Tuesday, January 27, 2009

Budget 2009, Take Two, Harper Style

The first thing that hits me is the deficit. In two years, the Conservatives led by Prime Minister Stephen Harper have trashed a $12 billion surplus and grown a $34 billion deficit. In the space of two months, they went from announcing a tiny surplus to leaking a $34 billion deficit. From the election until today, they've gone from matter-of-factly stating that the Liberals are hysterical, that there is no problem to saying that there are such huge economic troubles we need to grow our debt.

In good old Liberal fashion of borrowing from the NDP, the Conservatives have borrowed -- even verbatim -- from the Liberals. As Liberal Leader Michael Ignatieff said earlier, Harper announced that the budget will help the most vulnerable, save jobs, and "create the jobs of tomorrow." And like former Conservative Prime Minister Brian Mulroney, Harper is upsizing the deficit; although he talks of two years of deficits equalling $64 billion, he also talks about taking 5 years to balance the deficit.

I don't believe him.

Although journalists like Diane Francis do not worry about deficits becoming a habit, I've seen that historically they do, and as bad as the Liberals were, the Conservatives were worse. A government that did not see this economy turning down and that was slower than molasses in responding to it once the stock market dived, preferring instead to mock former Liberal Leader Stephane Dion and taking the country through an unnecessary election, is not one that can provide leadership within 2 months.

Does this budget in fact meet those three stated goals?

Helping the most vulnerable:

Who are the most vulnerable? I would assume seniors dependent on old age pensions, the disabled, poor working people, aboriginals in certain communities, and foster children kicked out of the system for turning 18.

For the first time in years, a federal government talks about funding social housing. The Harper government intends to spend nationwide $1 billion to renovate existing stock; $600 million to improve reserve housing; $400 million for senior housing; and $75 million for disabled housing. Renovations will include improved energy efficiency and is considered a way to stimulate job creation, not just in construction but also in manufacturing of the materials used.

As is usual in these things, the numbers are inadequate to meet the needs.

Ontario usually receives about 30 percent of funding, thus it'll receive $300 million. It's estimated though that Ontario needs $1.2 billion by 2012 to renovate existing stock. Toronto Community Housing says the city needs immediately $300 million, basically the entirety of Ontario's share. It's well known by Torontonians that the city's social housing is in poor shape. Regent Park is being razed and rebuilt, but there are far worse areas of the city that are in such terrible repair, it makes one ill looking at the mould, broken doors, vermin, and so on when the media occasionally do a news story on it. Toronto will receive about $120 million, so less than half of what's needed right now. The long-term needs, of course, are greater.

We've all read the stories about aboriginals having to be moved during the warmer months because of poor water and sewage; aboriginal children learning in broken buildings; and the terrible state of housing. But I couldn't find easily what the actual costs are. However, given the size of our country, the numerous reserves, and the state of housing, I suspect the $600 million is inadequate.

The $1 billion will include social housing where seniors live, so I'm not sure what the $400 million is for. Nursing homes? Assisted-living apartments? Senior residences? As for housing for the disabled, this is a hidden population who are given peanuts to live on, having higher medical costs than the average jane or joe, and need housing that will accommodate their needs. The obvious scenario is a place for those in wheelchairs. But what about those who use walkers or canes? Or those who cannot lift or stretch? Those with cognitive difficulties who need spare-looking rooms easily remembered? The blind? This kind of housing is much more expensive to build or retrofit than ordinary housing. Yet the government has given the single most vulnerable population $75 million.

Even the vulnerable pay taxes or are affected by tax policy. The Tories intend to cut personal income taxes. The personal exemption will rise to $10,320. It's hard enough for a healthy person to live on that, difficult for someone with a disability or chronic illnesses to manage. At low levels of income, medical expenses cannot be used to reduce taxes or gain a rebate. So they sit in the drawer, useless. Although it will take 265,000 Canadians off the tax rolls, it won't help a large swathe of people earning or receiving too little money for their needs. There is a more radical, socially compassionate, productive solution, but that would require real thought to plan and execute in a fiscally prudent manner, and you can't do that in just 2 months.

There are many low income Canadians who own their own houses. Perhaps they're seniors on fixed incomes who've paid off their mortgage or formerly middle class Canadians who've become ill or injured yet still were able to hang on to their homes. The thing is they cannot afford to repair or even renovate their homes. They want to make them energy efficient -- if nothing else than to save on heating costs and not always be freezing or broiling -- but renovation costs are prohibitive. Instead of aiming the renovation tax credit at those who can least afford it, the Harper government has done an across-the-board credit for one year. That means the credit is small, a maximum of $1,350 on at most $10,000 worth of renovations, instead of being large and thus more effective. By targetting at a specific population, the Harperites could have addressed wastage of fossil fuels, created jobs, improved the living environment of the most vulnerable, and truly caused a population that feels to cannot afford to renovate to start calling up contractors. But when you have little money $1,350 from $10,000 ain't going to cut it to get one to pick up that phone. Only the well off will benefit.

The Tories are changing the tax brackets. Paul Martin, when Finance Minister, simplified the tax brackets, and it was a good thing. If I recall right, he did that while bringing down the deficit. The question is were these tax brackets tied to inflation or have they been stagnant for years. If stagnant, it's a good move. But if they were already tied to inflation, then the almost $2 billion cost to the system is not worth it at this juncture.

On the other hand, their lowing of the welfare wall is a good thing. It's known that those on welfare face a massive disincentive to get back to work as their benefits are cut and they essentially become poorer when they get low-paying jobs. This measure is expected to help 1.5 million Canadians. The Age Credit will give back $150/year, small in comparison to the cost of a third of a billion dollars per year that will be added to the deficit.

In contrast, with the business tax cuts, Canada will become the G7 nation with the lowest business taxes. Yet that will not solve the problem of our low productivity. The US does not need to have such low business taxes in order to stimulate creation of new businesses, and their companies have to pay large health payroll taxes. If we want to compete with American businesses, and Japanese, and Chinese, and Indian, then we need to up our productivity, up our innovation and research and development, and up our willingness to manufacture goods here as opposed to outsourcing to China. Tax cuts won't do diddley squat for any of that. And in fact the Harper government hasn't even addressed the growing dissatisfaction with being unable to find and buy goods made in Canada.

And lastly the vulnerable too need credit. The Tories' solution is to chuck $200 billion at it. Our banks are in good fiscal shape. They have historically been loathe to lend money to credit-worthy individuals or even innovative businesses. In these times, they've become even more stupid and stingy. For example, Canada bought back insured residential mortgages from banks last fall and now intend to expand that. But the thing is those mortgages were already insured. Insured means if the homeowners default, the banks aren't going to lose big. There is absolutely no reason why our federal government has to effectively double insure these mortgages; it's simply the banks' small mindedness about lending to individuals while still thinking lending to risky big investors is better that's causing the problem. Ottawa needs to sit on these banks, like the big elephant it is, and not increase our deficit through spending such a whopping amount on an industry that makes such huge profits. This is not a radical solution. This is a spending solution in the faint hope the banks will start coughing up. Ha! Until Ottawa changes the bankers' attitudes, nothing's going to change, not enough anyway to help people in this economy.

Save Jobs:

The Harper government will spend $1 billion to help single-industry towns, such as farming, forestry, and mining. It will spend $500 million to help modernize farms. And it will spend $50 million on slaughter houses.

After years of ignorning these sectors, the Conservatives have woken up and smelt the rotting hay. Given the size of the problem the forestry sector alone faces, I wonder if $1 billion is enough. Flaherty stated that the government will find new uses for forestry products. I wonder what he means by that? There is also a growing awareness of modern agribusiness practices and a slow changing of consumer attitudes towards them. When the Harper government spends on these modernizations, will that be towards expanding factory farms, feed lots, and Monsanto sterile seeds? Or will that be with a look to the future of farming and encouraging sustainable and humane practices? The amount on slaughterhouses makes me wonder about the state of them and why they were allowed to deteriorate.

Will this save jobs or stave off the inevitable or create white elephants of tomorrow. There was no sense in today's budget that the Tories were making as radical a change in our economy as President Barack Obama wants to do for the US economy, especially with his energy policy. So I suspect this will save a few jobs, continue the status quo, and go off in a different direction than where the future is headed.

Create Jobs of Tomorrow:

The Tories will spend a whopping amount on infrastructure. Flaherty referred to Sir John A's radical dream as his budget's touchpoint on this issue. But while Sir John A connected a country coast to coast, Harper will timidly install a third track in some places between Toronto and Montreal. While Sir John A was visionary and radical in his project, Harper and Flaherty perpetuate the diesel and aver the high-speed electric train so needed in the Windsor-Quebec City corridor. The modern equivalent of the train would be a high-speed broadband connection from coast to coast to coast, but that measure is not enough. Mayor Miller, who I normally abhor, is right in his harsh criticism of the infrastructure spending. The previous Canada Fund has not sent one penny out to cities to help pay for infrastructure. Although the amounts sound impressive, they're worth nothing when such rigid guidelines, including that cities have to spend first, are part of the package. Given the past performance of this government in repairing and building infrastructure, I seriously doubt the efficacy of this package. I don't know if this kind of spending will create the jobs of tomorrow. It will at least redeem past neglect somewhat.

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The budget is a cornucopia of spending and tax cuts. Something for absolutely everyone, which means everyone will receive something small, rather than something effective and helpful. The budget is so vast, it's hard to get a handle on it. Yet one thing is clear, tax cuts will contribute almost 25 percent towards the 5-year deficit total.

There are lots of dollars floating around, going into the terrible roads of Quebec, a wind farm in PEI, a highway improvement in Ontario, a small-craft harbour in Nunavut. But what is missing is a vision like Sir John A. He wanted to unite his young country; he knew with such massive geography that Canadians needed a way to connect with each other. That drove his railway project. Today, Canadians connect via the Internet, and so that would be the obvious massive project to build. But there's no central vision here. There are no bold projects like broadband in 98 percent of households or a high-speed railway or a Queen Street subway -- which would herald Ottawa bringing Toronto into the fold -- or a green strategy that permeates every expenditure. Instead there's a rip-off of Liberal ideas with the tax cut ideology of the Conservatives tacked on. It's as if, not knowing what will really work to stimulate the economy, they're chucking money in every direction, hoping some will stick. The thing is that successive governments have allowed our infrastructure, our aboriginal communities, our North to fall into such a state of neglect that now we do need vast sums just to bring them up to code. Yet that will not do anything in the long run to change the course of our country from looking at past accomplishments and past technologies towards becoming a leader in the knowledge and sustainable economy of the future and today.

There has to be a better way. We need a leader who understands that. We need a leader who is not afraid to lift this country up by the scruff of its neck and shake it into action for excellence. Harper is not that leader. Is Michael Ignatieff? We will see tomorrow when he announces his decision.

6 comments:

Krupo said...

To partially answer your question, the tax brackets are 'roughly' indexed to inflation. They rise every year. Whether it's in line with inflation is a question you can headbutt an economist over, but there is a small automatic 'gain' everyone (who's employed) enjoys in their January pay cheques, as the deduction for taxes gets a little bit smaller thanks to this effect.

talk talk talk / Shireen said...

Thanks Krupo! It's like the CPP disability and pension then, which bumps up a little bit every January.

Then I would preferred to have seen something more radical, something that would truly help the poorest of us, than a simple adjustment of tax brackets, especially given how much they're going to cost us. I mean if you're going to spend that kind of money, do something innovative!

Aerodoq said...

Shireen, an insightful take on the most important issue facing Canada right now. I might kid over the length, but it's always very interesting to read.

Of course, it helps that I agree with you on so much of it! :)

A>

talk talk talk / Shireen said...

LOL Aerodoq!

I like it when people agree with me. :) (Disagreeing is OK too.)

Ben said...

Wait, so let me get this straight: Harper is spending money, but lowering taxes? In what twisted universe does this make sense?!

Oh I know: the same one where deficits are "good things."

I actually don't mind if we run a deficit, but I agree with you that the Tories are far too blithe about going into debt. My problem is, as you've noted, that once we have a deficit, getting rid of it is hard. Plus, it's not like we were teetering on the brink of a deficit--we had a nice, chunky surplus. The fact that the Tories have brought us to the precipice does not reflect well on their financial practises.

I wonder who is actually coming up with these numbers. Once again, the government's throwing [inadequate] money at the problem, and for all we (the taxpayers!) know, these numbers have been randomly selected using a generator from the Internet.

The budget is a clear indicator of the toll the Liberals, NDP, and Bloc have taken on Harper and the Conservative Party. It's a rushed attempt to both stabilize the economy and placate the majority of the House. Like most attempts at appeasement (we spend so much time studying WWII for a reason!), it is doomed to failure. This Harper government will never be as strong as his previous minority government. He is going to have to work together with the other parties--whether it's as PM or Opposition Leader, we shall see.

talk talk talk / Shireen said...

Ben, you're right about the budget showing the toll taken on Harper. Appeasers are never leaders. They're not inspiring either. Something somebody said on The Hour made me realise that inspiration from our PM is necessary in tough times, else we can tip from recession to depression.

Good comments!