Canada limps into 2010 today, suspended between recession and the recovery

By Carol Goar – Toronto Star

For the nation’s bankers, economists and political leaders, the bad times are over. Credit is flowing, commodity prices are rising, investors are recouping last year’s losses and the gross domestic product has begun to grow.

But for most workers, it is too soon to celebrate. Few employers are hiring. Few businesses are expanding. Even segments of the market that have surged out of the doldrums – residential real estate for instance – have a tenuous feel.

This dichotomy between the paper economy and the real economy will be the central story of 2010.

For Prime Minister Stephen Harper, the upturn in the numbers means it’s time to shift his focus from economic stimulus to deficit reduction. “The government’s approach will be clear,” he said in a year-end interview. “We won’t be raising taxes, but we will be constraining (spending) growth.”

It won’t be an abrupt transition. Finance Minister Jim Flaherty is assuring Canadians he will deliver the infrastructure money and tax relief promised in last year’s budget in 2010. But he is also promising to be as aggressive a cost-cutter as he was in the government of Ontario Premier Mike Harris.

This talk of belt-tightening i jarringly out of sync with what’s going on in the lives of many Canadians. Their fortunes haven’t improved. Their communities still need help.

And they’re not the only ones feeling undercut. Fear is spreading among groups likely to be hit by Ottawa’s cutbacks: charities that care for the vulnerable; research agencies that distribute funding to scientists and innovators; arts organizations that showcase Canadian talent, municipalities and First Nations.

This won’t be the only issue – nor always the dominant one – on the national agenda in 2010.

In February, the Vancouver Olympics will boost the nation’s spirits and bring an estimated 2.5 million people to British Columbia. The quest for gold in the world’s premier sporting competition, especially when it’s on home turf, will pull Canadians together as few other events can.

In June, Canada will play host to both the annual summit of the eight leading economic powers (in Huntsville) and the group of 20 emerging and established powers (in Toronto). The two meetings will put Canada in the global spotlight and bring a welcome infusion of cash to the central heartland. They could also give Harper a high-profile role in shaping the world’s post-recession agenda.

Both of these events, and probably half a dozen others, will trigger outbreaks of election speculation.

The pundits might be right this year. If the polls show Canadians are prepared to give Harper the parliamentary majority they denied him three times before and there appears to be little danger of mid-campaign shock – a swoon in the hot real estate market, a retreat in commodity prices, a fiscal crisis south of the border – the Prime Minister may engineer the dissolution of Parliament, clearing the way for the country’s fourth election in six years.

A Conservative majority would open a new chapter in Canada’s political history. The relatively centrist Tory governments of the past – including Harper’s so far – would give way to a much harder-edged regime, one with a mandate to transform the country into an energy superpower run by a government that is tough on crime, uninterested in social policy and impervious to the concerns of those who don’t share its ideology.

But a trip to the ballot box is the last thing vote-weary Canadians are thinking about right now. They’re focused on earning a decent living and getting their lives back on track.

Those are the criteria by which they will judge all political leaders – federal, provincial and municipal – in the coming year.

For Michael Ignatieff, who spent his first year as Liberal leader flailing around ineffectually, this offers an opportunity to put forward a coherent alternative to Harper’s budget-balancing plan.

Rising to this challenge will require more focus and fortitude than he has shown yet. First, he will have to convince the public that chopping government programs is a bad choice. Then he will have to persuade a tax-averse nation that restoring the GST to its pre-Harper level (7 cents per dollar as opposed to the current 5 cents) is a better option.

Objective No. 1 should be achievable. Past cost-cutting crusades in Ottawa and the provinces have profoundly damaged many of the services Canadians value most.

Objective No. 2 will stretch Ignatieff’s political skills to the limit. Many taxpayers now consider it unthinkable to hand over a larger share of their income to Ottawa. The reception will be particularly hostile in Ontario and British Columbia, where taxpayers will have to swallow a harmonized federal-provincial sales tax this year.

But Harper’s economic credentials will be tested too, especially if the stock market wobbles, real estate stalls or the recovery is weaker than he anticipates. Even if circumstances are favourable, he will face major hurdles.

First, he’ll have to defend his government’s abysmal record of spending restraint. Before the recession, the Conservatives were burning through taxpayers’ money faster than their Liberal predecessors. They axed a few Liberal programs they didn’t like. But operating expenditures went up at an annual rate of 7%, wiping out the $23 billion surplus they inherited.

Second, he’ll have to show Canadians how he can wipe out a record deficit ($56 billion last year with another $30 billion projected for this year) by 2015 without touching provincial transfer payments, trimming pensions or children’s benefits, restricting employment insurance or bringing in new taxes.

Third, he’ll have to explain why the payroll tax increase, slated for 2011 in his fiscal plan, squares with his pledge not to raise taxes. He can argue that boosting employment insurance premiums is different from raising taxes. But to workers, the impact is exactly the same: Ottawa takes a larger bite out of their paycheque.

Finally, he’ll have to address the bitter memories many Ontarians have of Harris’s slash-and-burn regime.

His timing will have to be astute. If the Prime Minister holds forth about Ottawa’s balance sheet, when Canadians haven’t seen the jobs and income he promised last year, he could face a nasty backlash.

The nation has come through a bruising 15 months. What most Canadians want is a year of stability. They’re tired of parliamentary melodrama. They’re sick of economic upheaval. They’ve watched too many relatives, friends, neighbours and colleagues lose their footing.

They’re waiting for the gloom to lift, the job drought to end and the recovery to reach them.

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