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Election Ringside, April 8: Low taxes or program spending?

Election Ringside: A daily exchange for The Globe and Mail between strategists Tom Flanagan, left, and John Duffy

Election Ringside is a daily e-mail exchange for The Globe and Mail between strategists Tom Flanagan and John Duffy. Check in every weekday afternoon during the 2011 federal election campaign for their insights and opinions about the campaign as it unfolds.

From: John Duffy Sent: Friday, April 8, 12:09 p.m. ET To: Tom Flanagan Subject: Election Ringside

Okay, here we go. Big new public-policy battle lines are forming up today, as Stephen Harper tables his fiscal-framework platform pledge and Michael Ignatieff his health-care commitment. And with it, some real clarity on the policy choices. It's a little early to react with 100-per-cent confidence, but here goes anyway.

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If I'm reading the Tory platform correctly, the Prime Minister is shortening the arc of the fiscal framework, bringing closer the moment of deficit reduction by one year. This advances the event horizon of his promised tax cuts, namely income splitting and more TFSA room. The package is wrapped in a macro-economic cladding, promising a "low-tax, job-focused plan" to return the country to full prosperity. At first blush, this is a smart political approach. The platform speaks to the whole economy - jobs and growth, not just fiscality and programs - in a way that no one has yet done in the campaign, thereby laying claim to the "beachfront real estate" of Canadian politics: economic stewardship. If communicated properly, it could make the Liberal offering seem a little narrow by comparison.

The Conservative platform looks like it aspires to create a battle zone with the Liberal plan. The Tories are saying, "We want to get rid of the deficit, stimulate recovery and lower your taxes; they want to drag out the deficit years, hinder recovery and maintain high taxes so they can spend it on their social programs." This would be a classic Conservative-chosen battleground: stern fiscal rectitude and low taxes to push growth versus fiscal flabbiness in pursuit of program spending. Save and trim taxes versus tax and spend, and all the while talking economy, which is the conversation that most benefits the Tories at this point.

But here's where the fun starts: health care. Today, the Liberals powered up the current on the third rail of Canadian politics: medicare. Mr. Ignatieff is promising to maintain the 6-per-cent escalator in provincial health care funding embedded in the 2004 Health Accord. With this, they intend to lever provincial investments in home care and elsewhere. Crucially, Mr. Harper may be holding back from committing to the escalator.

If the PM is indeed trying to maintain room for curbing the escalator, that could set up an advantageous battleground for the Grits. In this scenario, Liberals are saying, "Lookit, Harper wants to cut medicare spending in order to trim taxes for the wealthy and fund jets and jails; we want to stay the fiscal course and keep health care strong plus implement our Family Pack." In other words, tax cuts versus medicare, a conversation the Liberals usually win.

There are a lot of imponderables that will now come into play. Is the PM really planning on a separate negotiation exercise with Quebec? Will the tax point offer come onto the table? Will the medicare reform genie come boiling out of the bottle, as the wise David Dodge is encouraging it to do?

Tom, which battleground will prove decisive?

From: Tom Flanagan Sent: Friday, April 8, 2011, 12:41 p.m. ET To: John Duffy

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John, as always, your analysis is astute. The Conservative platform, which appears to have been tweaked after the budget speech, tries to heighten the contrast between the fiscally righteous Tories and the tax-and-spend Liberals. Mr. Ignatieff's commitment to keep increasing health transfer by 6 per cent annually (For how long? Forever?) tries to heighten the contrast between the compassionate Liberals and hard-hearted Tories. Each party seems to think it can win this fight. It will be bracing to have such a head-to-head conflict, and it should make for a more interesting than usual leaders debate.

I think we agree completely about what is going on. All that remains is to take a personal stand. As usual, I don't fully agree with either party. My first choice would have been to delay the corporate tax cuts as well as the social spending. I think that would have shown greater seriousness about balancing the budget and would have headed off the left-wing demagogy about give-aways to big business. But if I can't have my first choice, I think the Conservatives offer a better second choice: Concentrate for a few years on reducing the deficit, then enjoy some tasty desserts afterward.

I'm alarmed about Mr. Ignatieff's open-ended commitment on health care. Even a confirmed Harper-hater like Jeffrey Simpson will tell you that we can't just keep pouring money into the health-care system because it will crowd everything else out of the budget. It seems to me that Mr. Ignatieff's fiscal framework is now shattered, with his HST commitment to Quebec and this 6-per-cent solution, neither of which were in the Liberal platform.

From: John Duffy Sent: Friday, April 8, 1:24 p.m. ET To: Tom Flanagan

Well then, you're going to be even less pleased than usual with the grave-diggers of the Conservative revolution.

Since we started posting this morning, the Conservative campaign has moved hard and fast to shut the door that was left open yesterday. This morning, Mr. Flashy spelled out that no, no, there's plenty of money in the fiscal framework for the 6-per-cent escalator. There's a tiny bit of wiggle room left, but it seems the Conservatives are not interested in losing another election over heath care as they did in 2004.

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I expect the Liberal attack on this front, which is potentially very promising for them, will move toward the question of tax points. Will a re-elected Harper government commit to retaining the capacity to "buy change" in leveraging its health spending, or will it lose that capacity by switching to merely vacating tax room? It's a less potent attack line by far, but it may be all the Liberals are left with here, and some arguments about the believability of the fiscal framework.

Where's this going?

From: Tom Flanagan Sent: Friday, April 8, 2011, 1:39 p.m. ET To: John Duffy

Where is it going? Probably toward maintaining the 6-per-cent escalator in health care while holding back other transfers to the provinces after 2014. Kim Campbell was right when she said, "Elections are the worst time to talk about the future of our social programs." The competitive pressure of auction politics produces reckless commitments to be redeemed later with fiscal sleight of hand.

Tom Flanagan is professor of political science at the University of Calgary and a former Conservative campaign manager. John Duffy is founder of StrategyCorp and a former adviser to prime minister Paul Martin.

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