Cardus June 2011 Budget Analysis: Dissent on Deck

June 6, 2011 - Ray Pennings and Robert Joustra

Introduction

This is Cardus' analysis of the Government of Canada's budget for the fiscal year 2011-2012, released by the Hon. James M. Flaherty, Minister of Finance on Monday, June 6, 2011. There aren't many surprises left in this federal budget, with its mirror released only a few months ago in a minority environment. The potpourri of targeted initiatives to help families (caregivers tax credit), seniors (increase to GIS), employment (targeted tax incentives), trade (significant investment in "gateway projects"), and cities ($2 billion of gas tax transfers made permanent) are intended to provide stimulus in the midst of an overall tone of caution and restraint. Throw in a few election platform commitments, most notably the scrapping of the party vote subsidy and the booking of the $2.2 billion for Quebec tax harmonization, and the story of the 2011 budget seems told.

Or is it? True, the political uncertainty of its passage has been removed, and the rhetoric of stability dominates, but there is good reason to believe underneath this rhetoric the government is preparing for a coming storm in Canadian politics: one which they intend to shape and survive. The increased emphasis on expenditure review and the advanced targets for returning to surplus are just two indicators that this budget is really about battening down the hatches and rolling out the foundations for shaping tomorrow's social architecture.


The New Normal

The political subsidy change provides a compelling case study about how relatively small numbers can have disproportionate architectural implications. The $27 million saved on a $280 billion budget amounts to federal pocket change—but represents a fundamental change to the way political parties operate. The debate about whether this promotes corporate and union influence is a red herring; the average donation to the Conservative Party (who are hailed as being the best prepared for the new system) was less than $200 last year. What it means is that political parties will need to work to cultivate a more diffuse support base, limiting the influence of establishment elite.

This is a strike at the heart of politics as usual.

This change, combined with the post-election realities of 2011, means the internal politics of parties are about to get less, not more, stable. Liberal, New Democratic, Bloc, and Green parties will need to build the same kind of coalitions to fund, sustain, and project their influence into the Canadian parliament. The Conservatives, meanwhile, will have to figure out how to keep their newly empowered but divergent base united. The very different ideals which motivate poles of the Conservative support base will find ways to express themselves as expectations are disappointed.

Changes to the political subsidy will change the internal pressures to which political parties respond. Ultimately, it will reshape them. And that is prompted by just $27 million.

Consider what the impacts will be of coming changes with much bigger numbers. You could rhyme off a list: how will the economy and federal treasury adjust to the realities of 2.5 workers per retiree, especially considering that we are not coping overly well with the current reality of 4.7 workers? The throne speech last week announced an aggressive free trade agenda. Free trade almost always implies concentrated adjustments for particular industries. Even if the end net result is positive, there are specific sectors for which new trading realities will hurt. Foreign and international identity are live, important questions as key obligations expire. Throw into the mix the health care conundrum for which no viable answers have been tabled in the mainstream debate. The current health accord with the provinces expires in 2014, and the frame for federal-provincial controversy, not to mention voter frustration at continuing wait times for most procedures, provides political and economic fuel for the fire.

These are just the known and certain challenges. Governments are often made and unmade on their response to the unexpected, like 9/11 or the economic recession of 2008.

There are long-term budget implications to all of this. The government's focus on maintaining federal involvement in a wide variety of areas, including those under provincial jurisdiction, will allow for the continued use of political mechanisms, like tax credits and incentives rather than direct subsidy. The reduction in federal revenue will make for smaller government. The reduction in federal capacity will mean a deferral to other institutions, a significant change coming to our social architecture.

This budget is a first step of recalibrating for a new normal in fiscal balance.


Measuring Impact across Four Sectors

How will this work itself out and impact the everyday life of Canadians? Start with families. The promised income splitting as well as the various tax credits (fitness, the arts, etc.) give some hints. The government will incentivize behaviours through tax programs rather than provide services with comprehensive programs.

But the foundation for Canada's success is the continued growth of the for-profit sector. Infrastructure supporting trade (such as the gateways project announced in this budget) will be a high priority. Policies like the expected Perimeter Security Agreement with the United States, workforce training issues and incorporating environmental standards into energy production are complex but incremental measures. The strategy is balancing the negative fallout of incrementalism with tax rewards.

Absent is a provision for the role of the not-for-profit and charitable sector. Opportunities for collaboration exist as this sector makes use of market-sensitive approaches to deliver and fund its programs, rather than government transfers. This is innovation driven by necessity, as governments increasingly rely on—and must therefore work to enlarge—the capacity of the charitable sector.

What all of this sets up in the government sector is not stability but dissent. In a majority context, that debate will be more within than between parties. We've been here before. In both prior majority governments, the challenges that destroyed the party came from within.


Conclusion

A majority Conservative parliament holds all the cards for framing this dissent. Nestled in this budget are early hints of how they intend to shape it. But the privilege of framing the question is not always a sure recipe for building consensus around an answer. These questions are enormous, and the pragmatic whip of minority fragility is gone.

What is certain is that the outcome of these questions will build a social architecture very different than today's. Don't let the rhetoric fool you: this is not a budget for today's stability, it's a prelude to tomorrow's dissent.

Posted in Markets, Politics. Linked to Cardus' Work and Economics research project.

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Originally Published

date: June 6, 2011
publisher: Cardus