The Economist Gives Props to Harper

[Toro]

Canada
A practical man

May 4th 2006 | OTTAWA AND VANCOUVER
From The Economist print edition
The prime minister settles a trade dispute and offers a tax-cutting budget

HIS brusque and bossy manner means that Stephen Harper may never win the affection of Canadians. But after three months as prime minister, the Conservative leader is winning respect as a politician who gets things done. The past few days brought two examples of that. On April 27th, Mr Harper announced a surprise settlement of a protracted trade war with the United States over softwood lumber. Five days later, his finance minister, Jim Flaherty, presented a budget which won applause for lowering taxes without sacrificing fiscal discipline.

To some Canadians, the lumber deal looked like surrender. In 2002, for the fourth time since 1982, the United States levied countervailing duties on exports of wood from Canada, its partner in the North American Free Trade Agreement (NAFTA). The American government has mainly failed to persuade NAFTA (and other) panels of its case that Canada subsidises lumber. It seemed that the battle would be fought to the last lawyer.

But Mr Harper is eager to improve relations with George Bush's government. After a week of talks, both sides agreed a draft deal which in essence returns to the previous regime of managed trade. The Americans will drop the sanctions, and return $4 billion of the $5 billion they have collected in duties. Canada accepted that its share of the American market be capped at 34%. It agreed to impose export taxes and limit shipments if prices in the United States fall much below their current—unusually high—levels.

The previous Liberal government had held out for better terms. But Mr Harper won the grudging acceptance of battle-weary sawmill managers, and the provincial politicians who administer the forests. Some are quietly relieved that the time-consuming and costly dispute may soon be over. The biggest losers are Americans, who will pay more for their houses.

The Conservatives' first budget strikes the same pragmatic note. It contains 29 different tax breaks. These include a campaign promise to shave one percentage point from the sales tax, and a tax credit on public-transport tickets aimed at encouraging commuters to leave their cars at home. Perhaps most importantly, the gap between corporate taxes in Canada and the United States will narrow.

Unlike their Republican neighbours to the south, Canada's Tories are determined to maintain their predecessors' record of balanced budgets, stretching back eight years. They promise to rein in government spending, which showed signs of running away under the Liberals. Last year's entire C$8 billion ($7 billion) surplus will go towards paying down the national debt. From now on, C$3 billion will be set aside each year for debt reduction. That would reduce the ratio of public debt to GDP, already the lowest of any of the G7 large industrial economies, to 25% by 2014.

Mr Flaherty could afford this combination of largesse and virtue because Canada is among the chief beneficiaries of the current boom in commodity prices. Corporate profits are at record levels, and the unemployment rate is at a 30-year low. The finance department estimates that income-tax collections will climb by almost a fifth in the three years to 2008.

On budget day, the Canadian dollar edged over 90 American cents (see chart)—its highest level for 28 years. That is a challenge for manufacturers. But thanks to oil and minerals exports, Canada is running a big trade surplus with its neighbour.

The strong currency has helped contain inflation even as the economy runs at full tilt. It has also brought relief at the petrol pump, since oil is traded in American dollars. Philip Cross, the chief economist of Statistics Canada, reckons that while Americans are paying over 70% more for gasoline than three years ago, prices in Canada are up by only about a third.

The loonie, as Canadians call their dollar, may reach parity with the greenback within the next 18 months, reckons Clément Gignac of the National Bank of Canada. Others take a less rosy view, forecasting a weaker Canadian dollar as the commodities boom runs out of steam.

Though Mr Harper leads a minority government, he should have little trouble pushing through the budget and the softwood lumber deal. He has assuaged the separatist Bloc Québécois by pledging “a new approach” to sharing the federal government's surpluses with the provinces.

In a year or so, the prime minister may well call an election at which he will seek a Conservative majority. The Liberals have long tried to paint Mr Harper as a reactionary ideologue. In different ways, with the softwood deal and the budget, he is doing his best to give a rather different impression to the voters, as a practical man of the middle ground.

The Economist

 

[BitWhys]

If they like what Harper did with the budget they'd have loved what the Liberals had planned since it would have only increased spending by 10.4% instead of the 11% the government is trying to book now.

WITH Kelowna.

 

[MMMike]

How could any self-respecting economist support Harper's tax-cutting measures? It represents the triumph of politics over policy; style over substance. We should be increasing consumption taxes and lowering income taxes. We should favour broad tax cuts over a plethora of targetted credits. This is a farce. Too bad Joe Public just shrugs his shoulders and says to himself 'I'll tax my tax cuts anyway I can'.

As for the softwood lumber settlement, it wasn't a settlement as much as a capitulation. We don't need a negotiated settlement: we already have a deal - its called NAFTA!! Instead of voluntarily filling the coffers of the US lumber industry for their next legal challenge, we should have slapped on retaliatory tariffs.

 

[bluealberta]

How could any self-respecting economist support Harper's tax-cutting measures? It represents the triumph of politics over policy; style over substance. We should be increasing consumption taxes and lowering income taxes. We should favour broad tax cuts over a plethora of targetted credits. This is a farce. Too bad Joe Public just shrugs his shoulders and says to himself 'I'll tax my tax cuts anyway I can'.

As for the softwood lumber settlement, it wasn't a settlement as much as a capitulation. We don't need a negotiated settlement: we already have a deal - its called NAFTA!! Instead of voluntarily filling the coffers of the US lumber industry for their next legal challenge, we should have slapped on retaliatory tariffs.

Sorry, MMMike, but virtually everyone I have heard or read since the budget, including the vast majority of qualified and competent economists, believe that this budget was a good budget, and a perfect example of a MINORITY GOVERNMENT budget.

Having said that, I too share your thought about getting rid of income tax and increasing the consumption (GST) tax, but surely you did not expect that to happen within the first three months of a CPC minority government?

Regarding softwood, I think this is the best deal we and the US were going to get, without more months of expensive negotiations, that may have not resulted in anything different. It is funny, but the folks in the US don't necessarily like it either because the thought is that this deal with increase the costs of their houses. IMO, if nobody likes the deal from either side, odds are it is a fair and good deal.

I do not agree with retaliatory tarrifs, they just put roadblocks in the way of any trade negotiations. Besides, what would we have put the tarrifs on?

 

[Chake99]

RE: The Economist Gives P

A die-hard liberal before the election, the Conservative party is not shaping up to be a government as bad as I thought it would be. I'm not saying that I agree with half their policies, but I am being pleasantly surprised.

And the Economist is too biased a source to be considered that reputable, their conclusion is known before they say anything (lower taxes FTW!!!), the interesting part is how they justify themselves, and in this article the reasons they give are fairly decent.

As an example of bias, a couple years back, I remember how the economist wrote that Canada's economy was going straight to hell because Martin decided not to cut corporate taxes like it was previously believed he would. The ironic part, was where they said that previous to the incident the Liberal government had been extremely responsible responsible fiscally.

(The void of logic is mind boggling)