It has been just over a month since you were appointed Minister of Finance. Perhaps you are still getting over the “shock” of your appointment, or perhaps it doesn’t really matter, since Primer Minister Harper has always been the real Minister of Finance.

Jim Flaherty had a difficult time as Minister of Finance. In an earlier article, comparing Mr. Flaherty’s legacy (Insert) to those of Michael Wilson and Paul Martin, we observed that Wilson and Martin “both worked for prime ministers who trusted their judgment and delegated to them almost full responsibility for developing fiscal policies and preparing budgets.”

“Mr. Flaherty was not so lucky. His work was made more difficult by the fact that Harper didn’t allow him the policy independence a finance minister must have to do the job well. This was also the case for bureaucrats in his department, who must provide the independent analysis and research on which a finance minister depends.”

We seriously doubt that your time as Minister of Finance will be any different. You can be sure that Prime Minister Harper will be writing the 2015 budget.

Earlier this month, Business Week published an article “Harper Re-Election Hinges on 73-Year Old Rookie Minister Oliver”.   No doubt you were probably initially flattered by this assessment, except if you read the article it basically says that you were put in the Finance job to do nothing. 

According to the article, you have the “task of preserving the government’s reputation for economic management” and to quote yourself, maintain “continuity” and a “steady-as-she-goes-plan”. You are quoted in Bloomberg News as saying “I don’t know that it (Flaherty’s fiscal plan) would differ in any fundamental way” from mine.

This sound like a pretty good job, but things “can go wrong on the way to the forum (i.e., budget 2015)”, and you should perhaps start thinking about “Plan B” in case “Plan A” doesn’t work out.

Consider, for example, growth prospects for the global economy.

The “Plan A” growth strategy of the government has been for some time, and continues to be, based primarily on a recovery in the U.S. economy with positive impacts on Canadian exports. Sounds good, because stronger economic growth in the U.S. is essential to any sustained improvement in economic growth in Canada.

But how well is the U.S. economy doing? Apparently things are not going as well as expected a couple of months ago. There are lots of good economic numbers, but growth in the first quarter was basically flat (.01 %) and was almost entirely due to household consumption and a “smaller disinvestment” in inventories than in the previous quarter. Investment in machinery and equipment showed no increase.

Last week Federal Reserve chairwoman, Janet Yellen, warned Congress that the prospects for U.S. recovery in 2014 would be undermined if housing activity continued to be depressed, as it has been for months, for the rest of the year. Even with encouraging job numbers in April, she remains concerned about the risks to economic growth in 2014.

Consider what is happening, or better still not happening, in the EURO area. Inflation is running at 0.7 %, well below the target of 2%, and the European Central Bank (ECB) is extremely worried about its future path. Persistently low inflation would increase the real debt burdens of governments and households and easily short-circuit what little recovery exists. The ECB is under huge pressure to respond to this threat by lowering interest rates to zero or introducing some form of quantitative easing.

What about China? The IMF has just indicated it is about to downgrade its forecast for economic growth for China this year. 

The point we are making is “Plan A” rests on pretty shaky bet on a global economic recovery, but it also rests on pretty shaky bet on a domestic economic recovery. Your government’s domestic growth strategy is based on what we referred to in a previous article (insert) as a strategy of “self-levitation” growth.

According to this if the federal government becomes smaller, through cuts to program spending and taxes, then the private sector will rush in to fill the gap in demand by investing in machinery and equipment and exporting goods and services. This theory is a resurrection from the graveyard of dead economic theories, of “supply-side” economics.

Guess what Mr. Oliver - it isn’t working.

Both economic growth and job growth declined between 2010 and 2013. Investment growth also did not pick up and you may remember the references to “dead money” by former Bank of Canada’s Governor Mark Carney and, your predecessor, Mr. Flaherty. They couldn’t understand why businesses weren’t investing. The reason was, and still is, quite simple. There was not enough demand in the economy and there was little prospect of a recovery in economic growth. Nothing has changed.

The situation in 2014 is not shaping up as well as expected at the time of the February budget. Job growth continues to show no real upward trend, with employment in April falling by 28,000, following and increase of 43,900 jobs in March. Over 30,000 full-time jobs were lost. The unemployment rate remained at 6.9 per cent in April, but would have risen if a large number of Canadians had not given up looking for work. There were over 27,00 fewer jobs held by young Canadians aged 15-24.

You should get rid of the tiresome slogan that Canada has created a million jobs. Who cares-certainly not the unemployed or the underemployed? It is obvious that the creation of a million jobs has not been good enough. For the past eight years  job growth has been unable to keep up with population growth.

It is also clear that the regional structure of economic growth in Canada is imbalanced and not sustainable. Economic growth, as mediocre as it is, is focused in the west in the energy sector. The two largest provinces, Ontario and Quebec, are not doing that well, and without a strengthening in these two provinces, overall economic growth in Canada will remain mediocre and fragile.

There is no point to you and your colleagues hectoring and lecturing Ontario about its economic policies, especially when federal policies have contributed to Ontario’s fiscal and economic problems. Canada is a federation and the federal government is supposed to show leadership. What is required is greater federal-provincial co-operation, discussion and dialogue, something that has been seriously missing for the past eight years. All levels of government must address the serious deterioration in Canada’s infrastructure. This will be essential to improving our competiveness and productivity.

The Governor of the Bank of Canada (BoC), Stephen Poloz, has recently raised serious concerns about the failure of some export sectors in central Canada to respond to a recovery in growth in the U.S. In a recent appearance before the Senate Standing Committee on Banking, Trade and Commerce, (April 30), Governor Poloz observed “Competitiveness challenges continue to weigh down our export sector’s ability to benefit from stronger growth abroad.”

According to Poloz “there are subsectors, such as machinery and equipment, building materials, commercial services, and aircraft and aircraft parts, that are in line with fundamentals, or even doing better than their respective U.S. benchmarks.”

But other subsectors, according to Poloz, “including auto and truck makers, food and beverage suppliers, and chemicals, …are experiencing greater competitiveness challenges. Their recovery will be slower. The big picture tells us to expect a gradual convergence between the growth rate of Canada’s exports and that of the U.S. economy”. He observed, “that the wedge between exports and foreign demand will endure. And make no mistake. This wedge is real and it is big.”

Where does this leave “Plan A”? “Plan A’s ” growth strategy is based on two very optimistic and increasingly unrealistic assumptions-a strong global recovery and a recovery in exports and investment. Neither of these appears to be happening.

Fortunately for your government, the deficit numbers are looking good and it is highly likely that you will be able to announce the elimination of the deficit in 2014-15 in your Fall Economic and Fiscal Update.

But this won’t help economic growth and job creation. Under “Plan A” your government is likely to be facing a very bad economic and unemployment situation in the fall of 2015. Try and sell that as good economic management. Good economic management involves more than simply eliminating a deficit that your government in fact helped create.

Hopefully someone in the Finance Department is working on Plan B.

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