The Bruce Report

The Conservative government’s fifth budget delivered all that Canadians had expected, which was, after all, not much.

            The times do not tolerate soaring visions or bold actions. The courage (and money) to make real change is in short supply as long as 350,000 citizens remain unemployed. Jobs and debt preoccupy the minds of the electorate. And though it’s arguable whether the Tories needed a six-week break from Parliament to reach this conclusion, it’s clear they’ve learned the lesson well.

            During the next 12 months, they’ll dispense the remaining $19 billion in stimulus funding in what they hope will be judged a valiant effort to put the country back to work. Meanwhile, they’ll begin to launch a series of austerity measures, largely within the public service, to freeze wages and trim “non-essential” spending on foreign aid and the Department of Defence. These measures and others are expected to save approximately $18 billion over the next five years.

            When the dust finally settles in 2014, Finance Minister Jim Flaherty cheerfully assures, the country’s $49 billion deficit will have been reduced to a measly $1.8 billion.

            Still, there are some spectacular assumptions in all of this. The forecasts are based on multiple-year projections about rising domestic productivity, recovering export markets, and long-term currency stability. Most Canadians would never dream of balancing their cheque books in five-year increments. But the magic of government budgeting is the necessary fairy dust of optimism which stipulates that things always return to normal, even improve. Unfortunately, the horizon is far from clear.

            The United States is Canada’s biggest trading partner. We do 70 per cent of our international export business with this behemoth. Every day, $1 billion in goods flow across our shared border. But since The Great Recession, the American economy has staggered under the weight of its colossal burdens: An annual deficit of $1.6 trillion, a fractured financial sector, a ruined housing market, malingering manufacturing industries, ten per cent unemployment, rising consumer debt, and Congressional and Senatorial deadlock. Will the U.S. be in any shape to buy what we have to offer, in traditional volume, when we return to balance?

            Now look further afield to our second-biggest export market: The European Union. There, Greece, which holds an unfunded debt of 400 billion euros, is virtually bankrupt. So are Ireland, Portugal, and Spain. Unless the comparatively solvent countries of Britain, France and Germany come to one or more of these nations’ rescue, the integrity of the entire continent’s monetary system is in jeopardy and with it the value of their shared currency.

            It gets worse. Such circumstances, both south of the border and overseas, could easily overwhelm international demand for the few currencies that remain strong. It’s sure the yen won’t be one of them; Japan’s national debt is 150 per cent of its GDP. It’s also a safe bet the yuan will remain off limits; China stubbornly refuses to allow it to float. That leaves the Canadian dollar, whose resilience benefits precisely from those sound and prudent policies the Tory government extol.

But a high Canadian dollar is decidedly export-unfriendly. The nation might become a net importer. What would we then harvest, make or sell, and to whom? So much for innovation, research and development, high-tech manufacturing, and productivity improvements. Who needs them?

Naturally, these nightmarish scenarios are pure speculation. Any one of a thousand variables could produce entirely different and happier results. But that’s the larger point. The budget process forces governments to extrapolate from their current actions the medium- and long-term outcomes. And, in this regard, governments are almost always absurdly wrong.

I hope this government is the exception. I hope its assumptions about the future are not as speculative as they appear.

But that’s not what I expect.

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