Analysis

The high political cost of budgeting for Canada's long-term economic future: Don Pittis

Boosting the future of the country's Indigenous youth is a long-term investment in Canada, but politically it may not pay.

Tax cuts and stimulus are popular, but growing Canada's capacity is a harder sell

Under a banner of equality and growth, Finance Minister Bill Morneau's budget made some investments in Canada's long-term future. (Justin Tang/Canadian Press)

Imagine if young Indigenous people in Saskatchewan were highly educated in technology, math and sciences and had all the literacy and interpersonal skills Canadian employers were desperate to find.

The notion of creating such a future is by no means crazy.

But as we examine the reaction to this week's federal budget, the thought experiment offers a useful example of the trade-off between the instant stimulus of short-term investments such as tax cuts and the long-term investments that will transform Canada's more distant future.

Well-meaning half measures

Liberal Finance Minister Bill Morneau's half measures to make some of those long-term investments remind us how difficult it is for even well-meaning governments to bankroll essential projects that won't pay off until the current political actors have left the stage.

Training firefighters in the forested part of the Northwest Territories, I worked with smart young Indigenous people who were at least as quick to catch on as anyone else.

It may have been reverse racism, but during my time farther north in the High Arctic, Inuit people had a reputation for being mechanical whizzes.
This is an early class of the First Nations University of Canada, which was first known as the Saskatchewan Indian Federated College and currently celebrating 40 years since its creation. (First Nations University of Canada)

It seems pretty obvious that investing in that potential and helping a young and growing population develop into the engine of a world-beating economy would clearly be an advantage for all Canadians.

According to Statistics Canada calculations, within 18 years Aboriginal people will account for 20 per cent of the population of Saskatchewan and Manitoba. In the NWT and Nunavut the numbers are much higher.

The most recent census figure describe a population that is young and vigorous. While other native-born Canadians are moving in the direction of the South Korean birth strike, Canada's Indigenous birth rate remains healthy.

"Since 2006, the Aboriginal population has grown by 42.5per cent —more than four times the growth rate of the non-Aboriginal population over the same period," says a Statistics Canada analysis released in October.

Swedish model

But as with so many other strategies to boost Canada's long-term future, developing the potential of the country's Indigenous people is no quick fix for the Canadian economy. As essential as it may be for improving lives and making us all richer, helping to cultivate the advantages of Indigenous youth is a project of decades and maybe generations.

And despite Morneau's plan being a nod in the right direction, it is easy to find critics who insist the latest round of spending on improving the lives of Indigenous people is just not enough.

"Funding shouldn't be staggered over fiscal years," responded Assembly of Manitoba Chiefs Grand Chief Arlen Dumas following the budget. "We require a substantial investment to flow immediately."
Former Japanese prime minister Junichiro Koizumi takes part in a children's game at a day nursery during a 2006 visit to Stockholm. A cornerstone of the Swedish model for helping women in the workforce is universal day care, so well known that foreign leaders visit for photo opportunities. (Mark Earthy/Reuters/Scanpix)

The same applies to other federal initiatives to grow the economy for the long term. The government's gender strategy is supposed to take us toward a Swedish model that will release high-quality female workers into the future labour force while allowing women the freedom to have babies without destroying their careers.

But of course the plan falls short of the most obvious but more expensive Swedish solution, subsidized universal child care. Other federal long-term investments faced similar criticisms from those who had lobbied for them.

Fiscal conservative voices saw things differently. The Canadian Taxpayers Federation offered grudging approval that the budget largely held the line on spending.  

"The bad news is the government has once again failed to tackle the structural deficits it created in the 2016 budget and which will add $80 billion in new federal debt by 2022," said Federation director Aaron Wudrick.

No 'sugar rush' for Canada

Others, of course, have complained that the lack of tax cuts in the budget will put Canadian business at a disadvantage to the U.S., where the Trump administration has pushed through corporate tax cuts while promising new infrastructure spending that will charge up the economy in the short term.

That short-term boost, recently described as a "sugar rush" by Bank of America economists, has not yet proven that it will be of long-term benefit to the economy.

There are things that short-term stimulus, like the stimulus of interest rate cuts before them, just can't do.
Critics worry that "financialized" stimulus by U.S. President Donald Trump won't help the real economy although it enriches the wealthiest. (Kevin Lamarque/Reuters)

According to U.S. analyst Rana Foroohar, writing in the Financial Times, by leaving the Federal Reserve to stimulate the economy with low interest rates and the insertion of new money through quantitative easing, Washington created "financialized" growth but failed to invest in many of the processes, such as education, that would create real long-term growth.

"The central bank cannot create real, underlying economic growth," reasoned Foroohar. "It can only raise asset prices in the hope that people feel richer and spend more."

Of course the classic criticism of the government's involvement in the economy is that governments are bad at picking winning strategies.

However, as various sources, including the Bloomberg Billionaires Index, remind us, much of that "financialized" growth ended up in the pockets of the world's wealthiest. The richest 500 people became  $1 trillion US richer in 2017 alone, and three people are richer that the poorest 50 per cent.

And while it may or may not contribute to Canada's long-term wealth, we have clear evidence that cutting taxes can also lead to long-term expenses.

It is a useful reminder that the Phoenix pay system fiasco, for which in this budget the government added more millions to a rescue fund that now totals nearly $1 billion, was created by the previous government eight years ago as a way of slashing the civil service and saving less than $100 million a year.

Follow Don on Twitter @don_pittis

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