There’s a presumption in Canadian life that “the answer is the government; what was your stupid question, anyway?” that needs to be challenged, especially as the global economic storm clouds gather to lash Canada as well.
First, let’s dispense with the notion of helping out internationally. We did that in 2008-09, and what did we give up? Our national debt stopped falling and has risen sharply; balance is something for three or more years out; our trade balance wobbles. We were the only OECD country that had run surpluses in the 2000s, and we walked away from it. During the minority governments of 2006-11, the Opposition parties could threaten meaningfully; today, we have a majority. If we can’t clean up our act now, can we ever?.
As long as international counter-party risk remains an unknown — and the alphabet soup of bailouts from the US Federal Reserve and Treasury, from the Bank of England and Exchequer, from the European Central Bank and the treasuries of the EU countries, etc. has ensured that some debt-ridden carcasses suitable for a vulture’s meal rather than resuscitation were favoured while others, in better shape, are now in question — domestic commercial paper markets, bank lending, etc. will be subject to extreme risk management by our financial institutions. For that, you can read hmmm … let’s think a little longer before we say ‘yes’ (if we ever do) again. Credit will not be free-flowing and easy, nor will it be for many years to come.
We have our own Greeces in some of our provinces. They may well need a Federal rescue package. Let’s not undo the ability to do that.
We have lived through an age of excess — public and private — that must be worked off. It will take years to unwind all the loans that should not have been made.
Smart business folk, of course, have already gone looking for alternatives. CBC reported in October 2008 on The National of the case of one Winnipeg business whipsawed by the credit crunch. The owner approached his key suppliers to act as investors. They, in turn, were pleased to invest in something solid, real and easily monitored rather than fancy pieces of paper promising a return laden with unknown risks. He was suitably financed to carry on. In other words, the presumption that the system must be continued as is is wrong; put your thinking cap on and figure out how to thrive in this new world.
Funny me, I must be old. Isn’t that how asset-backed commercial paper came to dominate business debt requirements — when, in the crunch of the early 1980s just before this bubble began, banks stopped commercial lending? There is always a way to proceed, if you’re willing to work for it.
Of course, most aren’t. Instead, they want handouts. Programmes to fund product development, to train their workers, direct subsidies, loan guarantees, the works. This, for years, has been the stock in trade of Industry Canada’s many handouts, and of one Premier after another seeking “relief” for one industrial sector or another.
So, too, our monetary policy (and I do realise that Governor Mark Carney has had to keep one eye on the exchange rate, given the outright wanton debasement of the US dollar occurring under the watch of the Fed). Bernancke’s actions in the US are leading to an inevitable debt collapse of the US Government. Good-bye America. Is this what we want for Canada? But keeping rates near zero and the promise of more years of the same, term lending facilities and the like are seen by the hand-out centric business leaders and politicians in our mix as a good thing. Après-nous, le déluge, indeed, except that the flood this time is but days or weeks away, not a problem merely for those who get to bury you after a long life. Greece, after all, has to decide whether to let its capital burn and then default, or just default, no later than March 20.
This brings me to Federal tax policy. The one solid contribution the Federal Government could make at this time would be to put serious money in the hands of Canadians. No more fiddling around the edges, with a credit here and a point off the GST there. Something big, useful (for this will be a period of rampant inflation masking deep deflation under the surface, one of the reasons programmes will be ineffectual: they are torn in two by this concurrent condition) and solid to calm fears and put some capital into the system where it would do the most good: where a person can see and monitor their investment in a business (their own or someone else’s).
We are discussing, in our house, how to live under these new conditions. All those discussions start with there’ll only be this much money coming in; how do we limit spending to fit under that number. We don’t know, of course (ah, the joys of self-employment) how much that number is, nor will it be constant, as with a pay-cheque. But the principle is the one the Government should use: set the limit on revenue and live within its means.
I propose an across the board 33% income tax cut. Each bracket drops by 1/3. 16% goes to 11%; 26% goes to 17%; 29% goes to 19%. You get the idea. That creates a noticeable difference in take home pay or retained earnings. (This would not even shrink the Federal Government back to where it was in 1995 when Chrétien and Martin finally bit the bullet and chopped away at our then horrible structural deficit and debt, although it would come close. I think we can manage with a 1995-sized Government instead of the behemoth we have today.)
To get there, Federal spending needs to drop. You don’t do this by an across the board cut; you do this by cutting out — completely — whole programmes, perhaps even Departments, Agencies, Boards completely. A balanced budget is put forward at these numbers: probably one without a lot of “contingency” built in, and therefore subject, depending on the storm winds, to a possible close out in a slight deficit (but not one planned).
Will the country scream? Absolutely. Will the combined Opposition? Yes — but they are not able to defeat the Government.
As for the Premiers, let them scream. The answer to the fiscal imbalance is not more money from Ottawa; the answer is for the provinces to make programme choices themselves. You want a socialist nirvana (as in Québec or Ontario)? Get your citizens to pay for it — and deal with the exodus that may result.
Fiscal sanity must support fiscal policy, especially in turbulent times. We do not want to follow the United States and the countries of the European Union down the rat-hole they have prepared for themselves. We need not.
All we need is the will to act boldly in our own national interest.