Harper had the luck to be elected PM in a time of plenty

Usually, Tories are elected during hard times - look at Diefenbaker, Clark, Mulroney

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The Gazette, Monday, July 10, 2006

As Stephen Harper has privately observed, it is historically unusual for a Conservative government to take office in a time of plenty.

On the three previous occasions in the past half-century when Canadians gave the Liberals the boot, the economy was either in the ditch or headed for it.

When John Diefenbaker took office after 22 years of Liberal rule in 1957, a recession was just around the corner. When Joe Clark became prime minister in 1979, he tried fighting the deficit with an 18-cent gasoline tax that resulted in the defeat of his budget and a Liberal restoration.

When Brian Mulroney took office in 1984, he wasn't happy when they showed him the books. "I wish," he said then, "the Liberals had left us more money."

What they left, instead, was a crushing legacy of deficits and debt. The $38-billion deficit in 1984 was then equivalent to nearly nine per cent of GDP. The debt number was shocking: In the 15 years Pierre Trudeau was in office, the national debt increased from $18 billion, after a century of confederation and two world wars, to $202 billion, an increase of 1,100 per cent. That is not a typo. Trudeau later said, in all seriousness, that he was just redistributing wealth.

While Mulroney brought the government into an operating surplus, collecting more than it spent, the compound interest more than doubled the national debt during his nine years in office. Whenever he spoke of the operating surplus, the financial community scoffed at him. "It is," said Allan Taylor, chairman of the Royal Bank of Canada in 1991, "like saying your household budget would be in surplus if you didn't have to pay interest on your mortgage."

But since the Liberals balanced the books in 1997, and subsequently paid down 15 per cent of the national debt, Canada has enjoyed a virtuous cycle. The fiscal framework is the best in the G7. Debt as a percentage of output has moved from worst to first in the G7, from 70 per cent of GDP a decade ago on its way to 25 per cent by 2010. The demand for Canada's oil, gas and other resources has converted the loonie into a petro-dollar, moving up from 62 cents four years to 90 cents today, perhaps on its way to par with the greenback. With China rising, there will be no decline in demand for our energy, mines and metal resources anytime soon.

And the employment numbers continue to be off the charts. StatsCan reported on Friday employment was up 1.3 per cent in June, and that the economy had created 218,000 new jobs in the first half of the year, double the number in the year earlier period.

In oil-rich Saudi Alberta, employment was up 3.9 per cent last month alone, and the economy has created nearly 70,000 new jobs in the first half of the year, in a province with a population of only 3 million people.

The national unemployment rate of 6.1 per cent is the lowest in the last 32 years. Most economists agree six per cent unemployment constitutes a full- employment economy, with work for everyone who wants a job.

The strong dollar has taken its toll on exports and the manufacturing sector, where employment is down 8.5 per cent over the last four years, with 200,000 jobs lost since 2002. The upside to this story is that the strong dollar has forced productivity enhancement in business operating margins, and kept inflation in check on the consumer price index.

Even so, the manufacturing heartland of Ontario and Quebec is participating in the boom, with surging employment growth in the financial-services and the health-care sectors, up 6.3 per cent and 5.4 per cent across the country in the first half of the year.

Ontario's unemployment rate of 5.9 per cent is below the national average and while Quebec's unemployment rate of eight per cent is nearly two points above it, this is the lowest unemployment rate since the mid-1970s. These are great numbers for any first term prime minister or premier to take into an election cycle. Harper, Jean Charest and Ontario's Dalton McGuinty are all on that path between now and the fall of 2007.

The only cloud on the economic horizon is incipient inflation on the income side, where wages are up 3.9 per cent in the first half of the year and 7.3 per cent in Alberta, where money is chasing jobs in an economy with only 3.5 per cent unemployment.

That might be something for David Dodge to consider as governor of the Bank of Canada, although any increase in interest rates would only put more upward pressure on the loonie.

That's for the central bank to consider. For Harper, uniquely among Conservative prime ministers of the last half-century, he has taken office during a boom, with no downturn in sight before the next election.

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