Do not think about, write about or deal with human behavior without determining the effects of incentives. It’s not their money, of course they’ll waste it.
Wherein we see that promises are one thing, accomplishments something totally different. Current government theory is that economic stimulus is not only possible, but desirable. Alas, spending money on useless projects, increasing regulation and taxes doesn’t work.
Jack M. Mintz Jack M. Mintz is the President’s Fellow, School of Public Policy, University of Calgary.
Where’s the growth governments promised?
Over the past two years, new governments were elected in Ottawa, Alberta and New Brunswick promising better growth. Along with Ontario’s government, they’ve argued that we must run bigger deficits to make investments for the future. Public spending is being ramped up to grow the Canadian economy even if it means more taxes. Their policies are now in disarray.
These policies only work for the hundreds of “special consultants” who receive outrageous fees and salaries for doing things which are counterproductive.
After the most recent, dismal Statistics Canada jobs report released just days ago, there is now no way for governments to spin that these growth policies are working. While, right next door, in the high- dollar U. S. economy, Americans saw a surge of new jobs in June, the Canadian report was breathtakingly poor. Employment was virtually unchanged in June and barely increased in the second quarter of 2016, with just 11, 000 new jobs.
Monthly and quarterly reports require caution, since they can be subject to revision. But looking at the past year is no more encouraging. Canadian employment rose by 108,000 jobs (0.6 per cent), but three- quarters of that came from growth in the self-employed. Hours worked actually declined this past year. Full-time employment is down. Fewer youth are being hired.
Yes, Canada has been struggling with lower commodity prices, hurting prospects in the resource-related sectors. Resource- intensive provinces have been hit hard by falling employment since last June ( except for B. C., which, having posted a provincial operating surplus, has seen jobs increase by a robust three per cent since last summer).
But while the resulting lower Canadian dollar is supposed to help other industries, the employment picture in the non- resource sector has been disappointing to say the least. Since January, manufacturing, construction and utilities jobs have declined.
The only modest employment growth to take place in the last year has been in the service sector, including finance, scientific/technical, trade and health ( the latter dominated by employment in the expanding public sector). Since June 2015, information, culture and recreation services have seen the strongest growth at 5.6 per cent followed by (no surprise here) public administration — i.e., government work — at 3.6 per cent. Still, in Quebec and deficit-plagued Ontario, employment has grown only 0.8 per cent over the last 12 months.
The folly is to think that deficit-financed fiscal expansions will create jobs. For the 2016–17 fiscal year that began April 1, federal and provincial net borrowing is expected to rise by $64 billion or 3.3 per cent of GDP. Is this helping?
With more public borrowing, capital inflows result in a rising Canadian dollar, which has already begun happening ( unrelated to movements in commodity prices). Public deficits also crowd out private consumption and investment spending as consumers and businesses anticipate higher future taxes to repay bondholders.
Public spending can generate growth but only if the spending is on productivity enhancing programs. Education improves skills. Infrastructure spending on roads, ports, transmission lines, rail and highways that move people faster and products to markets can contribute to better growth ( although private firms can build these things, too).
On the other hand, public spending on health care and social programs, while helpful for low- income Canadians, will hurt growth if the spending is badly designed; the Trudeau government’s recent backtracking on Employment Insurance reforms enacted by previous governments, both Liberal and Conservative, is a prime example of a growth- killing spending policy.
We don’t really need more public spending, but rather better targeted and more effective spending. Gold- plated public employee compensation, featherbedded hiring practices and inefficient procurement policies increase public sector costs without delivering better services to Canadians. As some economic studies have suggested, including work by the IMF, it is not clear that governments need to take up more than a third of a country’s economic resources to carry out their functions properly ( Canadian public spending is now more than 40 per cent of GDP).
With bigger public administration comes regulations imposed on consumers and businesses that obstruct private sector growth. Canada is rightly earning an international reputation as a country incapable of moving forward on major transportation projects, resource developments, energy infrastructure and housing without prolonged delays and heavy additional costs. New regulations, including the monstrously interventionist carbon policies within Ontario’s Climate Change Action Plan, are only making Canada less competitive.
The Climate Change Action Plan–doesn’t that sound exciting? Billions of dollars spent to counter a non-existent threat.
Alongside these growing deficits and bigger public administration costs must come extra taxes to feed the beast. The federal government has so far juggled tax rates, some up and some down, with more tampering to come in a 2017 budget that will crank up spending even further.
Several provinces are viciously attacking taxpayers’ pocketbooks with an onslaught of new taxes and fees. Ontario is rolling out new cap- and- trade charges after already increasing income taxes, energy prices and various other levies in recent years. Alberta has hiked personal and corporate taxes since 2015 and has introduced a massive carbon tax, along with job- killing regulations, increasing wage costs and energy costs. Newfoundland and New Brunswick have joined their Atlantic cousins in imposing the highest corporate, personal and sales taxes in the country. And on top of these various hikes, the Trudeau government will now add a CPP payroll tax increase, starting in 2019 with increased CPP benefits paid years later.
So far, all these government “growth” policies based on deficits, high taxes and costly regulations can only be judged by the res ul t i ng dour Canadian l abour market statistics. By that measure, the prime minister and many premiers deserve so far a big fat “F” on their economic policy test.
Politicians are long on rhetoric and short on results.
Government Job or Respect–Which’ll It Be?
Cheerio and ttfn,
Grant Coulson, Ph.D.
Author, “Power Teaching: How to Find Someone to Teach Your Child when the Education System has Failed.”
Cui Bono–Cherchez les Contingencies