Liberals save Harper government

In a contortion of fact that would make Stephen Harper proud, newly installed Liberal leader Michael Ignatieff insisted that despite supporting the budget released on Tuesday January 27, he was placing the minority Conservative government on probation, apparently forgetting for a moment that minority governments are — by definition — on probation. As a result, the possibility of a Liberal-NDP Coalition government, which was on the verge of toppling the Harper government less than two months ago, disintegrated into fancy words and good intentions.

The price for Ignatieffs budget support was a minor amendment that requires the Conservative government to provide three economic updates, on March 26, June 23 and September 10, which the Tories were only too happy to agree to.

Allowing the Conservatives to remain in power deeply infuriated New Democratic Party leader Jack Layton, who declared that there is a new coalition on Parliament Hill — between Mr. Harper and Mr. Ignatieff. Bloc Quebecois leader Gilles Duceppe bluntly announced that the Coalition is dead, and blasted Ignatieff for continuing in the practice of former Liberal leader Stephane Dion, who led his party in voting with the Conservatives.

Concerns about the Tory budget have been voiced by economists, social workers, municipal leaders, and even Ignatieff himself, with the most prominent criticism stemming from the requirement that provinces and municipalities put up half the funding for any infrastructure project. As Toronto Mayor David Miller noted, most cities in Ontario are broke, and thus cannot afford to pay anything at all. As a result, although a massive $12 billion was ear-marked for such projects in the budget, it is possible that only a fraction of that money will actually be spent. Infrastructure spending accounts for one-third of the entire stimulus package and could create up to 190,000 new jobs if the money actually flows.

The concern that the money will not be forthcoming is well-founded, and is ostensibly the reason why Ignatieff demanded the three budget status reports from the government. For three years the Conservatives have been promising spending on various projects, a move organized under the omnibus $33 billion Build Canada Fund, which has done next to nothing since its creation in 2007.

There are numerous other concerns with the budget. For example, less than one per cent of spending and tax cuts contained in the budget address environmental projects. Critics argue that the home-retrofit tax rebate could have been targeted towards eco-friendly or energy-efficiency measures. Instead, even a millionaire building a new sunroom could qualify for taxpayer dollars.

Another concern is the cost and ineffectiveness of the tax cuts in the budget, which will result in billions of dollars of lost government revenues. In the weeks before the January 27 budget was released, Ignatieff joined with Layton, Duceppe, and Green Party leader Elizabeth May, along with countless economists and experts around the country, in warning Harper not to pursue tax cuts as a means of stimulating the economy.

In the words of Liberal finance critic John McCallum, who was formerly chief economist of Royal Bank, Tax reductions will be an ineffectual stimulus because people are more likely to save extra money during recessionary periods. Ignoring the vast majority of experts, the Conservative budget offers $20 billion in politically-expedient tax cuts of all kinds, for individuals and for businesses across the board.

On top of all this, over $4 billion is to be handed over to the auto industry in Canada — mostly to General Motors (GM) and Chrysler — and $200 billion to banks through the Extraordinary Financing Framework, which aims to stimulate credit for small businesses, homeowners and individuals.

Canadian banks, which are heavily regulated by the government and the Bank of Canada, are in a much stronger position than their American and European rivals, and have not suffered financially to nearly the same degree. As the global economy weakened and every central bank lowered interest rates, Canadian banks alone did not pass those rate cuts on to their customers, preferring instead to increase their profit margins. As such, it is not clear how this $200 billion in financing is either necessary or useful.

Equally worrying is the fact that the numbers used by Finance Minister Jim Flaherty to reach his projection of $85 billion in additional debt for Canada — ending a decade of paying off debt and running surpluses — are open to interpretation. Flaherty is counting on national GDP contracting by 0.8 per cent in 2009 and growing by 2.4 per cent in 2010, as the Bank of Canada predicts, but the International Monetary Fund’s (IMF) figures show Canada’s national income contracting in 2009 fifty per cent faster than the government’s numbers, and expanding 33 per cent slower in the next year. As a result, when all is said and done, the ultimate increase to the national debt may exceed $100 billion.

For all these reasons, Michael Ignatieff could have been expected to take down the Harper regime on January 27. This budget has been widely panned by critics from all organizations and walks of life, and is only one or two points more popular than the Liberal-NDP Coalition ever was. Its ability to deliver, to improve the economy, save jobs, or help people who are vulnerable, is questionable at best. Yet it will pass, thanks to Michael Ignatieff, and we will collectively have lost the best (maybe only) opportunity to save Canada from Stephen Harpers divisive, ideological, partisan and generally destructive style of government.