Jack M. Mintz is President's Fellow at the School of Public Policy, University of Calgary.
No doubt, outgoing Prime Minister Stephen Harper will be best known for some important economic initiatives that will be of long-lasting benefit to Canadians. But his successor, Justin Trudeau, could not only further these achievements but create his own economic legacy if he plays it right.
One of Mr. Harper's greatest legacies was to make substantial progress by concluding new trade agreements with Europe and the Trans-Pacific Partnership members. Although no agreement is perfect (after all, we still have supply management), they allow Canada to create alternative markets besides relying on U.S. trade, making Canada less vulnerable to American political whims.
Mr. Trudeau wisely avoided rejecting these trade initiatives during the election, so that he can move ahead to implement them. But he can go further by moving toward a NAFTA-plus agreement by focusing on the Canada-U.S. relationship, which is in need of repair.
Should she be elected to succeed President Barack Obama, Hillary Clinton has opened up an opportunity by proposing a climate pact among the Three Amigos. Extending this to energy and other trade issues could create a legacy of importance for Mr. Trudeau. And maybe Keystone XL can get built after all, which would be sensible for both Canada and the United States, rather than relying on trains to transport oil through urban centres and with higher environmental consequences.
Like the Chrétien-Martin years that preceded him, Mr. Harper began his tenure with balanced budgets, which were critical in helping Canada weather the global financial crisis relatively well. Along with other Group of 20 leaders, Mr. Harper accepted the need for the large fiscal deficits that most economists would have recommended in face of an imported recession. The key effort was to restore confidence in financial markets and move toward fiscal balance within five years, as the economy recovered. The idea of anti-cyclical fiscal policy is not a new one, but Mr. Harper did follow through with appropriate steps.
Mr. Trudeau is willing to use infrastructure spending-induced deficits to grow the economy. Certainly, a public infrastructure plan can be a real legacy if it means that we get people to work faster and goods and services to international markets more effectively. Nonetheless, the argument that a deficit should be run now since interest rates are low is surely wrong – interest rates will eventually rise, resulting in higher debt charges on a larger stock of federal public debt, which is now over $600-billion. There is no real reason to carry out a deficit at this point in the absence of a recession, but certainly keeping a promise that he will restore a balanced budget within three years will be critical.
Mr. Harper's third legacy was tax reform, although with mixed results. On the plus side, he improved the corporate tax system, not only by reducing rates but by broadening the tax base in cancelling several tax preferences (although, unfortunately, also adding some, such as accelerated depreciation for manufacturing). He also removed unfair taxation of savings by introducing the Tax Free Savings Accounts that allow Canadians to pay tax only once on saved earnings, not a second time on investment income resulting from such taxed savings.
This shift to a so-called consumption-based personal tax system has been helpful to Canadians to accumulate wealth during these times of low returns on equity and bonds, which are whacked by taxes and inflation.
Mr. Trudeau could develop a legacy for himself through tax reform by shifting from income taxes to the GST, as well as by avoiding the boutique tax credits that Mr. Harper used to attract votes.
He could focus tax reform to encourage a better use of resources in the economy, thereby improving economic growth as well as fairness by making sure that people with the same resources pay the same taxes.
The topic of tax reform brings me to my last point on Mr. Trudeau's potential legacy. For several decades, governments have been searching for the Holy Grail of economic policy: How to improve Canada's poor productivity performance by getting more output per worker. All have failed so far.
If Mr. Trudeau can solve the productivity problem by creating higher output in face of an aging work force – some other countries have shown that it's possible – he can create a lasting economic legacy that even his father failed to achieve.