Stephen Harper’s economic legacy
There are a couple of ways of thinking about former prime minister Stephen Harper’s economic legacy. One is how his government responded to events beyond its control. Another is how his government — and when it came to economics, it very much was his government — altered the landscape for subsequent governments.
More than anything else, the global surge in the prices of oil and other natural resources defined the economic environment of the Harper years. The resource boom was obviously not of Harper’s doing, but he at least had the good sense to recognize it as a positive development for the Canadian economy. This may not sound like much, but it’s an insight that escaped many keen minds, most notably in the New Democratic Party and the editorial board of the Toronto Star. And indeed, they were good years: Canadians saw significant, sustained and broad-based increases in wages and incomes, after these remained relatively stagnant throughout the 1980s and 990s.
The Harper government didn’t really have to do much for Canadians to benefit from the resource boom: international capital flows and a flexible exchange rate did most of the heavy lifting there. But its actions may have made things more difficult down the road: interfering in foreign takeovers of resource firms increased political uncertainty in the investment climate. The Conservatives’ ham-fisted approach to the pipelines file was almost certainly counter-productive: their actions made it harder, not easier, to get Alberta oil to global markets in the future.
Then there was the 2008-09 financial crisis — here the Conservatives’ record is solid. Canada had several advantages over other countries: its banking system was solid, and continued strong global demand for Canadian resource exports accelerated the recovery. Any Canadian government would have benefited from these advantages, but Harper’s government deserves credit for acting sensibly: working with the Bank of Canada to maintain liquidity in financial markets and initiating an explicitly temporary fiscal stimulus program, as part of a globally coordinated effort. Looking back, it’s hard to find anything the Harper government did wrong during the crisis. Unhappily for the world economy, not getting things wrong was a standard too few governments managed to meet.
Time in government isn’t always spent reacting to events, of course — governments also take initiatives. When it comes to the Conservatives’ legacy, the question isn’t so much whether they were good or bad, as the extent to which their initiatives will endure. Some of the Harper government’s initiatives can and have been reversed: the Liberals’ decision to make the long-form census mandatory is an obvious example. Work has already begun to do away with many of the boutique tax credits brought in by the Tories.
But the transition to the Liberal government isn’t as much as a clean break from the past as the party’s messaging would like us to believe. International trade liberalization was an important theme for the Harper Conservatives, and this cause has been taken up seamlessly by the Trudeau Liberals. Harper-era initiatives such as the Canada-European Union Comprehensive Economic Trade Agreement and the Trans-Pacific Partnership may or may not come to fruition, but if they don’t, the reason won’t be that these projects had been repudiated by the Liberals.
Then there are the signature elements of the Liberals’ winning platform: a middle-class tax cut (never mind that it almost exclusively helps those with above-median incomes) and the Canada Child Benefit (CCB), which refocuses child support transfers to lower-income households. Neither program would have been out of place in any of the Conservative election platforms over the last decade.
The CCB is a particularly striking example of the Liberals adopting Conservative positions. In 2006, the Conservatives argued that universal cash payments were superior to the Liberals’ proposal of a public day-care system that would primarily benefit higher-income households. The Liberals’ CCB program abandons their 2006 position and extends the Conservatives’ logic by arguing that targeted payments are even better than universal cash payments.
Harper came to power with the promise of a tax cut, and keeping taxes low was the dominant theme of his government. Before he took office, federal government revenues had been above 15 per cent of gross domestic product since before the Second World War. By the time he left, revenues had come in below 15 per cent for seven years in a row and were projected to stay at that level throughout the forecast horizon of his government’s last budget.
Prime Minister Justin Trudeau also came to power with the promise of a tax cut, and his Liberals have shown no inclination of restoring the revenue-GDP ratio to pre-Harper levels: Finance Minister Bill Morneau’s revenue projections match Joe Oliver’s. The difference is on the spending side, but even here there are similarities to Harper’s stimulus program. In the latter years of the Liberal mandate, Morneau plans to hold the line on spending and let revenues catch up, which is also the scenario that Jim Flaherty outlined in 2010 (and then carried out).
Higher taxes have never been an easy sell, but anti-tax sentiment has deepened over that last decade. Instead of a particular program or treaty, Harper’s most enduring economic achievement may be a political culture in which parties compete to offer the most popular tax cuts in order to win. He may not be entirely displeased with such a legacy.
