Calgary expected more of their home-grown prime minister

Harper finds out Laurier was right: This can be a tough country to govern

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The Gazette, Monday, July 16, 2007

There's nothing unusual about Calgary being annoyed at Ottawa - it's a permanent state of our national affairs. What's unusual is that Calgary is annoyed at these Ottawa guys, the Conservatives, who are supposed to be their guys.

But then, as Sir Wilfrid Laurier famously said, and as Stephen Harper is discovering, "this is a difficult country to govern."

You'd think that Alberta, with a favourite son as prime minister, in a time of unprecedented plenty, would be a happy place. And especially, his adopted hometown, and the centre of the energy industry, the driver of prosperity not only in oil and gas, but in service industries and real estate.

Nope. There's no shortage of long faces, especially in the oil patch. They had no expectations of the Liberals, authors of the infamous National Energy Program. They had higher expectations of Harper, one of their own.

It started with the reversal of Harper's promise to maintain the corporate income-tax exemption for income trusts.

For investors, Finance Minister Jim Flaherty's Halloween announcement was a trick, not a treat, with its short-term hit on equity values and longer-term phasing out trusts by 2011. For operators of energy trusts, and there's no shortage of them in Calgary, it was the end of the party.

For investors and operators, it was a breach of promise, even if it was in the national interest to prevent a massive conversion of publicly traded corporations to income trusts. And never mind that equity values in the income-trust sector have since recovered smartly, while the Toronto Stock Exchange index has recently hit all-time highs.

Then, in the March budget, there was the phasing out of the capital-cost allowance over five years, adding to the challenges of a capital-intensive energy industry, already burdened with increased costs and severe labour market shortages.

Suffice it to say without the allowance on the federal side, and deferred provincial royalties, the existing Alberta tarsands plants would not have been built. When those discussions began in the early 1970s, oil was $3 a barrel and the cost of production was several times that.

Anyone who thought a phase-out of the CCA might be offset by a reduction on the capital-gains tax has been disappointed. Insofar as Harper had promised a cut in the capital-gains tax, this one must be considered still pending.

Then, there was the budget provision ending interest deductibility on foreign borrowing. There is no other major country, say disgruntled denizens of the oil patch, that puts its investment and business community at this kind of competitive disadvantage in the global economy.

This story isn't about outcomes, it's about process.

The question is: How could Ottawa have got this one so wrong? And in attempting to put it right, in Flaherty's eventual budget update announcement in Toronto, the government looked like it was trying to put toothpaste back into the tube.

This issue reflects not on the government's goals so much as its competence. And competence is a core attribute of government.

It's also a style thing. Harper manages policy closely from the centre. And the Finance Department has an institutional bias for operating in secrecy.

Harper's job might be policy, not operations. But in the real world, it's Finance's job to get things right. And in doing the budget last winter, they got this part of it very wrong.

This only reminded markets while Finance officials are the best and brightest in government, they don't necessarily understand the real world, because they've seldom worked in it. Any legal or accounting firm with an international practice could have set Finance right.

But this, again, is a problem of the Harper government. As much as Paul Martin, in his decade as finance minister, consulted stakeholders too widely, Harper and Flaherty are seen as not consulting widely enough.

Flaherty got away with it in the mainstream media because the focus of the 2007 budget was on correcting the fiscal imbalance and creating middle-class tax breaks. Nobody was paying much attention to the concerns of financial markets and the resource sector. And nobody would have, if Finance had got it right.

Flaherty won't get away with it again. Meantime, it's just as well he didn't come to the Stampede. He wouldn't have got much a welcome.

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