The Economy Doesn’t Care Who Wins The Election
If there’s an election this spring, cuts to corporate in-Icome taxes are likely to play a big role. Conservatives are in favour. Liberals are opposed. Conservatives say cuts will make the economy stronger. Liberals say they’ll drown the budget in red ink.
Who’s right? I asked Don Drummond. In the late 1990s, Drummond was the economist at the Department of Finance who pushed the Liberal government to cut corporate income taxes. The top rate then was almost 30 per cent. Getting it down was essential for the economy, Drummond insisted.
The Liberals agreed and the rate was slashed to 18 per cent. The fight now is whether that should go to 15 per cent.
“You would think if anyone among the 33 million Canadians would care deeply about this, it would be me,” says Drummond, who was, until recently, chief economist at Toronto-Dominion Bank and is now Matthews Fellow in Global Public Policy at Queen’s University. But he doesn’t. Not in the least. “I have a hard time getting beyond a yawn.”
When he’s finished laughing, Drummond adds that the lower rate may be preferable, but whether it’s 15 per cent or 18 per cent just won’t make a difference to the big picture. And he thinks it’s amazing that Canada could see an election fought over such a picayune choice. “What a country!”
Drummond’s bemusement highlights a fundamental fact of Canadian politics that is too often ignored: There is widespread consensus about the basic questions of economic policy. Another fact stated openly even less often is that the economy will do what the economy will do regardless of whether the government is Liberal or Conservative. Who wins the next election simply does not matter.
As the catastrophe of 2008 illustrated so vividly, it’s what happens beyond our borders that decides our fate. “We don’t have a lot of independent control over our economy, for good or for bad,” notes Drummond. “The bad part of it is the rest of the world dragged us into this mess. But the flip side of it is that for Canada’s economy to repair itself is largely dependent on what happens in the global economy.”
Politicians do acknowledge this reality, now and then. When it suits them. If the economy is going gangbusters, you can be sure the opposition will credit global trends, and when the economy nosedives, the government will blame forces beyond its control. But the blatant self-interest of these claims often leads people to dismiss them. That’s a mistake. They are true. It’s all the other blather about how the government is delivering prosperity with its masterful economic handling, or how it’s screwing everything up, that should be ignored.
We should also ignore politicians when they say there are vast differences between the economic and fiscal policies of the Liberals and Conservatives. There are not.
Imagine you didn’t know when control of the government passed from one party to the other, Drummond says. “If I showed you a chart of government expenditure from 1997 and I asked you to mark when the government changed, you wouldn’t have a hope of getting it right. They’re indistinguishable. The Liberals cut expenditures for three years then they let the barn door fly wide open. And the Conservatives just kept it wide open. Both parties ran program spending at about six per cent growth until the recession, then the Conservatives put it up to double digits. But the Liberals probably would have done the same thing.”
We can be sure of that, in fact. Remember that in late 2008 the Conservative government was saying there wouldn’t be a recession, or a deficit, and there was no need for extraordinary measures. But conditions worsened. The coalition almost took power. And the government responded with a budget that gave the opposition what it demanded -a massive stimulus-spending program. With that, Conservatives took the Liberal position and the gap between the parties disappeared.
There have been other significant points of contention, of course. The Liberals opposed the Conservative policy of cutting the GST by two percentage points. And the Conservatives opposed Stéphane Dion’s carbon tax. But Drummond thinks the Liberals would have taken the advice of economists and cut personal income taxes instead of the GST. And the carbon tax was designed to be revenue-neutral. Both facts suggest the Canadian economy wouldn’t look much different today if the Liberals had been in power for the last five years.
As for Canada’s solid financial system, it’s even clearer that partisan politics didn’t matter. “We have not seen any fundamental differences in financial regulation between the two parties,” Drummond observes, “nor have we seen any pre-and post-2006.”
On economics, and much else, Canadian politics suffers from what Freud called “the narcissism of small differences.” Conservatives and Liberals are almost identical twins on policy. But they are also tribes competing for power. And so they focus on their differences and magnify them until a minor squabble over a few percentage points on the corporate income tax rate becomes grounds for electoral war. The media go along with this delusion partly because it’s a more exciting story than the reality, but also because journalists tend to follow Canadian politics obsessively — and if you drive on flat land long enough even the smallest hill will look like a mountain.
But flat it is.
And boring. There, I said it. If Don Drummond can admit it, so can I.