Politics: The long haul

Michael Ignatieff says you can’t trust the Harper government’s economic projections. And that’s not all the bad news he has for you.

Canadian Business: To start off, the question on everyone’s mind: How will you pay down the deficit?

Michael Ignatieff: First of all, we need to know what its size is. There’s substantial doubt as to whether the Conservatives’ numbers can be trusted. We started with no deficit, then we went to $32 billion, then we went to $50 billion and now we’re at $56 billion. We’ve asked for the parliamentary budget officer to give us a look at the numbers. In July, the PBO was saying we were looking at a structural deficit of about $12 billion that would persist to 2014 and 2015. The only thing of which we can be very sure is the Conservatives aren’t telling us the truth. They are saying to us we’ll be out of deficit by 2014, 2015, and they push it back. My gut’s telling me it’s going to be a much longer haul. The policy question is how we ease that deficit down without stalling recovery and cutting social programs on which Canadians rely — health care, pensions, things like that.

CB: How do you do that?

MI: Here’s where real policy differences emerge. They’ve got a 15.5% payroll tax increase coming in 2011. This is going to make it more difficult for us to get on top of unemployment. It’s a tax on working and a tax on hiring. We have to look at all the options. All I know right now is what the Conservatives are proposing I think will make our employment problem worse.

One of the considerations about deficit reduction is, can we ease us back into EI balance at a slower rate so we don’t choke off this growth and recovery? If you look at the employment numbers today, it’s all in the public sector. The substantial worry is, as we phase out stimulus investment, we get into a W-shaped tilt backward. It’s another reason why I’ve said we’ve got to be very careful about increasing the burden on Canadian taxpayers, because the recovery is so fragile. My sense here is expenditure control and reallocation, looking at the gamut of all the ways we can get growth going in the economy. Go where the growth is — China and India, export promotion, invest in export infrastructure. That will make a difference.

We also need substantial investment in green energy so we get our energy costs down and the profitability and competitiveness of our exports up.

I don’t see any way to really ease us out of deficit unless we get the facts as they are — and the facts are telling me it’s going to be a longer pull out of deficit.

CB: Some say it could take a decade.

MI: Yeah, quite possibly. And we can wear that only because the Liberal governments of the ’90s cleaned house, and this government is surfing on the back of an achievement they did not create. The only reason I could extend deficits in the future is because we’ve got a low debt-to-GDP ratio, not thanks to these guys, but thanks to the previous government. So it’s a growth strategy, plus pushing out deficit repayment a bit longer. It’s the only way to make sure we don’t stall a recovery.

CB: Would you raise taxes?

MI: We’re not there. The recovery is so fragile that adding to the burden on Canadian families and businesses may choke the recovery off. My point about a payroll tax increase — that’s precisely what Harper’s payroll tax may do. My view is, we just don’t want to send that signal to the Canadian recovery. It will make the recovery more difficult and more painful.

CB: Would you stop or slow down the business tax cuts? It’s supposed to drop every year until 2012, when it reaches 15%.

MI: We’re not there yet. We don’t know what kind of a problem we’ve got. I don’t want to speculate. You’re not going to have a growth strategy and attract inward investment if you don’t have competitive tax rates. Competitive tax rates are absolutely crucial to get the economy firing on all cylinders.

CB: What about raising the GST? A lot of economists felt that was the wrong tax for Harper to lower anyway.

MI: All I will say about that is, serious economists tell us that the structural deficit of $12 billion is almost entirely accounted for by the GST cuts. But we are where we are. And to repeat, we have to know. I’m not going to speculate where we are.

CB: Well, we know we are facing a $56-billion deficit at least.

MI: We know we’re at $56 billion as of about Sept. 1. Remember where we were at beginning of the summer — it was $32 billion. That’s why we need an independent PBO’s assessment of what the heck the situation is, and we’ve got private-sector forecasting that’s all over the map of where we’re going to go. And we need to take this step by step. It’s crucial we don’t shut off recovery with ill-advised fiscal measures.

It will take us longer to get out of the deficit than this government is willing to admit. I’m willing to tell Canadians it’s going to be a longer, tougher haul than they are saying.

CB: Jean Chrétien was in power for 10 years. So it’s conceivable that, if you win the next election, you could spend your whole time in office paying down the deficit.

MI: And whose fault is that? This is a crucial fact here. These guys spent like drunken sailors — 2006, 2007 and 2008. We were at the edge of deficit before the recession even began. Responsibility for the fiscal situation is squarely in the lap of this government.

CB: The NDP and the Liberals pushed for a stimulus plan. Now everyone’s complaining about the deficit. So what would you have done differently?

MI: Tighter fiscal control between 2006 to 2008, strategic investment in things that make us more productive, and competitive and strategic infrastructure investments that ought to have been made are only now in the pipeline. And a clearer sense, beginning in 2007, when the economic situation went south, of earlier corrective action. We would have enhanced the gas-tax transfer to all municipalities. That would have gotten the money out infinitely faster. The numbers we’re running are, not much north of 12% of infrastructure investment has actually gone out the door.

The other thing we would have done very differently is strategic investment in places that make a difference. All across the country, people want Vancouver and Halifax to be working more efficiently; they want the borders to be working more efficiently. That strategic spine of export infrastructure, we would have named that as a priority of investment. The other thing is much more robust and energetic effort, beginning in 2006, to build our export performance in China and India.

CB: If you become prime minister, will you implement those plans?

MI: Again, we don’t know where we are until the time the wrecking ball of this government has swung through, back and forth. They have a time-limited stimulus to 2011. When we get into office, depending on when, we have to look at the time-limited quality of the stimulus. If unemployment is still as high as it is now, we may have to extend stimulus investment. And if we do, we’ll do it through gas-tax transfers to municipalities, because it’s the fastest way to go.

CB: So there could be a second stimulus?

MI: I hope not. The issue now is whether the private sector will step in and pick up the slack. Actually, nobody knows. Honest answer is, nobody knows. I don’t want to talk down the economy. I want to talk it up. But honest to God answer is, no one knows. So we’ll have to deal with that situation when we face it, because we can’t let demand falter. If the private sector doesn’t pick up, we’re going to have to sustain investment, but within fiscally responsible limits.

CB: You have criticized the Harper government for not reviewing the Nortel-Ericsson deal. Would you have intervened?

MI: Yes. I would have intervened because we’ve got a Canadian champion; we’ve got Canadian-developed third-generation technologies that are crucial to the future of the Canadian wireless industry. It just defies belief that the Canadian government wouldn’t take a close look at that transaction and make sure that it has net benefit to Canadian employment. You go to Kitchener-Waterloo and people are white-hot angry about that. We’re in a world where every government is seeking to protect its own economic champions and its own world-class tech, and Canada simply has to stop being an innocent free market Boy Scout here. We’ve got to be much tougher about that. We have to get this right. Canada needs more foreign investment. There’s no question about it. But we need public and transparent rules about how that foreign investment works in our economy. We’ve got Stelco/U.S. Steel — the government has to threaten to take U.S. Steel to court to comply with undertakings it gave when it took over Canadian operations. In Sudbury, you’ve got workers at Vale Inco asking the same questions. What undertaking did Vale, a Brazilian company, make to Sudbury, to Canadian workers, to the Canadian government and to the Canadian taxpayer when they took over Inco? Does this add to Canadians’ jobs and Canadian wealth?

Most foreign companies, I’ve heard, are astonished the Canadian government asked them nothing about whether they actually kept up with our undertakings. That’s a very different vision of the role of government than the Conservatives.

CB: But Nortel was a failing company. Would you have propped them up with stimulus funding or made sure a Canadian company bought the technology?

MI: The only issue I’m addressing is why it was the government of Canada didn’t understand the extraordinary value of the patents and technologies that have been developed by Nortel. I’m not going to revisit the whole saga. But why did they allow the bones to be picked clean without even asking what consequences this would have to the Canadian wireless industry?

CB: Why is it the government’s responsibility to get involved in market decisions?

MI: It’s in the interest of all Canadians to make sure these companies are developed in the interest of Canadian jobs and the Canadian future. This is an especially flagrant case, because we have world leadership in this area, and we’ve let too many companies go down the drain. We’ve lost too many head offices, in mining, in forestry, in the high-tech sector. And it’s a matter of legitimate concern to Canadians.

To flip it on the positive side, when government has a proactive role — we see this in aerospace where government is a partner with universities with some of the leading aerospace firms — we have an aerospace strategy in the country, because we don’t have a huge military-industrial complex, and we’ve sustained a world-class industry because the federal government has been active for 25 years. That’s a good-news story, and it keeps Canadians working and Canadians at the cutting edge of technology. The federal government should be an instigator of research, because we have weakness in Canadian private-sector R&D.

We don’t believe in free market miracles. We believe in the free market — we’re not the NDP. We believe in the market passionately, but we don’t think miracles happen. We don’t have a strong aerospace sector, an oil and gas sector, a strong wireless tech sector unless we have a government that incents, invests and reviews. That’s a Canadian story.