Harper Claims On The Economy Not Backed Up By the Numbers

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Harper economy

A close look at the numbers reveals that Prime Minister Harper’s economic policies have been largely ineffectual and have contributed to a more polarized labour market.

 

 

 

 

 

 

 

 

 

 

Last Friday, Statistics Canada released its jobs report for July, 2015 – the first such release during the election period. Employment was up a bit in July as compared to June (+6,600) and the unemployment rate stayed at 6.8% for the sixth straight month.

Compared with a year earlier, employment had increased by 161,000 (or 0.9%), primarily because of the growth in full-time work.

Provincially, employment in Ontario was virtually unchanged in July. Compared with 12 months earlier, employment in the province was up by 67,000 (+1.0%) and the unemployment rate fell 1.1 percentage points to 6.4%, the lowest rate since September 2008.

In contrast, in Alberta the unemployment rate increased by 0.3 percentage points to 6.0% in July. Since January of this year, the unemployment rate in the resource dependent province had increased by 1.5 percentage points.

Bottom line: not surprisingly, mainly due to the oil price collapse, central Canada is doing somewhat better than resource-based western Canada on the jobs front. But overall, the Canadian labour market remains sluggish and is performing at a far weaker level than its U. S. counterpart.

Stepping back from Friday’s July employment snapshot, it is worth examining exactly how the job market has performed under the Conservative government from 2006 to 2014. After all, the Harper government is touting its successful economic stewardship as the primary reason it should be re-elected. What does a close look at the 2006-14 jobs numbers reveal?

Let’s start off with the 5-year employment chart provided by Statistics Canada last Friday in its July jobs report.

Chart 1: Canadian Employment Growth

employment chartThe chart seems to suggest steady, if not spectacular, job growth over the past 5 years.

However, the first year of the five-year period portrayed in the chart is 2010 – a year or so after the economic collapse of 2008-9 with its huge job losses. One would assume a strong economic recovery would be in place in the first few years immediately following such a severe collapse so starting in 2010 probably doesn’t tell you much about the effectiveness of Conservative economic policies. Of much greater significance is what the jobs numbers look like when we go back to 2006 – the first year of the Harper government and a full two years before the onset of the recession triggered by the 2008 financial crisis.

So what does an anlysis based on the Statistics Canada numbers tell us when we start at the very beginning of Harper’s tenure?

First, the unemployment rate rose from 6.3% in 2006 to 8.3% in 2009, and then fell to 6.9% in 2014. In other words, despite the economic recovery, unemployment in 2014 was still significantly higher than in 2006.

Second, the employment rate (the percentage of persons who were working, as opposed to being unemployed or not actively seeking work) has fallen from 62.8% in 2006 to 61.4% in 2014, and did not increase in the recovery period from 2009 to 2014. This is mainly because many Canadians had stopped looking actively for work – most likely because they thought that no desirable jobs were available.

In terms of job quality, 32.2% of the total increase in jobs between 2006 and 2014 was in part-time jobs. This is a much higher proportion than the part-time share of the workforce in 2006, which stood at 18.2%.

Young People Hit Hard

An analysis done by economist Armine Yalnizyan suggests that young people have been particularly hard hit under the Harper regime. According to Yalnizyan:

“Between October 2008 and July 2009, young workers lost 185,000 full-time and 32,000 part-time jobs. Since then, they have recovered only 15,000 full-time jobs, though the number of part-time jobs is almost back to pre-recession levels. However, over the course of the past year, they lost 31,000 part-time jobs and added almost no new full-time jobs.

The primary source of employment for young workers has been in temporary forms of work (contract, seasonal, casual). Between 2008 and 2014, about half a million permanent jobs were added to the economy (466,000). In that time frame, workers aged 15-24 saw the loss of 181,000 permanent jobs.”

In other words, a close look at the jobs data under 8 years of Conservative government rule (and before the slowdown of the past six months) takes a good deal of the shine off of Harper’s lofty jobs claims. The long-term trend has been a shift towards a more polarized jobs market with the growth of low-pay and part-time work far out-stripping the growth of full-time work.

So the 2006 – 2014 jobs record isn’t all that the Harper government claims it is. But how much of this relatively lackluster performance can be blamed specifically on the Conservative government’s economic policies and how much on global economic forces beyond the government’s control?

The Conservative government’s signature economic policies: success or failure?

One way of assessing the Harper economic record is to select a small number of signature Conservative economic policies and assess the success or failure of each policy separately.

Three such Harper signature economic policies are particularly illustrative:

  1. The reduction in corporate taxes;
  2. A conservative fiscal stance (austerity); and
  3. The priority placed on oil exports (i.e. Canada as an “energy superpower”).

In the remainder of this post, we will look at the Harper record on corporate taxes. In a subsequent post, we will look at the government’s fiscal performance and its energy policies as well as Liberal and New Democratic Party proposals in all three areas.

Corporate tax cuts

Under the Harper government, the general federal Corporate Income Tax (CIT) rate has been cut from 22.1% in 2006 to 15% today. According to the Parliamentary Budget Office, the annual cost is about $12.5 billion in reduced tax revenues for the federal government.

The CIT now contributes just 13.4% of all federal revenues, down from 17.2% in 2007-08.

The Harper case for a significant cut in the CIT rate has always been that higher after-tax profits would increase corporate investment. But a close look at the numbers suggests that this just hasn’t happened.

First, business investment in machinery and equipment and in intellectual property combined, is below the 2006 level in real dollar terms – in fact has fallen from 7.2% to 6.2% of GDP.

Sluggish business investment is recognized by most economists to be one of Canada’s key economic problems, but the Conservative corporate tax cuts seem to have had little impact.

Why is this? The main reason for weak business investment – despite generally strong corporate profits and sky-rocketing cash reserves – is rooted in the weakness on the demand side of the economy. Businesses will invest only if they see strong and growing demand for their products and services – a situation that simply hasn’t existed in Canada in the past 9 years.

Another important factor is that Canada’s combined federal-provincial corporate tax rate is now around 26%, far lower than the 39% combined rate prevalent in the United States. In other words, corporate rates have been cut far more than was needed to give Canadian based companies a significant competitive advantage over U. S. based companies. In fact, in all likelihood, Canadian corporate tax rates were already more than competitive when Harper began his latest round of rate cuts.

Finally, a little known fact is that corporate tax cuts have resulted in an increase in revenues for the U.S. government since US companies operating in Canada get to deduct Canadian tax from their U.S. taxes.

Conclusion

The long-term trend under the Harper government has seen sluggish job growth combined with a shift towards a more polarized jobs market and the growth of low-pay and part-time work.

Corporate tax cuts have been central to the Harper government’s economic agenda from the beginning. The result has been a huge loss of public revenues for little economic gain. In other words, the evidence strongly suggests that this signature Conservative economic policy has been a failure.

In our next post, Canada Fact Check will look at the Conservative government’s other signature economic policies as well as economic planks being proposed by the two main opposition parties.

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8 Comments on "Harper Claims On The Economy Not Backed Up By the Numbers"

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Roy smith
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Which left wing party of union do you belong to?

Rick
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Great report………….not.

Leaving out government revenue numbers for both corporate tax and income tax.

Which both have continued to grow. More focusing on the corporate tax which continues to grow every year since 2010 even thou the rate has been dropped.

Typical left media, not including all the statistics in your analysis.

Shannon
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What are you talking about? The author not only states the corporate tax rates, but also the fall in revenue, both as a bottom-line figure and as a percentage of federal total revenue. Were you reading just want you wanted to see?

Richard
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The point the commenters are missing, in their zeal to label this leftie thinking, is the deplorable employment situation in this country. Corporations are not hiring more workers – they are shutting down, leaving the country, or simply passing on their profits to their stockholders. Business does not hire based on profits, but on demand for product. Consumer confidence is very low, earnings are low, security is low,. and people are not spending on consumer goods. For that reason, and other screw ups by government, manufacturing is collapsing in this country. Add to that the competition from Wal Mart, China, and the collapse of Harper’s delusionary petro-state, (among other factors ignored by Harper) and you have the makings of a recession. Our PM is no economic genius. He’s barely beyond undergrad level in economics. A failure, in so many ways.

Andrew
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This website itself is an extension of the NDP campaign, and should be taken as such (not as independent news).
Beware any analysis of data that isn’t from the main source…

Dave
Guest

Anyone with strong opinions for or against the article above is strongly encouraged to read this:
http://topinfopost.com/2014/06/30/ultra-rich-mans-letter-to-my-fellow-filthy-rich-americans-the-pitchforks-are-coming

Louis
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When comparing corporate tax rates with the US one must pay special attention to EFFECTIVE tax rates. It is most likely that many if not most US corporations do not pay the statutory rates of income tax. The same thing applies to Canada. Canadian corporations operating in the resource sectors (mainly oil and mines) pay extremely low EFFECTIVE tax rates if they pay at all. Even if you lower the statutory rates these lower rates have no meaning for them and are virtually worthless and without impact on their operations. In Canada the only sector that pays EFFECTIVE rates that are close to the statutory rates is the financial sector (banks and insurance companies) Do these extremely profitable corporations really need tax cuts considering their huge profits? Most of the benefits of their tax cuts end up in the hands of shareholders most of which are very affluent. Mercedes of LEXUS anyone ???

Louis
Guest

A few years after Harper’s corporate tax cuts his Finance minister and the Governor of the Bank of Canada, Carney, were complaining that that the corporate sector was accumulating billions of “dead money” and were not investing. This was the answer of the corporations to the tax cuts: dividend increases and share buybacks. The inept Harper and Flaherty had never heard that corporate investment is driven by demand and not tax cuts. Consumer demand that accounts for about 60% of GDP has been anemic for years. At the same time Harper and his finance ministers have contributed to the problem of low demand by doing nothing better than cutting expenditures wildly thus withdrawing stimulus. Now the Bank of Canada is trying to undo the damage done by Harper by cutting interest rates to extremely low level and driving down the Canadian dollar in an attempt to support the economy. But the totally incompetent Harper insists in putting the brakes on thereby going at counter purpose with the Bank. A nice mess !!!!

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