Liberals pointless in plan to ground F-35s

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Sun Media, Friday, October 29, 2010

The new Liberal narrative this fall is one of product differentiation from the Conservatives, in a move to the left that is also meant to skate the NDP into the boards.

Thus, the Conservatives would build prisons and buy planes, while the Liberals offer homecare and daycare. Liberal Leader Michael Ignatieff would also achieve efficiencies by rescinding corporate tax cuts and cancelling the $16 billion procurement and maintenance of F-35 jets for the Canadian Forces.

Which certainly creates space between the Grits and the Tories. It’s a bit like the fast-food business, where everyone offers fries, but McDonald’s and Burger King have different signature sandwiches.

But in creating this product differentiation, the Liberals have also created problems for themselves.

In promising to rescind corporate tax cuts, Iggy will lose significant support in the business community, especially among small and medium-sized entrepreneurs — the motors of economic growth.

Canadian corporate taxes will be reduced to 15% by 2012, the lowest in the G7, an obvious source of comparative advantage for Canada, and a magnet for investment and job creation. Finance Minister Jim Flaherty does not mince his words about the consequences of rescinding the tax cuts. He says this would cost Canadians 400,000 jobs. In the meantime, Iggy should not expect small business leaders to write any cheques to the Liberal Party, which just happens to be broke.

On the F-35 procurement, Ignatieff’s position until this week was that he would review the deal. But after Auditor General Sheila Fraser blasted the defence department Tuesday for sole-sourcing and cost overruns of helicopters, Ignatieff pivoted on Wednesday and said he would cancel the F-35 purchase outright.

Unfortunately for Iggy, the entire Canadian aerospace community was in Ottawa for their annual meeting, and they were more than happy to give Industry Minister Tony Clement a platform to note that $12 billion of industrial benefits, to say nothing of technological transfers, were at stake for Canadian aerospace companies large and small.

This is not a cottage industry in Canada. A report by Deloitte & Touche for the Aeropsace Industries Association of Canada points that this is a $24-billion-a-year industry, employing more than 80,000 Canadians in high-tech, high-paying jobs. (The reason the NDP is so quiet on this issue is that many of those jobs are unionized).

More than half the revenues in the aerospace sector last year were in Quebec, as were 45% of the jobs, while more than a quarter of the jobs were in Ontario. How does Iggy explain this to his Quebec and Ontario caucuses?

In an industry dominated by military procurement worldwide, more than 83% of aerospace revenues in Canada last year were created in the civil aviation space, and 78% of all sales were in exports of these value-added products. With only 17% of industry revenues from military sales, there is plenty of room to grow. As Clement pointed out, many Canadian firms have “already cracked the supply chain” — from Avcorp in B.C,. to Bristol in Manitoba, to Goodrich in Ontario, to Heroux-Devtek in Quebec.

“From the point of view of creating high-tech jobs and positioning Canada in the global aerospace industry, the F-35 is the right thing to do,” Clement said. “Doing nothing is not an option.”

In politics, as Iggy is learning, every action has an equal and opposite reaction.

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