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Reforming the Liberal Party

May 5th, 2011

A few days after we lost to Ed Holder in London West, here are some reflections on the election and the Liberal Party of Canada.

The election

  1. This was an historic ass-kicking: 18.9% of the popular vote nationally is dreadful (14.2% in Quebec!).
  2. This was a rejection of Michael Ignatieff, in particular: whether he deserved it or not, most Canadians did not like him or want him to be Prime Minister. The leadership index from Nanos Research shows him lower at the end of the campaign than before.
  3. With a few exceptions, I liked our 2011 election platform. I thought it was well-suited to the moment and the leader.
  4. Turnout continues to be awful at 61.7%. I believe low turnout is related to the nature of the issues being discussed and the lack of articulated disagreement between the CPC, LPC and NDP. No one advocated raising the GST to deal with the deficit. No one proposed anything radical or interesting on health care. No one proposed anything significant on national defence. A common security perimeter with the United States was barely discussed. No one proposed anything especially significant to address poverty.
  5. The lack of significant differentiation on policy made the personalities of the leaders even more important than they usually are.
  6. The CPC wilfully misrepresented Liberal policy (iPod tax, hiking taxes in general) and ran a concerted negative campaign against Michael Ignatieff, which succeeded. They will do so again and again with every successive Liberal leader until they lose. I find it disgusting and shameful, but there is no denying that it worked.

The next four years

  1. The CPC continues to lower federal revenue by cutting taxes, in line with their long-term plan to shrink the fiscal capacity of the federal government and relatively strengthen the fiscal capacity of the provincial governments. The GST cut and the cuts to corporate taxes both provide more revenue to the provincial governments (potential, in the case of the GST: only NS and QC took the tax points).
  2. As a result of 1), I doubt we will be back to a balanced federal budget by 2015.
  3. I expect the CPC will continue to govern as they have -- that is, like a mean-spirited Liberal government -- and will continue to cut specific programs and funding for specific organizations that they dislike (long-gun registry, Status of Women, Kairos, Court Challenges, etc). They will not introduce government legislation on major social issues like same-sex marriage and abortion (this is because they are chicken-shit cowards; see also point 5, below). They will introduce some legislation in the form of private members' bills on these issues.
  4. We may see some action on Senate reform with the CPC and NDP holding 87.3% of the seats in the House of Commons, although I think it is unlikely, given the constitutional issues involved.
  5. Stephen Harper will appoint two Justices to the Supreme Court of Canada who are staunch Conservatives. Conservatives know that influence on the Supreme Court of Canada is essential to achieving their long-term social policy goals.
  6. Stephen Harper will have a hard time maintaining his iron grip on his MPs, now that there are more of them and they have a majority government.
  7. The CPC will gleefully oversee the shrinkage of the federal public service by attrition, as veteran public servants retire and are not replaced by new hires.
  8. The CPC will do absolutely nothing about the environment.
  9. The CPC will continue to spend more on the military, as part of its 20-year Canada First defence strategy.
  10. The CPC will introduce and pass a number of crime bills that will result in more people being incarcerated for longer periods of time.
  11. The CPC will cut the per vote subsidy to federal parties, which will negatively impact the NDP, LPC and Bloc.

Reforming the Liberal Party of Canada

  1. I am personally committed to reforming the Liberal Party of Canada. I invite you to join me by becoming a member and a monthly donor through the Victory Fund. Don't sit on the sidelines and complain -- get involved and try your best to improve the party from within.
  2. We should not merge with the NDP, but we should have a discussion about doing so.
  3. The most important quality of our next leader must be integrity. We need someone who a skeptical and cynical electorate can believe in.
  4. Related to 2), our next platform should be focused on a limited number of commitments that we can accomplish in short order. We need to restore faith in politicians and the best way of doing so is to repeatedly do what we say we will do.
  5. Forget "centrist," we need to be the party that is fiscally conservative and socially liberal. This doesn't mean that we need to be the party of the continual tax cut (that isn't necessarily fiscally conservative) but it does mean that we need to have the courage to honestly confront issues like the sustainability of funding for health care. We shouldn't live in a fiscal fantasy land. On the socially liberal front, although we have achieved much already, we can do more. There are many laws and regulations on the books that are no longer relevant or necessary. We should be the party of smart government that respects individual freedom. Right now, I would say that party is the Green Party.
  6. We should be the party of an open Internet, increased competition and less restrictive intellectual property law.
  7. The policy conference we had at Canada @ 150 was good, but avoided the question of national defence. Within the Liberal Party we need to debate the role of the Canadian military in the next 25 years or so. In general, we need to make international policy a priority. Let's not pretend the federal government is just a big provincial government.
  8. We need to develop a serious plan for democratic reform. Electoral reform, limits on the power of the Prime Minister, reform of Question Period, mandatory voting, a three-line whip system -- there are lots of ideas that we should discuss and could be part of an effective democratic reform package. I like the Westminster system, but even within that tradition we can improve things substantially.

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Posted in Politics, Public policy, copyright, defence, fiscal, tax

Liberals and corporate income tax

February 15th, 2011

Summary

  1. The LPC is advocating a corporate income tax (CIT) rate increase to fund new ongoing programs like family care.
  2. Even without new programs, given the current state of federal revenues, CIT reductions are ill-advised now and in the medium term.
  3. The LPC is targeting the CIT rate because it is the easiest tax, politically, to increase. Not because of how efficient it is as a tax.
  4. The LPC is talking about reducing the CIT rate "when it is affordable" to keep its options open and to differentiate itself from the NDP, which sees no scenario in the medium term wherein a CIT reduction is reasonable.
  5. It will take quite a while for the federal accounts to return to surplus, with the CIT increase or without. There is no reason to fear a see-saw countercyclical pattern of increasing and decreasing the CIT rate at exactly the wrong moment.

My friend and economist Mike Moffatt argues at Worthwhile Canadian Initiative against the LPC's proposed reversal and deferral of legislated CIT reductions. It's the deferral that rankles him. First, some basic facts:

  • From 2000 to 2010, the federal corporate income tax rate was reduced from 27% to 18% (-35.6%). As of Jan 2011, it is 16.5% and in 2012 it will fall to 15%.
  • The government reduced the GST from 7% to 6% in 2006 and from 6% to 5% in 2008. The total revenue foregone from the reduction is approx $10.8 billion per year (see Reference Sheet for Revenue Impacts Arising from Tax Adjustments [PDF]).
  • The government also reduced the lowest marginal rate from 16% to 15% (revenue impact of approx $5.5 billion).
  • The cost to the federal government of the reversal of planned reductions in CIT has been pegged at $6 billion, but Stephen Gordon suggests that offsetting effects on wages could make it more like $2-$3 billion.
  • The federal government's revenue is basically distributed as follows: 47% personal income tax; 13.9% corporate income tax; 2.4% non-resident income tax; 18.6% other taxes & duties; 7.7% EI premiums; 9.9% other revenues.

The LPC has proposed some new programs — eg. family care — and the LPC wants to fund these initiatives without increasing the deficit/slowing the return to a balanced budget. The LPC wants to maintain and build on its reputation as a "good fiscal manager," a reputation that was established based on the budgetary surpluses of the Chretien/Martin years.

Now, I believe that restoring the GST from 5% to 7% (join the Facebook group!), thereby raising $10.8 billion or so in revenue, is smarter than raising the CIT from 15% to 18% ($3-$6 billion in revenue). But a GST increase is a loser politically, especially at a time when voters are very concerned with their own financial security. This shouldn't matter much to bureaucrats or economists with a long-term view, but it certainly matters to politicians. Political parties must choose policy options within certain constraints. Chief among these constraints is support of a given policy by citizens at a particular moment in time. Of the various sources of revenue available to the federal government, CIT is the easiest one, politically, to increase. Of course this is obvious to economists who spend a lot of time looking at incentives and behaviour.

The LPC is proposing an increase from the current rate of 16.5% to 18% rather than a reduction to 15% by 2012, as legislated (net difference 3%). Ignatieff often vaguely refers to reducing the CIT rate "when we can afford to." His most recent comment was "This party understands the benefit of competitive corporate tax. We’re not the NDP here. You can cut corporate tax in a surplus, but it’s irresponsible to cut it when you have a $56-billion deficit." Presumably the earliest that the CIT cuts would be "affordable" is after the federal deficit is eliminated. Scott Brison has said similar things about reducing CIT once the federal accounts are back in surplus.

Now Mike, being a rather smart fellow, points out that cutting CIT during fiscal surpluses (presumably growth years for the economy as a whole) and increasing during deficits (presumably low growth/contractions) is counterproductive in terms of stimulating the economy. This is a bit of a red herring, as Mike knows very well: the CIT rate shouldn't be used in the short-term to stimulate the economy and nor should it be alternately increased/decreased. The CIT should 1) raise revenue for government and 2) provide a relatively stable and attractive environment that encourages businesses to allocate capital to Canada. I doubt the proposed CIT increases would have much effect on the economy in the short-term anyway.

The LPC policy of deferring CIT cuts bothers Mike. As he points out, if the CIT rate is reduced during years of surplus, when the business cycle turns again, the federal accounts may be thrown back into deficit. For a CIT cut to be affordable, then, it should be able, at least, to withstand a full business cycle. It's a good point, one that a prudent LPC government should take into consideration when the federal accounts are in surplus. Surely no one is suggesting, or implying, that some future LPC government will immediately cut the CIT as soon as the federal budget shows a modest surplus? I would expect them to at least restore the contingency reserve first.

The CPC cut the GST by 28.5% (2006 & 2008) and the CIT by 11.8% (2008) while in surplus. They proceeded to cut the CIT by 15.3% (2008-2011) while in deficit. They also introduced tax free savings accounts and reduced the lowest marginal rate from 16% to 15% (revenue impact of approx $5.5 billion). As a result of these cuts, the federal accounts are not returning to surplus any time soon. With tax revenues reduced, contingency budgeting eliminated, and both interest payments on the debt and program spending increasing annually, the PBO is projecting deficits of $43.1, $27.9, $23.2 and $19 billion for years 2010-2011 to 2013-2014, inclusive (see Estimating Potential GDP and Government's Structural Budget Balance). Importantly, in 2013-2014, 99.5% of the projected $19 billion deficit is attributable to structural, rather than cyclical, factors. A major driver of this structural deficit is lower federal revenues.

I haven't seen projections beyond 2014, but the picture doesn't get any prettier: our aging population will likely drive down major revenue sources like PIT while driving up major federal spending such as transfers to the provinces for health care.

Given the status quo, it will be quite some time before the federal accounts are back in surplus (seven years?). With the reversal of the CIT from 15% to 18%, we will reach this point a bit sooner (five years?). But even under the latter scenario, the LPC would not be reducing the CIT rate for at least five years, and probably more. We have little to fear from a strawman LPC government that would raise the CIT rate only to reduce it, then raise it, then reduce it, ad nauseum.

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Posted in Politics, Public policy, fiscal, tax

Liberals on Afghanistan

November 18th, 2010

Michael Ignatieff is taking a lot of heat from citizens, party members (and probably some members of the Liberal caucus) over his response to the idea, floated by PMO director of communications Dmitri Soudas, of a training mission in Afghanistan after Canada's combat role ends in 2011.

A review of some widely available facts may be helpful:

  • In June 2010, the Liberal Party announced a Global Networks Strategy. One part of that strategy reads: "[A future Liberal government will] pursue a post-combat role in Afghanistan that is focused on the training of police and military personnel in a staff college setting in Kabul, and civilian governance capacity-building"
  • In July 2010, Bob Rae released a statement upon the close of a fairly major conference in Kabul, in which he says: "In contrast to Conservative inaction, the Liberal Party has made it clear that we support a continuing non-combat commitment by Canada as part of the broad UN effort to sustain a stable, effective government in Afghanistan.  This commitment can include a role in training the Afghan army and police, as well as support for other institutions of government, including health care, education and the justice system."
  • In August, in the Toronto Star, Bob Rae wrote about Afghanistan. He noted that "Canada needs to debate and discuss the answers to these questions. The Liberal party helped draft the 2008 parliamentary resolution that permitted our troops to stay in Kandahar in a combat role, with an ever increasing role for the Afghan police and army and a stronger civilian and development presence. President Barack Obama’s review led to similar conclusions: There would be no simple, military victory; all efforts should focus on training the Afghan army and police and building the infrastructure of the country. Pakistan needed to become a reliable and steady ally in the change."

Now, I do find it interesting that Bob Rae is the lead on this issue, rather than, say, Dominic LeBlanc, who is the national defence critic. However, LeBlanc was appointed to that post in September 2010, after the Global Networks Strategy was announced. Presumably, he is on the same page as Rae and Ignatieff.

Michael Ignatieff's response to the training mission floated by the Conservatives was:

  • "This is a conversation that has to be had with Canadians. How many trainers? For how long? Who else is training? What are your training targets? What kind of mission is this? We have 10 years there, if there is a mission after 2011 the government owes Canadian an explanation."
  • "This government is (less than) two weeks away from Lisbon, the NATO meeting, (and) they are scrambling because they are under pressure from their allies," he told reporters, adding the first his party heard of it was Friday..."This is amateur hour."

The Liberal Party has been advocating this idea for months. It is known party policy. Ignatieff's response points out 1) the rushed, ill-considered way the Conservatives are raising the idea; and 2) that he believes it is incumbent on the government to provide more details before he knows if this is a good or bad idea.

As an aside, Jack Layton, in a major speech on Afghanistan in 2007, said: "Violent and petty crimes are also on the rise.  A trained police force would help Afghans immensely, but the police training effort has been slow and inadequate.  As of this month Canada has sent a grand total of 10 RCMP officers to Afghanistan.  They have trained approximately 1500 police officers. Yet in Iraq, where Canada is not participating in the war, we have trained 34,700 police officers." Of course, Layton has been consistently opposed to the combat mission, but he seems here to be more disposed to a training mission (at least for police).

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Posted in Politics, Public policy, defence

We need to restore the GST

February 2nd, 2010

The public finances of the federal government are in a sorry state of affairs. While the financial crisis originating in the United States is partly to blame, policy choices made by the government are also a major factor. Looking to the future, the federal government will have to confront the deficit and make some important decisions about how to deal with it.

The federal government is expected to run a $54.2 billion deficit in 2009-2010. The Parliamentary Budget Office projects near-term future deficits to be $43.1 (10-11), $27.9 (11-12), $23.2 (12-13), $19.0 (13-14), for a total accumulated deficit over the period of $167.2 billion. This represents a 36% increase on the $463.7 billion net federal debt outstanding at the end of 2008-2009.

Consider the demographic challenge facing Canada over the same period. At the end of the period (2014), the leading edge of the boomer cohort will be in its mid-to-late-sixties. Over the following two decades from 2014-2033, our increasingly aged population will provide the cruel combination of both a smaller income tax base and a higher demand for government services, especially health care.

Statistics Canada, 2007, Canadian Demographics at a Glance, Catalogue number 91-003-XWE.

Statistics Canada, 2007, Canadian Demographics at a Glance, Catalogue number 91-003-XWE.

I suppose it is good news that the PBO's projections take demographics into account. However, its projections only extend to 2014, and the picture doesn't get any brighter thereafter. Once we've cranked up the net debt to $631 billion in 2014, we will not only have to balance the budget but also run significant operating surpluses to pay back the debt to a reasonable level. We will have to do so with a smaller income tax base (see demographics, above), higher demand for many government services, and higher interest payments on the debt.

In light of this rosy scenario, we must consider what to do now to mitigate these looming budgetary problems. Clearly, some combination of revenue increases and expenditure reductions will be necessary to balance the budget and run operating surpluses to offset the debt incurred over the next few years.

The simplest and most effective change we can make immediately would be to restore the GST to its previous level of seven per cent. The Conservative government slashed this tax by 28.5% over two years. The PBO estimates that each percentage point decrease in the GST costs the government $5.4 billion in revenue. Restoring the GST to 7% would provide $10.8 billion in revenue annually, or $52.4 billion over five years. We would still have to deal with a projected $114 billion deficit over the period, but it would be a good start. Considering that the GST cut was poor tax policy to begin with, let's start putting our fiscal house in order -- again! -- by reversing the ill-advised and short-sighted tax cut that the Conservatives brought in.

Update: The GST credit system provides relief to low income Canadians who pay sales taxes.

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Posted in Politics, Public policy, fiscal, tax

a few nuts short of a snickers bar

February 6th, 2007

Paul Wells on Garth Turner's defection. Ha!

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Posted in Politics

kinsella v. levant

August 30th, 2006

I wonder how the pending showdown between Warren Kinsella and Ezra Levant will turn out?

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Posted in Law, Politics, Web

coyne on the press gallery

May 27th, 2006

It is the independence of the junkie from his pusher.

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Posted in Politics

learning about the US military, from the ground up

May 5th, 2006

Just finished reading Robert Kaplan's excellent book on the American Empire and its global military operations. In Imperial Grunts: the American Military on the Ground, Kaplan reports on his experiences embedded in various American military units throughout the world: with Marines in Iraq, with an Army Foreign Area Officer in Mongolia, with Special Forces in Afghanistan, the Phillipines and Columbia.

Kaplan approaches his subject -- the American Empire -- through the lens of its front-line troops. Interestingly, with the exception of Afghanistan and Iraq, it is the non-violent roles of the military that are dominant. Students of international development will benefit from reading the book because it examines the civil affairs function of the military through military eyes.

Every reference to the Canadian military -- there are only a few -- is very positive and usually paraphrased or quoted from a soldier.

It's well worth the time.

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Posted in Politics, Public policy, Reviews

brison should resign

March 19th, 2006

Kerr doesn't mince words while dissecting Brison's "defence" of his conduct:

Ignorance of any law is no excuse, but Brison's coy BlackBerry winking is especially baffling. As an ex-investment banker, he couldn't possibly be unaware of selective disclosure laws. One can't imagine what prompted him to send such messages. Perhaps the thrill of having a secret was too much for him.

Brison maintains that he didn't know anything. But he's made terrible decisions--the first one, when he sent the e-mail. His subsequent attempts to avoid blame are worse than his initial mistake. And to think I supported this guy for leader of the PC Party of Canada.

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Posted in Politics

Kinsella v. Bourrie, update

February 21st, 2006

That didn't take too long. Bourrie made the right call. Interesting that it took a libel suit to prompt the clarification and apology.

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Posted in Law, Politics, Web