Is Stephen Harper a cheap date?

“What is wrong with you lefties?” asked the Economist of Considerable Renown. “That budget was a win for you.”

In the immediate aftermath of the federal budget, I was still trying to come to terms with the logic of this apparently schizophrenic government document. What were the architects of this budget thinking?

“If this budget is such a godsend to the left,” I asked the Economist of Considerable Renown,” why is Conservative Leader Stephen Harper endorsing it?”

“Stephen Harper is a cheap date,” said the Economist of Considerable Renown. “All he gets is money for defence and a few tax cuts down the road.”

My friend had an interesting point. After all, several things on the left’s wish list were in the federal budget. (Whether the money is being spent in a manner likely to accomplish these objectives is another matter.) After
defence (the biggest ticket item), the next two largest spending announcements concerned child care and the gas tax for cities. Arguably, this budget is a good first step toward rebuilding social programs and repairing infrastructure that was so damaged during the deficit-fighting 1990s.

So is Mr. Harper a cheap date? Certainly, he faced political exigencies that compelled him to play ball with the Liberals to avoid an early election. But still, wouldn’t the Conservatives at least hesitate before supporting a
budget that many on the right are depicting as a Liberal spendathon? Instead, Mr. Harper could barely contain himself until Finance Minister Ralph Goodale finished his speech to start gushing about the budget.

So why would the Conservatives back this budget? What if they analyzed this budget as the do-or-die moment for rebuilding social programs in Canada? After years of sitting on large budget surpluses, there was no credible reason for the federal government to claim that we can’t afford social reinvestment. Surely, even the Conservatives realized that there is considerable appetite among voters for enhanced social spending.

Perhaps they believed it was inevitable that many of the constituencies that were most harmed by the budget cuts of the 1990s would have to be appeased. So, if forced to spend some money, the Conservatives may have decided that things such as child care and cities were the best of the available options. After all, Canadian employers know that child care helps employees show up for work. They also know that infrastructure in the cities has deteriorated to the point where it has become a considerable obstacle to many businesses.

Significantly, the 2005 budget allotted very little spending that would enhance the bargaining power of workers vis-à-vis their employers. For example, there is no move to address the severe eligibility requirements that prevent most unemployed workers from qualifying for employment insurance.

Both the Liberals and Conservatives must be hoping that this budget will succeed in diffusing the pressure to rebuild social programs, while incurring only a moderate rise in government spending relative to the size
of the economy. Despite net new expenditures of almost $42-billion phased in over six years, spending stays constant at 11.9 per cent of GDP. That is still short of the 12.2-per- cent spending-to-GDP ratio that existed when the budget first went into surplus in 1997-98. Hardly the utter abandon of fiscal discipline that the right-wing pundits claim.

But the real beauty of this budget, from a Conservative point of view, is the timing of its measures. In 2005-06, almost 92 per cent of the net cost of new budget announcements consists of spending. By the end of the period covered by the budget, the net new costs of measures are split almost evenly between spending (54 per cent) and tax cuts (46 per cent).

So, by the end of the six-year mandate, what starts out as a spending budget leans more and more toward being a tax-cut budget.

By 2009-10, the tax cuts in this budget will slash government revenues by $7.8-billion a year – more than the yearly expenditure on defence, child care and gas tax for cities combined at that point.

From the Conservative point of view, the beauty of back-ended tax cuts of this magnitude is that they foreclose the opportunity for new spending in the future. These tax cuts ensure that this budget is not the first step toward rebuilding social programs – it’s the only step.

With $7.8-billion less in government revenue to play with every year, once the tax cuts are fully implemented, this budget is possibly the only kick at the can we’ll get for rebuilding social programs.

The Conservatives knew this budget was a historic opportunity for progressives in Canada, and they have escaped with a deal they can live with. And if the Liberals come up with further tax cuts in the lead-up to
the next election, the opportunity to rebuild social programs will all but disappear.

The Conservatives are well aware that even the social spending enacted in this budget can be undermined. The 2005 budget included measures implemented over six years and, in some instances, the social spending is not ramped up until the later phase of the budget mandate. Anything can happen in six years. If economic conditions take a turn for the worse, Mr. Harper and company will be well-poised to argue that it is social programs, not promised tax cuts, that should take the hit. And how will the Liberals, who have struck this deal to shore up Conservative support for the 2005 budget with the promise of back-loaded tax cuts, be in any position to oppose?

So maybe the spectacle of Mr. Harper energetically endorsing this federal budget does make a kind of sense. If he played his cards right, Mr. Harper can be well- positioned to bring himself forward as the future champion of a heroic battle against the excesses of government spending. But my advice is to beware the budget that has Mr. Harper posing as a friend of the left.

Ellen Russell is senior research economist for the Canadian Centre for Policy Alternatives.