Tories craft compelling economic story

By almost any measure, Canada is doing far better than the U.S. and most other G7 countries

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by L. IAN MacDONALD
The Gazette, Wednesday, February 23, 2011

One of the reasons the Harper government is in good shape going into the budget is that it has a compelling story to tell on the economy and Canada's fiscal frameworks - especially when compared to the United States, but also with all our G7 partners.

On the deficit and the debt, for instance, Canada will be balancing its books again by 2015 while the U.S., in the budget proposed by Barack Obama last week, will be running deficits as far as the eye can see.

While the $56-billion deficit Canada ran in the last fiscal year was more than three per cent of GDP, it was nothing compared with the U.S. deficit of $1.6 trillion, more than 10 per cent of output (and more than the entire output of Canada).

For the fiscal year ending next month, Ottawa is forecasting a deficit of $44 billion, and the whisper number for the coming fiscal year is well under $30 billion. Ottawa's cash flow is reportedly better than expected, and might well give Finance Minister Jim Flaherty the margin he needs to cut a budget deal with the NDP.

In the U.S., Obama proposes to reduce the deficit by $1.1 trillion over the next decade, which would still put the U.S. $500 billion a year in the red.

Canada's debt level of just over $500 billion, 31 per cent of GDP, is by far the lowest in the G7. The US debt of $14.1 trillion, or 96 per cent of GDP, is forecast to exceed 100 per cent of GDP next year, and the debt ceiling of $14.3 trillion is being raised.

Canada's unemployment rate of 7.8 per cent compares favourably to nine per cent in the U.S. The Canadian economy created 69,000 new jobs in January, far more than the 15,000 forecast, while the U.S. economy created 36,000 new jobs, far fewer than the 150,000 predicted. The problem in the U.S. is that while the private economy is creating jobs, the public sector is not. Most of the states have balanced budget requirements and, coming out of the recession, are laying off thousands of employees.

The employment rate in Canada is 61.8 per cent, three and half points higher than the U.S. Canada has now recovered all the jobs lost in the recession, while the U.S. has lost seven million jobs that are never coming back. Moreover, six million American families have lost their homes, and everyone in the U.S. has lost liquidity in the housing bubble. Since 2006, as Jeremy Leonard writes in Policy Options' forthcoming March edition, the net value of household real estate in Canada has risen from $140,000 to $180,000 since 2006, while in the U.S. it has dropped from $140,000 to just over $70,000. Yikes.

There are other reasons for Flaherty to be comfortable going into the budget. Inflation, for one. Despite pumping cheap liquidity into the economy to jump start the recovery, inflation clocked in at 2.3 per cent in January, down a tick from December, and within the Bank of Canada's target range.

Canada also has the lowest business taxes in the G7, and much lower than the U.S. The previous Martin government cut the corporate tax rate from 28 to 21 per cent, and Flaherty is reducing to 15 per cent, when the last cut of 1.5 per cent kicks in next January. By comparison, the federal corporate tax rate in the U.S. is 35 per cent. When the state taxes are added in, the U.S. rate is 40 per cent, while the average Canadian federal-provincial rate will be 25 per cent.

This is just one more source of comparative advantage for Canada. Investment migrates to investment-friendly countries, and in addition to that Canada has most of what the world needs, from potash to oil and gas.

There's more to the Canadian advantage, as Minister of State for Finance Ted Menzies was pointing out in a speech laden with economic bullets yesterday. There's also the most skilled workforce, with the highest post-secondary graduation rates, of any OECD country, and the most generous R&D incentives of any industrialized country.

In a survey of 33 advanced countries by the International Monetary Fund, Canada ranks second only to Australia in series of economic, health, social and education metrics, while the U.S. lags badly in most. For example, as reported in a New York Times oped chart by Charles Blow last weekend, Canada's life expectancy at birth is 81.29 years, compared to 78.4 years in the U.S. Canada's wellness index of 62 per cent who say they are thriving compares with 57 per cent in the U.S., mirroring the two employment rates.

Canada's students are doing better than in the U.S. The Canadian math score of 527 is higher than 487 in the U.S., while Canadian science scores of 529 compare with 502 in the U.S.

Obama talks about winning the future, but these Canadian kids are all right.

 
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