Canada: The Real Global Economic Leader

Canada: The Real Global Economic Leader
Harper’s Economic Action Plan bests Obama’s stimulus

By Brian P. Lewin ‘11
Layout Editor, Fenwick Review

After months upon months of financial difficulty compounded by the sensationalism of the media, Americans are finally seeing the light at the end of the recession tunnel. Nonetheless, there is still quite a way to go and Barack Obama’s recovery plan may only lengthen the recession. After any downturn in the business cycle, people must trust the market enough to invest. Bloomberg writer and former Wall Street Journal analyst Amity Shlaes notes massive amounts of spending to artificially create jobs and higher taxes will only hurt the market by making it more difficult for businesses to survive and individuals to invest. If the government is taking money out of someone’s pocket, how can that person invest?

While America’s economic future may remain bleak for the time being, Canada is experiencing some positives despite the economic downturn. As early as 2007, Tory Prime Minister, Stephen Harper began outlining an economic action plan to strengthen the economy and bolster the financial system. Harper may be leading a minority government and may not always be portrayed to kindly on CBC’s “The National” and “The Fifth Estate,” but his recovery plans are working. Last year, as more than 2 million Americans were faced with pink slips, Canada saw a net increase of 100,000 jobs. Most economies face gross domestic product (GDP) contraction during recessions and Canada was no exception, but Canada’s GDP contracted by barely half of that of America and Europe and only a quarter as much as Japan.

Canada is widely regarded as having one of the strongest financial systems in the world and has yet to bail out or nationalize a single bank. While lenders in the States were pressured to offer subprime mortgages, Canadian bankers remained loyal to prudent practices, avoiding the foreclosure crisis ravishing the Untied States. Despite this, Canada still has roughly the same level of home ownership as the States prompting questions about the necessity of the subprime mortgages issued in the late 1990s. This is complimented by the lowest debt to GDP ratio of any G7 country.

So how did Harper manage to keep the Canadian economy afloat amidst the turbulence of recession? Tory finance ministers met with leading economists and market experts to derive a plan that would hasten recovery while not taxing one particular part of the system (literally and figuratively!). Ottawa lowered the tax burden on average Canadian families by providing over $20 billion in personal income tax relief starting in FY09 and continuing for the next five years. This puts more money in the pockets of those who need it most from Kingston to Kelowna, Calgary to Chicoutimi and allows them to put it back in the economy both in the short term through spending on consumer goods and in the long term through investment.

This summer’s debate over raising the sales tax in Massachusetts by Governor Deval Patrick gained criticism from both sides of the aisle. Republicans point to Patrick’s campaign promise of no new taxes and the burden already bared by the state. Democrats argue the sales tax will hurt the impoverished with a higher average propensity to consume who are affected more by the sales tax than the property or income levies. The tax will restrict spending and stop the flow of cash into the state’s economy. In Canada the Tories used a more responsible plan—the Goods and Services Tax (GST) was reduced from 7 to 5 percent to sustain consumer spending and pump money back into the economy. While Canucks and the British are reducing sales taxes, American legislators want to increase them.

Franklin Roosevelt’s increased regulations on the corporate community following the Great Depression only decreased confidence and caused businesses to fold if they could not afford to hire more workers or increase worker pay. Obama’s current plans are ominously reminiscent of such practices. To increase business confidence, Harper slashed the corporate tax rate to 19 percent on January 1st. Companies can now invest without worry and avoid devastating layoffs and pay reductions.

In the Untied States, a significant portion of stimulus money is lost as earmarks and pork are added while the respective legislation works its way through the giant bureaucracy of interests that is Congress. While this technically is government spending and this technically will cause an increase in GDP, this is not smart spending. The Tory government has spent wisely, in conjunction with the other measures. While the United States is spending over $8 billion on transportation and rapid transit projects alone, the Canadian government is spending $12 billion dollars in public works projects total. This will increase cash flow into the economy while avoiding sending the government further into debt and restricting how companies can use the money.

Instead of giving blank checks to those who might never reinvest in the economy, Harper is providing a renovation tax credit to those Canadians who renovate their homes. The Tory administration expects the government will loose on the tax credit will be heavily overshadowed by the revenue generated from the increased renovation projects. Furthermore, to assist with unemployment, the government is investing $8.3 billion in a skills and transition strategy aimed at training unemployed workers the skills necessary to find new jobs in the economy. This is in stark contrast to the billions of dollars in benefits being sprinkled on unemployed workers who are unable to find jobs with their skill set south of the border.

Real Estate numbers are often a good indicator of economic health and while American cities saw a number of businesses and offices close their doors at an increase rate, Canadian cities lost businesses at less than 1 percent of previous years. More businesses south of the border are choosing to flee downtown areas for cheaper space or choosing to close down all together.

Just several years ago, many Americans were surprised to see the national debt soar to over a billion dollars. Now the debt is well over a trillion dollars and will only increase as the Obama Administration’s trillion dollar recovery plan unfolds. In Canada, the government paid off large portions of the national debt while the economy was still strong. Since FY06, the Harper Administration has reduced the debt by $37 billion while watching GDP steadily increase prior to the recession. This gave the government the fiscal flexibility to initiate recovery and stimulus programs. Unlike the fiscally irresponsible bureaucratic mess in Washington, Ottawa could actually afford to buy a share in General Motors via aid granted this past year. While European automaker Fiat decides what to do with Chrysler in the States, they announced plans in June that Canadian Chrysler plants would reopen in short order.

Harper unveiled an economic progress report on June 11th, detailing the recovery efforts. Neither Canada nor the United States are out of the murky water of recession just yet, but the forecast for the future in Ottawa shows signs of bright sunshine on the horizon. Since the late nineteenth century, many commentators and historians have dubbed the US the most powerful country in the world. After many years of leading the financial pack, America may have finally met her economic match. There is little doubt China is the economic leader of the future, but Canada is the global economic leader of the present.