The message track

Harper and Flaherty must get their act together on the economy if they want their government to survive

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The Gazette, Wednesday, January 7, 2008

The major challenge for Stephen Harper in 2009, other than political survival, will be to do a better job of managing his economic message than he did in 2008.

Harper's Conservatives are still perceived by voters as the best party to manage the economy through the downturn, and that's partly the advantage of incumbency. But Harper himself committed several errors, and was sideswiped in a couple of mishaps, that could have caused him serious damage.

First, having called an election on the theme of proven leadership for uncertain times, he was caught without a plan when those times arrived in the middle of the campaign. He showed up with a six-point economic plan only the day after the election, when his economic blueprint might have clinched a majority for him during the leaders' debates.

Then, amid the carnage of the stock-market crash, and quite unprompted by the media, he suggested it presented great "buying opportunities," thus violating the rule that the prime minister never comments on either exchange rates or the stock market. He was very fortunate, at that moment, that his opponent was the hapless Stéphane Dion.

Then in November he sent a clear signal, in a speech during the Asia Pacific summit in Peru, that Canada would necessarily be moving to a period of cyclical deficits in the Keynesian way of prime-pumping the economy. But only five days later, Finance Minister Jim Flaherty put out an economic statement forecasting balanced budgets through 2012. There should never be any space, let alone that kind of space, between the prime minister and the finance minster, not to mention their two offices, which are the key central agencies in the government.

And finally, only a few days before Christmas, at the height of the retail shopping season, the prime minister mused about the possibility of a depression. Attention, shoppers!

Harper has a master's degree in economics, which might be the cause of him occasionally thinking out loud, a luxury he doesn't have as prime minister. And these lapses last year were all the more surprising because they were entirely self-inflicted. Harper is nothing if not remorseless about message discipline.

The coming throne speech and budget represent a major opportunity for Harper to get back on message. And he'd better, because not only will it be a key to the minority government's survival, but a major test of the government's ability to steer the economy through the growing storm.

The full extent of the reckoning might be not be felt yet, but the trailing indicators tell us it's coming. Retail sales continue to decline in the United States, our biggest customer. Auto sales in December were the worst in decades, and Canada represents 20 per cent of North American production. Unemployment in the U.S. might exceed seven per cent when the December numbers come out on Friday, and that means a higher jobless rate in the U.S. than in Canada. There is no comfort in that.

The Bush administration's $700-billion bailout of Wall St. will be followed by a comparable stimulus package in the first days of the Obama administration, along with reports of a $300-billion middle-income tax cut. That could add up to a $1 trillion current deficit. Adjusted for the exchange rate, that's nearly equivalent to the entire annual output of Canada.

But there will be an impression, from the moment of Barack Obama's inauguration in two weeks, of a government taking action to confront the economic crisis.

Whatever Harper does will be compared with Obama's action plan for the economy, so the prime minister needs a credible plan and a coherent message.

Next week's meeting with the provincial and territorial premiers is a constructive first step. In the current circumstances, there is no political margin for the usual posturing by Ottawa and the provinces. Harper needs a federal-provincial consensus on the size and nature of Ottawa's stimulus package in the budget.

Then the next conversation becomes the budget - whether the Liberals will support it in the House, and whether it will be deemed sufficient in the country.

There will be two pressure points in the return to deficit spending - lower tax revenues because of the recession, and the stimulus package to get out of it. Given the size of Washington's deficit forecast, no one would be surprised if Ottawa ran a deficit of $40 billion to $50 billion in the next fiscal year. But for the sake of argument, let's assume the deficit will be $30 billion, which would be only three per cent of GDP, or about a third of what the Americans might be looking at.

Whatever the number proves to be, Harper and Flaherty better be on the same page this time. There's quite a bit riding on it, starting with their own reputations for competence.

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