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Today’s Liberals Could Ruin Canada | Jason Clemens

Today’s Liberals Could Ruin Canada | Jason Clemens.

Posted: 02/26/2014 5:28 pm

The policy direction of the Liberal Party of Canada and its leader Justin Trudeau, as evidenced by the speeches, motions, and debate at the recent national party conventionseem to indicate that the party is rejecting the successful pragmatism of the 1990s. Instead, the federal Liberals favour a more interventionist and activist government, much like that of the current Ontario Liberal government. If such policies are enacted, the results would be ruinous for Canada.

One of the central themes repeated consistently at the convention was the need for the federal government to incur more debt in order to finance infrastructure and other long-term spending. Mr. Trudeau and his policy advisers seem to have been influenced greatly by U.S. economist Larry Summers. Mr. Summers, who served in the Clinton and Obama administrations, is a vocal advocate for more expansive government spending using debt as a method by which to stimulate the economy.

One problem of many for this approach is that it belies history, both in the U.S. and Canada. Bill Clinton and Jean Chretien enjoyed enormous economic and political successby doing the opposite. U.S. President Obama and the Ontario Liberals have struggled with a weak economy by doing exactly what Mr. Trudeau now proposes for the entire country.

Beginning in 1995, the Chretien Liberals cut program spending by almost eight per cent in just two years and continued to constrain spending even after balanced budgets were achieved for the following three years. Federal program spending as a share of the economy declined from over 17.1 per cent in 1992-93 to just under 12 per cent by the end of the decade. Federal debt was reduced from 67.1 per cent in 1995-96 to roughly 30 per cent by the time the Tories took over. And critically, the Liberals enacted a series of tax cuts and reforms aimed at making our economy more efficient and competitive.

The results, contrary to the rhetoric of Mr. Summers, were stunningly positive. Over the decade spanning 1997 when the federal budget was first balanced to roughly 2007, Canada led the G7 in both economic growth and business investment. Our record on job creation was unparalleled, more than doubling the U.S. rate and higher than any G7 country. And poverty rates fell by more than 40 per cent.

These actual results stand in stark contrast to the predictions of Mr. Summer: “To start, this means ending the disastrous trend towards less and less government spending and employment each year and taking advantage of the current period of slack to renew and build out our infrastructure.”

Of additional concern is the naiveté that Mr. Summers continues to display and has apparently now infected Mr. Trudeau with in terms of the actual ability of governments to do the things he advocates. Mr. Summers was front and centre in advocating for and shepherding through the Obama stimulus, which contained hundreds of billions of dollars for “shovel-ready” projects. Mr. Summers insisted that the mark of success of such policies were that they were timely, temporary, and targeted. The reality of what happened is that, not surprising, politics affected the program. High priority projects were shelved for more politically expedite ones. Projects were delayed and hung up in red tape and bureaucrat infighting. The assumption that government can simply flick a switch and spend efficiently is both conceptually and historically false.

Mr. Summers can be forgiven for not being aware of the actual experience in Ontario. The same cannot be said of Mr. Trudeau. The large and continuing deficits in Ontario, despite economic growth, coupled with heavy-handed interventionism in a host of sectors has placed Ontario on a path of decay, not prosperity. Economic growth in the province has remained sluggish despite large-scale deficits and debt accumulation. (As a measure of the province’s problems — Ontario is markedly worse on every measure of indebtedness compared to California.)

It’s not at all clear how the country will benefit from Ontario-style policy when such policies have been an abject failure. The country would benefit from a return to the sound policies of the Chretien era in the 1990s — balanced budgets, reducing debt, decentralization of responsibility and authority for services to the provinces, better value-for-money focused spending by the federal government, and incentive-based tax relief and reform. That’s a recipe for success for any government, or government in waiting. The Trudeau Liberals should look back to this period rather than down south for their policy ideas.

This piece was co-written by Milagros Palacios, Senior Research Economist, Fraser Institute.

Bombardier and Canada’s Corporate Welfare Trap | Mark Milke

Bombardier and Canada’s Corporate Welfare Trap | Mark Milke.

In the land of government plenty — that vast landscape populated with the tax dollars of Canadians — there is no shortage of politicians willing to hand out and defend subsidies to business and no dearth of corporations willing to take the cash.

Bombardier Inc., which recently announced it would lay off 1,700 people, has been one chronic seeker and a regular recipient of such taxpayer assistance. The Montreal-based aerospace company is thus a useful example of corporate welfare in action, the tax dollars at stake, and the regular, inflated claims about the beneficial effects of such subsidies.

Bombardier’s corporate welfare began, at least federally, in 1966 when it received its first disbursement of $35 million from the federal department, Industry Canada. In the decades since, various Bombardier iterations received over $1.1 billion (all figures adjusted for inflation) in 48 separate disbursements from just Industry Canada. That includes two 2009 cheques worth $233 million.

Most of the money, excepting $55-million in grants, came in the form of “conditionally repayable contributions” — conditional loans where repayment depends on the performance of a particular project.

That $1.1 billion does not include tax dollars received from any other federal department or other governments, including in Ontario, Quebec and even Great Britain ($298 million in the latter case). But if taxpayers wish to know how much money has been repaid out of just the amounts above, they’re mostly out of luck.

Publicly, Bombardier claims it has repaid $275 million on two government loans originally worth $187 million. That ignores the dozens of other disbursements and much larger amounts loaned to the company.

Some other scraps of information are available though. In 2008, Industry Canada’s department performance report noted a $108.4 million loan guarantee write-off. The department did not specify which company benefitted when taxpayers covered the loan, but media reports noted it was for government guarantees connected to Bombardier’s turboprop aircraft.

Beyond such glimpses, my Access to Information requests to Industry Canada are regularly returned with the repayment records of most companies (not just Bombardier) blacked out. Under the federal Access to Information Act, the department must, legally, withhold such information if a company might suffer financial loss or have its competitive position undermined. In addition, Bombardier has also filed in Federal Court to prevent access to such numbers.

There are even larger corporate welfare recipients than Bombardier — for example, Pratt & Whitney has garnered $3.3 billion from Industry Canada since 1970. But if subsidies are so commercially sensitive, it should be obvious that governments potentially harm competitors when they interfere in an open market and at taxpayers’ expense. Then there is the fact that the money governments hand over is first taken from someone else, either a private citizen or another Canadian business. Corporate welfare is not a costless activity.

More generally, despite the multiple claims for subsidizing businesses with tax dollars — higher economic growth, more jobs and extra tax revenues — the justifications wilt when examined closely.

For instance, one of the world’s foremost experts on business subsidies, Professor Terry Buss, has noted how the various claims often result from correlation-causation errors. (That the rooster crows and the sun rises, does not mean the former caused the latter.)

Also, the government and industry studies that promulgate such myths fail to account for how “gains” to one region are necessarily offset by losses elsewhere.

The simplest example of this substitution effect occurred back in 1986 when Industry Canada helped pay for the construction of a new fish processing facility in Quebec at a cost of $2.2 million. The justification was that an additional 250 jobs would be created when the new plant opened its doors. However, as the Auditor General noted in 1995, the nearby existing fish-processing facility (which also received federal subsidies) soon closed with job losses equivalent to those created by the new market entrant. Net employment gains were zero because jobs were transferred — not created — at the cost of taxpayer subsidies.

Corporate welfare is not inevitable as policy. Back in the 1990s in Alberta, after a plethora of loans and loan guarantees signed during the Peter Lougheed years went south, leaving taxpayers with a $2.2 billion loss, the then government of Ralph Klein decided it was out of the business of being in business. It was a pledge and a legislature-approved policy to which the Klein government mostly stuck.

There is nothing contradictory about wanting Bombardier, Pratt & Whitney, or other businesses to thrive and yet opposing taxpayer subsidies based on the empirical evidence. Corporate welfare is costly and taxpayers don’t need to be continually dragged into corporate battles for market share.

How The US Just Added $550 Billion In Growth: Full GDP Chart Pre- And Post-Revision | Zero Hedge

How The US Just Added $550 Billion In Growth: Full GDP Chart Pre- And Post-Revision | Zero Hedge.

 

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