Harper has the right message for tough times

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National Post, Wednesday, September 24, 2008

Amidst the perfect financial storm on Wall Street, Stephen Harper may have found a ballot question suited for Main Street. Asked Monday about the U. S. government's $700-billion bailout of American financial institutions, and the implications of the market meltdown for Canada, Harper replied:

"Canada has been an island of stability throughout this period. We are asking that we stay in stability rather than becoming part of the problem by raising taxes and running deficits."

There's his preferred ballot question: stability vs. uncertainty.

That's by way of sound bite. By way of background, he talked down the possibility of a similar flameout in Canada. "We don't have that kind of situation in Canada," he said. "We don't have a similar regulatory environment. We have much stronger systems in Canada, much stronger accountability and responsibility. Not perfect, but as you know, the Canadian housing market, the Canadian banking sector are strong. They are nowhere near the problems of the United States."

Quite right. By a combination of good management and good fortune, Canada is a shelter from the storm. While venerable American investment banks disappear from one day to the next, Canadian investment banks and brokerages have enjoyed the protection of being owned by the larger commercial banks since the Mulroney government took out the pillars that separated banks from trust companies and brokerage houses in 1989. In the Canadian housing market, you actually have to make a down payment on a house, so there is no liquidity crisis. And the larger financial health of Canada, as reflected in its fiscal framework, is that of a government in surplus and paying down debt, while the Bush administration is closing the fiscal year with a record $500-billion deficit, and has increased the U. S. national debt by $4-trillion since 2001.

As it happens, Harper based his campaign rollout on a theme of proven leadership in uncertain times. Both play to his demonstrated strengths. Asked in polls which party is better to manage the economy, voters choose the Conservatives over the Liberals by a margin of at least 2-1. On leadership, to the question of best prime minister, Harper leads Stephane Dion by a 3-1 margin in the daily Nanos tracking poll for the Cable Public Affairs Channel (CPAC).

That the Conservatives would be considered better managers of the economy than the Liberals is more a reflection on leadership than party brands. After all, the Conservatives have increased program spending by 8% a year since coming to office, and the healthy surplus has come dangerously close to disappearing. Still, the Tories have paid down $40-billion in debt while cutting personal and consumer taxes.

On the other hand, the Liberals balanced the budget after 25 years of deficits, and created a fiscal framework that's moved from worst to first among G7 countries. That the Liberals receive little credit for this is partly because their leader has no credibility. And partly because he doesn't talk about it. He would rather talk about the Green Shift, which the Liberal platform refers to as "the cornerstone" of their campaign.

It was the Liberals' bad luck to release their platform on Monday, when the stock markets tanked again, when Goldman Sachs and Morgan Stanley announced their reorganization from investment banks to bank holding companies and when two Canadian banks, BMO and TD, were added to Washington's list of companies that couldn't be shorted on the New York Stock Exchange.

In the midst of this turmoil in financial markets, Dion announced the Liberal platform of $56-billion of new spending, $40-billion of which would be covered by his Green Shift carbon tax, and the remainder by unspecified program cuts and revenue increases based on the assumption of 4% growth in GDP, which seems to be wishful thinking.

The Conservatives jumped all over these numbers, suggesting a "$12-billion black hole" in Dion's fiscal framework that would plunge the country back into deficits. Not only that, but Dion last week announced $70-billion of infrastructure funding over 10 years. That's a big number. Jean Chretien's Red Book in 1993 made the point that he was a man with a plan. Stephane Dion's Green Book in 2008 makes the point that he's a man on a mission.

Unfortunately for Dion, he's proposing change in an election where voters are looking for continuity. When you factor in Dion's deficit on leadership, he loses.

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