The Federal Budget - Part IV
(This is the fourth and last
of a series of articles analyzing the first budget of the Harper Conservative
government.)
Restoring
the Fiscal Balance
The federal government regards its Universal
Child Care Benefit as a model for its spending on education, health care and
social services. The budget states: "This proposal reflects recognition
that the federal government is better placed to provide income support to
families with children, and that provinces and territories are better placed to
tailor child care services and support to the wide variety of needs among
Canadian families." The federal government is proposing to the provinces
and territories, as part of its plan to restore the fiscal balance, that all
levels of government in Canada "refocus" on their "core
responsibilities" as determined by the British North America Act of 1867
and what later became the Canada Act.
For the federal government this means focusing
on national defence, border security, emergency
preparedness, national policing, immigration settlement, Aboriginal people,
foreign diplomacy and foreign aid. Under this plan the federal government would
raise revenues to fulfill these responsibilities, as well as for the repayment
of the federal debt, for Equalization and Territorial Formula Financing (TFF)
and for shared priorities through transfers to provinces and territories. The
budget proposes that "excess federal revenues be used primarily to reduce
federal taxes rather than to launch new policies in areas where the federal
government is not best placed to design or deliver programs."
Under the signboards of "clarifying roles
and responsibilities" between levels of government, reducing
inter-governmental frictions, "respecting provincial and territorial
autonomy in the areas for which they are responsible" and developing a
"co-operative federalism", the Harper government is planning to
withdraw spending from areas of provincial responsibility. The anticipated
ongoing surplus revenues will go towards reducing taxes to increase the tax
competitiveness of Canadian business vis a vis the United States and other
countries. The provinces and territories have already expressed their concern
over this plan. At last month's meeting of finance ministers in
Niagara-on-the-Lake, federal Finance Minister Jim Flaherty told his
counterparts that the provinces could raise their taxes to cover any
shortfalls. For their part, the provincial and territorial governments are also
eager to make their own jurisdictions the most competitive for business by
reducing taxes. What is certain is that the budget plan will lead to more
intense fights between the different levels of government and a further erosion
of the availability, standard and affordability of social services for the vast
majority of the Canadian people.
Economic Outlook
The budget states that the economy is
"strong". The government makes this claim because the current
expansion of the Canadian economy, measured by the Gross Domestic Product
(GDP), is in its 15th year - making it the second longest period of expansion
since the end of the Second World War. In addition, the unemployment rate fell
steadily through 2005 and sat at 6.3 percent in March 2006, its lowest level
since December 1974, and has continued to decline to the present rate of 6.1
percent. In the fourth quarter of 2005, corporate profits were more than 13
percent above their level one year earlier. Total corporate profits in Canada
stood at 14.6 percent of the GDP - the highest level on record. The reduced
costs of imported machinery and equipment, stemming from the stronger Canadian
dollar, encouraged the growth of investment in machinery and equipment.
Investment in these areas was 10.7 percent higher in the fourth quarter of 2005
than one year earlier. Investment in the
oil and gas sector was at its highest share of GDP in 15 years.
Canada is no stranger to recurring cycles of
"boom" and "bust". It is a feature of modern capitalism.
Thus, this current "boom" in Canada will inevitably turn into
"bust". Furthermore, this
"boom" has not led to an overall improvement in the material and
social conditions of the working class and people. In fact, the past 15 years
of expansion that began in the early 1990s corresponds to the period of a
vicious anti-social offensive against the working class and people by all
levels of government and by the monopoly capitalists. Even the current unemployment
rate, which is described as low, is double what is was in the 1960s.
What is "strong" in the economy is
the record profits of the large corporations, especially the banks. The
expansion, moreover, is very uneven and is mainly confined to the resource
sector, particularly the oil and gas industry, and to the financial services
industry, primarily banking, insurance and real estate. In contrast, the
manufacturing sector is on the brink of a recession. This sector makes up 17
percent of the Canadian economy. The very factors that are helping the resource
sector, such as rising commodities prices and the appreciation of the Canadian
dollar, are the ones hurting the manufacturing sector. The uneven development
across the country is reflected in the wide disparity in unemployment from
province to province - 14.8 percent in
Newfoundland and Labrador, 10.5 percent in Prince Edward Island, 8.2 percent in
Nova Scotia, 8.0 percent in New Brunswick, 8.0 percent in Quebec, 5.9 percent
in Ontario, 3.6 percent in Manitoba, 4.9 percent in Saskatchewan, 3.5 percent
in Alberta, and 4.3 percent in British Columbia.
Risks and Uncertainties
While the federal budget describes the economy
as "strong", the government warns about the external risks and
uncertainties that are facing this "strong" economy. It states that:
"The risks to the Canadian economic outlook remain largely external, and
include uncertainty about commodity prices, the risk of a sudden correction in
U.S. house prices, and the risk that the Canadian dollar may appreciate further
in response to adjustments to global imbalances." These risks and
uncertainties are nothing new. The Canadian economy is heavily dependent on international
trade, especially with the United States, its largest trading partner. A
downturn in the U.S. economy diminishes the market for Canadian manufactured
goods, and the appreciation of the dollar makes those exports more expensive.
Similarly, the ongoing expansion of the natural resource extraction industry,
especially the expensive tar sands project, depends on high commodity prices.
The government states that these risks and
uncertainties are external to Canada. In one sense, as long as Canada remains
totally integrated into and dependent upon the world capitalist market, this is
true. In order to reduce the external risks and uncertainties a fundamental
internal change to the direction of the economy is necessary. Most importantly,
a change is required to the motive of production in society – a change from
maximizing the profits of big business to maximizing the material and cultural
well-being of the vast majority of the people. The over-dependence of the
Canadian economy on international trade, particularly with the United States,
and the exposure of the economy to the ups and downs of the international
market, is a consequence of the profit motive in this society.
The response of the federal government to these "external" risks and uncertainties is to undertake internal reforms that will, in fact, make the economy more susceptible to these external factors. The government will continue to integrate the Canadian economy into the North American market through the North American Partnership for Prosperity Agreement, including the North American Competitiveness Council. The government will also continue to emphasize international trade as the basis of prosperity for Canada. Finally, the government will continue to rely heavily on the natural resource extraction industry, especially oil and gas, to carry the economy. The hope is that as an "energy superpower" Canada can withstand the shock of a manufacturing recession and a downturn in the U.S. economy. Thus, the budget will do nothing to reduce the exposure of Canadians to the risk and uncertainty.