interrupt refined legal precedent—Canada’s precious rule of law—and reduce confidence in financial markets. Creditors do not appreciate laws changing after contracts have been signed, which pulls the rug out from under their feet. This would translate into higher risk premiums imposed on borrowers.
An economic commentator has the luxury of not seeking election. Both the politico and the economist, though, are viewing the same challenges, just with eyes for different outcomes. This conflict rears its ugly head when one side seeks election within a month and the other seeks long-term economic development and vibrance. There is a tradeoff, and there is no doubt which side the Conservatives have taken.
