Bank of Canada Contradicts Harper Government
By Ralph Goodale
Member of Parliament for Wescana
Stephen Harper's vaunted "management" of the Canadian economy is bedevilled by serious contradictions and mediocre results.
Mr. Harper once spoke enthusiastically, at home and abroad, about the central importance of Canada's energy sector. We are a global superpower in oil and gas, he said. And he looked to that one sector to be the prime driver of national economic well-being. That singular focus also shaped his fiscal policies, his views on the environment and his relationship with our biggest trading partner in the United States.
When oil was priced at more than $100/barrel, Mr. Harper's unidimensional economic plan escaped scrutiny. But with market values now chopped in half, many people are asking why he put the country in such a vulnerable position. Why did he bet so much on just one commodity? And where is plan "B"?
Amazingly, Mr. Harper argues there's no need for any other plan. Swallowing himself whole, he is now dismissing the petroleum industry (and by implication, producing provinces like Saskatchewan and Alberta) as just minor players whose impact and current troubles are no big deal.
If that's true, why did he suddenly delay the federal budget to some unspecified date beyond the end of this entire fiscal year?
Ten days ago, Finance Minister Joe Oliver said low oil price were entirely manageable and had, in fact, been fully factored into his economic projections. But just 24 hours later, Mr. Oliver announced the exact opposite. The budget suddenly had to be delayed, he said, because markets were destabilized.
But wait a minute, low oil prices were no last minute surprise. They've been falling since last summer. Prominent industry leaders last autumn were predicting a tumble to as low as $30/barrel. The flip-flop from sanguine to panicky made the Finance Minister look inadequate and confused.
The Governor of the Bank of Canada wasn't confused. He reported last week on the consequences of a weakened energy sector - declining growth rates, thousands of lost jobs, billions of dollars in cancelled investment and a ballooning Canadian trade deficit. He said current oil prices are "unambiguously negative" for Canada.
As a consequence, the Bank of Canada chopped its prime lending rate. That action and the Governor's strong language are signals of real concern about a stalling economy.
It's strange indeed to see the federal government and the central bank headed in opposite and contradictory directions.
The Bank of Canada is moving to stimulate greater growth, while Mr. Harper pushes more austerity - with the net effect of reducing aggregate demand. His only discernible goal is protecting his ill-conceived Income Splitting scheme (which the late Jim Flaherty rightly depicted as too expensive and decidedly unfair). It also does nothing for growth.
The facts are inescapable facts. Income Splitting will cost $10-billion over the government's planning cycle. Only 14% of households will benefit - 86% cannot even qualify. And of those who do, the biggest gains go to wealthier folks, like Mr. Harper himself.