Aftermath 2008

Poor Mr. Dion wasn't successful! In fact, the LPC lost 19 seats across the country. Now, he has been in seclusion at Stornaway for two days, trying to decide whether to stay or go as the leader. Many think he should stay. More think he should go. He had the right ideas but just couldn't sell them to the Canadian public. Here is Jeffrey Simpson's take on what Steve is going to have to do now, as he sits, gloating, in his chair at 24 Sussex Drive.

JEFFREY SIMPSON
From Friday's Globe and Mail
October 16, 2008 at 9:59 PM EDT

Stephen Harper has not had to govern in tough times. Now he will, and the country will get an even sharper insight into the man and his priorities.

Mr. Harper arrived in office to find federal coffers overflowing, debt declining and unemployment low, courtesy of the Chrétien-Martin stewardship. He could keep program spending ahead of the inflation rate, shovel billions of dollars to the provinces, cut taxes, diminish debt, and record surpluses. As governing goes, this was easy. Unwise in some cases, but easy.

Now come the economic furies. Yesterday, the Bank of Montreal predicted a contraction of the Canadian economy in the final quarter of 2008 and the first quarter of 2009 – the definition of a recession. The Bank of Nova Scotia is also forecasting one, as have economists at the University of Toronto.

Technical recession or not, growth will slow, government spending will rise, and government revenues will decline. The highly regarded TD Economics unit believes Ottawa will be facing a $10-billion deficit in fiscal 2009-2010 and another one of about the same size in 2010-2011. That would represent a $20-billion swing since the Conservatives took office in 2006.

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Central Canada will be hammered by these numbers. But even energy-rich Western Canada will slow down. Yesterday, oil prices fell below $70 a barrel, almost half what they were not that long ago.

Under those circumstances, all parties can throw their campaign promises on the bonfire of illusions. At least the Conservative promises cost less than those of the other parties, but even most of these promises are for the bonfire.

One Conservative promise was never to run a deficit. Asked about the deficit possibility on Oct. 11, Mr. Harper said that any talk about cutting spending to avoid a deficit was a “ridiculous hypothetical scenario.” Similarly, he dismissed tax increases.

So, there you have it: no deficit, no spending decreases, no tax increases.

Maybe everyone who follows economic developments is wrong. Maybe the U.S. economy will avoid a recession. Maybe U.S. consumers who are already highly indebted will go into further debt and resume spending. Maybe Canada can float off into the Indian Ocean to hide from the U.S. storms.

In the real world, something will have to give in Canada if the banks' projections are correct. An economic slump that smashes Ontario will hasten that province's receipt of equalization payments, which, in turn, will put pressure on federal finances.

Lower corporate profits and higher levels of company closures and bankruptcies will reduce Ottawa's income, as will higher unemployment and slower growth. Economic growth will cool in the economic engines of the three westernmost provinces.

The U.S. Congress has already tried one stimulus package that failed. It has tried massive borrowing to stabilize banks. Another package is being talked about on Capitol Hill. The U.S. deficit, already running at $500-billion, is set to soar, perhaps as high as $1-trillion. When the world's biggest borrower borrows even more, it further destabilizes international markets. But this is what beckons. Countries can neither run nor hide from this U.S.-created tsunami of debt and its baleful consequences.

What to do? Refusing to run a deficit will require abandoning at least some of Mr. Harper's campaign promises, because his platform contained modest spending and tax cuts that collectively totalled about $8-billion over the next four years. Running a deficit would require abandoning his vow not to countenance one.

When times are tough or when government finances are a mess, as they were when the Liberals arrived in office in 1993 and the Progressive Conservatives in 1984, prime ministers have to say No and say it often. The governments post-1984 and post-1993 were blessed with solid parliamentary majorities.

Mr. Harper has a minority government, stronger than his first, but still a minority. Minorities work best when times are good and decisions are easy. Now times are worsening, so the decisions will get harder.

Canadians have never seen Mr. Harper govern in tough times. He campaigned on being the one to steer Canada through the turbulence. The campaign is over. Now governing begins.