Austerity Can’t Buy You Budget Love But Vision Might

If the current recovery is going to gain any momentum, consumers and investors have to believe in the economy. It’s hard to be optimistic when we are constantly bombarded with news about the slow pace of the American recovery and the economic turbulence in Europe not to mention the uninspiring numbers from Statistics Canada for the third quarter.  Perhaps, at a deeper level, globalization has also left Canadian insecure about our capacity to compete in the new world order.

Because of that, the next federal budget is critical if we want confidence to win the day. However deficit control dictates austerity and austerity by itself is thin gruel for nourishing confidence. To nourish confidence we need economic vision. Vision that speaks to the average Canadians’ sense of what Canada can be and vision that is credible in putting us on a path to get there.

The government’s fiscal prudence and measured stimulus spending has helped us weather the storm better than most countries. That puts Canada in an enviable position of being able to focus on the future rather than scrambling to deal with the short-term impacts of the downturn.   With our broad macroeconomic house in order, a micro economic agenda for prosperity is now realistic.

Canadians start from a position of strength: healthy banks, sound fiscal policy, and institutions and markets that are highly functional and free of corruption. We take these things for granted but anyone operating elsewhere in the world will tell you that they are enormously valuable.

We also have a powerful strategic edge because of our wealth in natural resources: arable land, energy, minerals, and forests.

Canada’s abundant natural resources are an essential pillar of economic growth today. But in tomorrow’s global economy they can yield still more impressive benefits. In fact technical and environmental brilliance at extracting and transforming these resources will be the key to sustaining our quality of life. Let me explain why.

Consider how the planet is becoming crowded and more affluent. Between now and 2030 the world’s population will grow by 1.3 billion – that’s adding the size of the current population of China.   Over that same period global GDP will double and per capita income in the developing world is expected to triple.  So increasingly scarce natural resources will attract a growing premium. 

The objective should be to attract investment now to be prepared as the market expands and prices rise.  In the global economy capital has little national allegiance. While skilled workers, scientists, managers and enterprises will move location when required, capital lives a life at no-fixed address. Attracting private capital needs to be job one for the next budget. A vision for growth and a framework to support that vision is the means to do this.

The government has already been thinking through some of the pieces of the needed framework.   The scheduled corporate tax reductions must go ahead― corporations need to integrate these into their long term investment strategies.  In addition, making the accelerated capital cost allowance provisions first introduced in Budget 2007 permanent will be key to attracting capital to Canada and encouraging businesses here to invest in productivity enhancing machinery.  Government can also help lower the risks of developing and deploying new technologies by improving our support for innovative research and development and partnering in the piloting and demonstration of transformative technologies. And clarity and predictability on foreign investment rules are essential as well.

Other parts of the framework also need exploring. For example, we should commit to a “best in the world” ethic in the management of our natural resources. It is time for a national energy strategy.  And environmental innovation should be our next “national project”.

We will all be tempted to judge the next budget on its credibility as a deficit reduction exercise.  However the real challenge facing Canadians today is our economic vision and the way to blaze a path that will help us find our place in the tomorrow’s global economy.  That is the real test that the next budget must address.