Monday, October 11, 2010

So Mr. Flaherty, where do we go from here?

On Tuesday the Minister of Finance, Jim Flaherty, will release the government's fall economic and fiscal update. We're being told to expect something straightforward and containing no mini-policy announcements, say like the one that nearly lost the government the confidence of the House in 2008. So far, so good.

What we can expect to hear is that the government's finances are poor and that the deficit has grown. However, the Minister will reaffirm the government's commitment to balancing the books by around 2015. The question to ask Mr. Flaherty is "how?"

The government's strategy has rested on three things: the rollback of stimulus; stronger tax revenue through growth in the economy; and cuts in government spending. Let's consider this a moment.

Stimulus spending will end, likely before the next budget - though the Minister has a left a small window open that this timetable may change depending on how soft the global recovery turns out to be. However, the end of stimulus will not restore the nation's financial health, it will mainly stem the bleeding from the state coffers.

Ok, so how about the projected growth in government revenue as the economy begins to expand? The challenge here is that the government's projections assume a recovery and pace of economic growth similar to that which occurred after previous recessions. Unfortunately, this does not seem likely.

Our major trading partner is continuing to falter and in fact could fall back into recession. Other OECD countries (Germany is an exception) are faring poorly, and the spectre of sovereign defaults in the European Union continues to loom. While their growth and resilience is impressive, emerging markets like China and India cannot compensate for this loss of economic output in the West (never mind the fact that the West has been the biggest consumer of emerging market exports).

So, if the end of stimulus is akin to us no longer digging a hole, and the prospects for "normal" growth must be tempered, where does that leave us? Spending, that's where.

The government will need to look at spending if it is serious about balancing the books. Let's not forget that the Conservatives spent heavily before the recession (defence, Quebec) and they have cut taxes - corporate, personal and consumption in the form of the GST. These steps have seriously limited their maneuverability - and that of any other party aspiring to power.

We will not hear much tomorrow about "the plan." However, we can now count on entering a period of trial balloons and ground softening to prepare us for an austerity budget.


Friday, October 1, 2010

So what's the question?

The phrase "framing the ballot box question" is one you will have read here and heard in the media. It refers to the one thing an average voter boils all of the electoral noise down to as they prepare to cast a ballot.

My money is on Canada having an election in the late winter/early spring of 2011 (I don't see this Fall happening). If so, we are now entering the period when parties begin to more deliberately frame the question.

For the government, this means getting out quickly and defining an opposition that has thus far failed to define itself. Hence Mr. Flaherty's highly partisan (and highly uncharacteristic) speech last week.

For the opposition, the trick is more difficult. Opposition parties like the NDP and the Liberals need to differentiate themselves from the government. However, they also need to make distinctions between one another. For the NDP, its gets a bit more complicated when you factor in the Greens. For the Bloc it's, well, nevermind. They're the Bloc. It's all good.

So what are we seeing in terms of the party's preferences for "the question?" To start, we have a government focused on making the economy the issue (rightly so), but taking an important issue and wrapping it in the very charged "coalition" blanket. The question will be "Do you trust us or the coalition?" This may (ok, will) be misleading, but it can extremely powerful in making distinctions for voters, generating financial support and putting opponents on the back foot.

For the Liberals, the plan seems to be about defining a broader, more inclusive Canada. Mr. Ignatieff's comments about family and household issues not being seen as "touchy-feely" gives you a sense as to where they are going. It will be a have your cake and eat it too message - Canada can be progressive, inclusive, prosperous and financially sound. However, without the details voters will struggle. The Liberals will also look to convince voters that they, and not the NDP, offer the best chance of stoping the Conservatives from getting their majority and offering credible opposition.

The NDP is fighting the government, the Liberals and the Greens. A tall order for a party that took a credibility hit during the gun registry vote. They will appeal to the voter who is looking for the House to keep the government honest; the voter who knows it will be a minority and therefore sees the need for a third party in the House that can be effective and has experience. Theirs will become a riding-specific fight as they look to hold back the Greens.

As for the Bloc? Nevermind.

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