Besides the weather, our political leaders are going to face a number of challenges — some political, some economic and fiscal, some institutional. The seeds of political fortune and misfortune will be planted this fall. The priorities our politicians discuss — and the quality of that debate — will affect the future of this country.
Politics
The road to the 2015 federal election starts with the throne speech, outlining the government’s priorities for the nation and setting the policy parameters for the next two budgets.
From a citizen’s perspective, the challenge for Parliament this fall will be to move past a phase of relative dysfunction. The challenge for opposition parties will be to abandon opposition for opposition’s sake and embrace real debate on priorities and policy. Who will take the high road? Right now, I believe that path is largely vacant. We do not need to wait until 2015 to have real debate. Start now. I think Canadians want and deserve more clarity.
The Senate spending scandal preoccupying the media is largely an issue of trust: It is not fiscally material. Trust is a necessary ingredient for leadership. It can’t be institutionalized and once it’s lost, it’s hard to win back.
Senate spending is a policy distraction. It has real potential to drag on to the detriment of the government, which will wear much of the blame. Ironically, it’s putting useful pressure on the government to shift the focus to a priorities and policy agenda. The prorogation of Parliament could be a positive sign. Perhaps the prime minister looked at early drafts of the throne speech and told his advisors it wasn’t strong enough to divert attention from the Senate.
If that’s the case, how will opposition parties respond? Will they take up a serious debate about the future of the country, or will they head back to the Senate spending quagmire?
From my perspective, the Senate spending issue cannot be fixed from within. It will need independent third party assistance from the auditor general — perhaps more. Upton Sinclair said it 100 years ago: “It is difficult to get a man to understand something when his salary depends on his not understanding it”.
The long run status of the Senate — whether it should be elected or scrapped altogether — should be an election issue. Again, that debate can start now. I think we need the Senate. We need sober second thought. We need regional perspective. We need checks and balances on power. We need strong institutions.
Poll numbers have moved around a lot since the last election, driven by leadership changes in the opposition parties and the challenges of governing. A case could be made that the numbers are tightening. Current projections suggest that a majority government is not in the cards in 2015. Let’s hope the polls — and the close attention politicians pay to them, whether they’re right or wrong — create positive pressure to raise the level of debate.
The economy and the budget
The challenge here for Canada is short-term economic uncertainty. This uncertainty makes planning more difficult.
The challenge is also fiscal choice. Should the federal government stay the course towards medium-term fiscal balance, or should it move forward with bold initiatives to address longer-term challenges? We need a discussion on policy options to strengthen potential output growth, to address social challenges related to aging demographics and rising inequality, to address environmental sustainability, and more. We can have these debates with appropriate fiscal anchors.
The economic planning outlook underpinning the throne speech and being presented in the Fall Update likely won’t change significantly from Budget 2013. By some measures, like nominal Gross Domestic Product, the forecast has not changed much since 2010. We can expect modest growth in 2013 and 2014, with the output gap (the difference between projected output levels and our economic potential) closing in 2016.
The story continues to be one of relatively high international uncertainty with downside risks on balance. The federal government has not enjoyed the positive upward surprises that helped governments in the first decade of this century. The world economy has gone from crisis to crisis since the 2008 financial crash — from the banking crisis, to fiscal solvency/sustainability issues in the EU and U.S., to rising concerns in emerging economies.
When the external outlook is combined with Canadian fiscal restraint and household de-leveraging, you’re likely to see a lid on domestic economic growth and a stubbornly high unemployment rate.
On fiscal policy, the federal government has made a conscious political choice to balance the budget in the medium term. We are in a period of austerity while our economy is operating below potential. Cutting back on spending now means lower growth and fewer jobs. This is a policy trade-off — there are no free lunches, just as there weren’t during the 2009 recession when the government (and Parliament) chose to spend more and stimulate the economy. So we got more growth and more jobs — but also more debt to manage. I think Canadians understand trade-offs because they make them every day in their household budgets.
A structural deficit is one that would exist even if the economy was operating at its potential — our economy isn’t. The current deficit is partly cyclical and partly structural. If the federal government achieves its spending restraint objectives we will be in a structural surplus position over the medium term horizon. Discretionary spending relative to GDP will fall to historic lows. If the plan holds, there will be fiscal room to maneuver for whichever federal party holds power in 2015.
Reducing the rate of growth in the Canada Health Transfer and freezing direct program spending for five years suggests the federal government has a sustainable fiscal framework over the long term — in terms of stabilizing debt in relation to the size of the economy. In fact, it’s likely the federal government will have a positive fiscal gap — a position to reduce debt relative to the size of the economy, our aging demographic notwithstanding. This is an enviable position to be in and it means fiscal scope for action for whoever holds the reins after 2015.
The provinces and territories will face a moderate fiscal gap. They do not have a fiscal structure that will stabilize debt relative to the size of the economy. This problem got bigger when the federal government reduced the Canada Health Transfer spending escalator. Government actions at the provincial and territorial level are required to achieve fiscal sustainability.
Health care falls under provincial jurisdiction but it is a national issue. The problems in the health sector aren’t going to go away without debate and leadership. The future of health care is a real spending issue — not just for the current generation but for future generations as well. It is very fiscally material, unlike the Senate spending issue. It is also complicated and fraught with political risks.
The road ahead
I’m now working at the University of Ottawa — an incredible opportunity. I get to spend my days with the next generation of leaders. From them, I get the feeling they’re not terribly impressed with my generation. We are not addressing long term issues. We are undermining their institutions. I tend to agree with the students.
Edmund Burke said that “society is a partnership not only between those who are living, but between those who are living, those who are dead and those who are to be born”. I hope the road ahead to a stronger Canadian society starts this fall.
Original Article
Source: ipolitics.ca
Author: Kevin Page
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