Canadian Public Budgeting in the Age of Crises: Shifting Budgetary Domains and Temporal Budgeting 9780773588523

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canadian public budgeting in the age of crises

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Canadian Public Budgeting in the Age of Crises Shifting Budgetary Domains and Temporal Budgeting

g. bruce doern, allan m. maslove, and michael j. prince

McGill-Queen’s University Press Montreal & Kingston • London • Ithaca

© McGill-Queen’s University Press 2013 ISBN ISBN ISBN ISBN

978-0-7735-4166-5 (cloth) 978-0-7735-4168-9 (paper) 978-0-7735-8852-3 (ePDF) 978-0-7735-8853-0 (ePUB)

Legal deposit second quarter 2013 Bibliothèque nationale du Québec Printed in Canada on acid-free paper that is 100% ancient forest free (100% post-consumer recycled), processed chlorine free McGill-Queen’s University Press acknowledges the support of the Canada Council for the Arts for our publishing program. We also acknowledge the financial support of the Government of Canada through the Canada Book Fund for our publishing activities. Library and Archives Canada Cataloguing in Publication Doern, G. Bruce, 1942–   Canadian public budgeting in the age of crises : shifting budgetary domains and temporal budgeting / G. Bruce Doern, Allan M. Maslove, and Michael J. Prince. Includes bibliographical references and index. ISBN 978-0-7735-4166-5 (bound). – ISBN 978-0-7735-4168-9 (pbk.) – ISBN 978-0-7735-8852-3 (ePDF). – ISBN 978-0-7735-8853-0 (ePUB)   1. Canada – Appropriations and expenditures – History.  2. Finance, Public – Canada – History.  3. Canada – Economic conditions. 4. Canada – Politics and government.  5. Global Financial Crisis, 2008–2009 – Government policy – Canada.  I. Maslove, Allan M., 1946–  II. Prince, Michael John, 1952–  III. Title. HJ793.D63 2013  336.30971  C2013-900036-4 Typeset by Jay Tee Graphics Ltd. in 10.5/13 Sabon

Contents

Figures and Tables  vii Abbreviations   ix Preface xiii Introduction 3 pa rt o n e  

a n a ly t i c a l f r a m e w o r k , h i s t o r i c a l c o n t e x t , t h e

global crisis, and canadian macroeconomic policy

1 Budgetary Domains and Crises: Academic Foundations and Our Analytical Framework  19 2 The Global Fiscal, Banking, and Sovereign Debt Crises: International and Canadian Responses  43 3 Macroeconomic Policy: The Fall and Rise of Keynes and the Emergence of Structural Fundamentalism  62 4 Canadian Budgetary Institutions: Power, Politics, and Contending Ideas 85 pa rt t w o  

c h a n g i n g b u d g e ta ry d o m a i n s a n d c r i s e s a n d

va r i e t i e s o f t e m p o r a l b u d g e t i n g

5 The Social Budgetary Domain: Diverse Inequality, Poverty, and Retirement Pension Crises  119 6 The Microeconomic and Industrial Budgetary Domain: The Innovation, Productivity, and Industrial Crises  150 7 The Green Budgetary Domain: Energy, Climate Change, and Green Industry Crises  176

vi Contents

8 Temporal Budgeting: Varieties and Intergenerational and Demographic Crises  205 9 Budgetary Domains, Crises, Temporal Varieties, and Democratic Reforms 229 Glossary 243 References 251 Index 277

Figures and Tables

figures

3.1 Rate of Unemployment and Employment Growth 1989–2009  65 3.2 Interest Rates and the Consumer Price Index (CPI) 1989–2009  67 3.3 Expenses as a Percentage of Total Program Expenditures: 1990–91 to 2010–11  69 3.4 Summary Budgetary Statistics as a Percentage of GDP: 1990–91 to 2010–11 73 3.5 Federal Government Surplus/Deficit: 1990–91 to 2010–11  74 3.6 Revenues as a Percentage of Total Revenues: 1990–91 to 2010–11 75 ta b l e s

1.1 Academic Conceptual Foundations in Brief  20 1.2 The Two-Part Budgetary Domain and Crises Analytical Framework 37 4.1 Cabinet Committees under The Harper Government  94 5.1 Federal Organizations in the Social Budgetary Domain  130 5.2 Illustrative Social Domain Spending: Selected Departments For Selected Fiscal Years 1996–97 to 2010–11 ($000)   134

viii

Figures and Tables

5.3 Social and Cultural Versus Justice and Security Spending as Percentages of Total Social Domain, Selected Years 1993–94 to 2010–11 ($000)  135 5.4 Federal Social Tax Expenditures in the Personal Income Tax System, 2010  137 6.1 Illustrative Microeconomic and Industry Domain Spending, Selected Departments For Selected Fiscal Years 1996–97 to ­ 2010–11 ($000)   161 7.1 Illustrative Green Domain Departmental Spending: Environment Canada, NAC, and NRCan: Selected Years ­ 1996–97 to 2010–11  191

Abbreviations

A-base ABCP AECL AIT B-budget BP BQ BSE CanNor CAP CAPP CAW CBC CCE CESD CFI CFIB CHT CHST CIHR CPP CST CUFTA DND DREE DRIE EI

The existing base of public spending Asset-Based Commercial Paper Atomic Energy of Canada Ltd. Agreement on Internal Trade New annual spending British Petroleum Bloc Québécois Bovine Spongiform Encephalopathy Canadian Northern Economic Development Agency Canada Assistance Plan Canadian Association of Petroleum Producers Canadian Auto Workers Canadian Broadcasting Corporation Canadian Centres of Excellence Commissioner of Environment and Sustainable Development Canada Foundation for Innovation Canadian Federation for Independent Business Canadian Health Transfer Canada Health and Social Transfer Canadian Institutes of Health Research Canada Pension Plan Canadian Social Transfer Canada-United States Free Trade Agreement Department of National Defence Department of Regional Economic Expansion Department of Industrial Expansion Employment Insurance

x Abbreviations

EU FEDDEV GATT GDP GHG GIS GM Food GST HRSDC IEA IMF INAC MOSST NAFTA NAIRU NCE NDP NEP NGO NIMBY NPM NPG NRCan NRTEE OAS OECD

European Union Federal Development Ontario General Agreement on Tariffs and Trade Gross Domestic Product Greenhouse Gases Guaranteed Income Supplement Genetically Modified Food Goods and Services Tax Human Resources and Skills Development Canada International Energy Agency International Monetary Fund Indian and Northern Affairs Canada Ministry of State for Science and Technology North American Free Trade Agreement Non-Accelerating Inflationary Rate of Unemployment National Centres of Excellence New Democratic Party National Energy Program (1980–1984) Non-governmental Organization Not in my back yard New Public Management New Political Governance Natural Resources Canada National Roundtable on Environment and Economy Old Age Security Organization for Economic Cooperation and Development OSFI Office of the Superintendent of Financial Institutions Priorities and Planning P&P PBO Parliamentary Budget Officer PCO Privy Council Office PMO Prime Minister’s Office P3 Public-Private-Partnerships R&D Research and Development RCMP Royal Canadian Mounted Police RIM Research in Motion Inc. RRSP Registered Retirement Savings Plan S&T Science and Technology SMEs Small and Medium-Sized Enterprises

Abbreviations xi

SR&ED UCCB UK UNFCC WTO

Scientific Research and Experimental Development Tax Credit Universal Child Care Benefit United Kingdom United Nations Framework Convention on Climate Change World Trade Organization

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Preface

This book is the product of the authors’ individual and collaborative work on budgeting, fiscal policy, and the governance of spending and taxation in Canada and internationally over the last three decades. During this extensive period of reading, discussion, and interviews, we owe numerous debts of thanks, gratitude, and learning to many individuals and to many agencies and institutions involved directly and indirectly with the story of Canada’s budgetary democracy and the politics of public money. We are also grateful to the many academics and practitioners from across Canada who over the years have authored chapters in How Ottawa Spends, the Carleton School of Public Policy and Administration’s annual review of spending and national priorities, now in its thirty-third year. We have drawn on their work and, of course, on scholarly research by other academics and authors whose work and views we cite and debate. Special thanks and appreciation are owed to the two McGillQueen’s University Press peer review assessors who reviewed our initial manuscript and offered extremely good and constructive comments and suggestions. They have without doubt helped us to make this a better and more complete analytical product. A continuing intellectual and personal set of thanks are owed to colleagues and staff at our respective academic institutions, the School of Public Policy and Administration at Carleton University, the Politics Department, University of Exeter in the UK, and the Faculty of Human and Social Development, University of Victoria, in particular, the Studies in Policy and Practice Program. We also thank our research assistants, Brittany Fritsch and Hilary Jensen. G. Bruce Doern, Allan M. Maslove, and Michael J. Prince February 2013

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canadian public budgeting in the age of crises

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Introduction

The principal academic focus and contribution that makes this book different from existing Canadian literature on public budgeting is three-fold in nature. First, scholars and students of public budgeting need a more complete and deeper understanding of budgetary domains and their five elements as defined below, and as provided in the first part of our dual analytical framework. They also need a clearer way of thinking about, defining, and analysing budgetary crises in an age of crises, hence the second component of our framework which sets out several such definitions and analytical features of crises and crisis discourse. Third and finally, we also provide a much needed greater academic and conceptual focus on temporal budgeting ranging from annual to intergenerational notions of budgetary and socio-economic time. Though we have looked mainly at the federal government, federal-provincial and particular provincial fiscal issues and debates have also been examined as one of the budgetary domain elements. The core audience for Canadian Public Budgeting in the Age of Crises thus includes students and academics interested in the politics, economics, and institutions of public budgeting. However, a larger diverse audience has additionally been kept in mind that includes those governmental and business readers who follow budgeting on a regular basis, as well as citizens and interest group participants who may too often feel that their part of the budgetary world is given short shrift. The book provides a historical thirty-year perspective about Canadian budgeting and its democratic governance and how it has evolved in normal times and in crisis/shock periods. The time period covered centres initially on the pivotal 2008–12 budgetary and

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Canadian Public Budgeting in the Age of Crises

related bank and sovereign debt crisis events, but it also covers the crucial shifts in macroeconomic policy that anchor the budgetary world and Canada’s budgetary politics and economics over the current Harper and earlier Mulroney and Chrétien-Martin eras. Public budgeting involves decisions about new money; that is the so-called “B-budget,” the new spending and tax and revenue decisions made annually, and which are the most visible and therefore contentious (see the Glossary for a summary of these and other key budgetary terms and concepts). It also involves continuing existing spending and taxes, the much larger (95 per cent or more) ongoing A-base spending of the public purse, composed of decisions made by previous governments, sustained by democratic support, institutional inertia and the power of the status quo. In addition to the generation and allocation of financial resources, public budgeting has to do with the production of symbolic and temporal resources. In all these dimensions, public budgeting is an assemblage of organizations, power relations and democratic politics. Canadian public budgeting is also an area of public policy where a high-profile agenda-setting occasion, the annual budget and budget speech, attracts focused political, partisan, economic, interest group, and media attention as does the often formal run-up consultation, reporting and political spin stages to the budget speech (Goldenberg 2006; Good 2007; Doern 2009; Stoney and Doern 2011). At its core, public budgeting involves a series of choices regarding spending and taxation, borrowing and exhortation. Historically, in Canada and elsewhere, it involves intricate links with banks and financial capital. For example in the 1930s in Canada there were close links between bank failures, the emergence of Social Credit political parties in western Canada, and the potential bankruptcy of some provinces (Ascah 1999). Public money is always simultaneously about economics and about political power; about how values and ideas are ranked, allocated and decided upon throughout electoral and business cycles, the life cycles of individuals, and the various generations in a society. For Canada, it also centres on the present transformed politics that resulted from the May 2011 federal election which saw: the Harper Conservatives garner a strong majority government; the demotion of the Liberal Party to third party status; and an electoral surge by the New Democratic Party into its first historic role as the main federal opposition party. This transformation also involved the



Introduction 5

NDP having secured a majority presence in Quebec federal politics at the expense of the separatist Bloc Québécois. The focus of the book is on federal government budgeting. While space does not allow any equivalent coverage of each province’s budgetary politics and systems the book does examine, in relation to macroeconomic policy and the author’s two-part analytical framework (see below), key aspects of federal-provincial budgetary and fiscal policy and public debt. Provincial issues and pressures are also highlighted as sources of budgetary reform, particularly in policy and fiscal decisions and also in partisan politics between the federal government and different arrays of provincial involvement and tensions. While public budgeting in Canada and in other countries has experienced economic and political crises before – in the 1930s, the late 1970s, and the 1980s and early 1990s – in several respects, the budgetary crisis that emerged in the 2008–12 period is unprecedented in scope and impact. The fiscal and closely related banking crises are global in reach, embracing Western economies as well as a fast changing developing world where China, India, and Brazil are looming large both economically and politically. Serious and widespread concerns exist as well about sovereign debt, the total debt owed by a nation state to its lenders, and even the fiscal fate of some nation states and indeed regions of nations, such as the European Union and the Euro zone, which were being both watched carefully by lenders and also hounded by debt speculators, not to mention confronted by internal division and intense democratic conflict and stress. Even the United States had to confront its out of control debt in a highly divisive partisan battle in Congress in 2010–11 and again in 2012–13 with one rating agency downgrading its credit and debt rating for the first time in American history ­(Applebaum and Dash 2011). The fiscal, banking, and sovereign debt crises are changing global governance through the expanded role of the G20 and related institutions that are seeking new ways to cope, to avoid contagion, to manage the economy, to expand democracy but also to constrain it, and to create sustainable prosperity. Internally, in key countries the crises have also changed how fiscal and banking authorities are structured and how budget watchers are themselves watched, be that by newly established budget responsibility agencies, think tanks, or private debt rating agencies (Faux 2011).

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Canadian Public Budgeting in the Age of Crises

purposes and contribution

While the current fiscal, banking, and sovereign debt crisis looms large in our exploration of current public budgeting in Canada, the book’s overall academic and conceptual contribution centres on: the advocacy, development, and use of our two-part analytical framework that consists of: (i) examining budgetary domains and their five key elements; and (ii) the nature of crises as fiscal, policy, and political-economic phenomena including in the current era which we cast as the age of crises. Each part of the framework is previewed below and examined in more detail in Chapter 1. In addition, as stressed from the outset, we examine temporal budgeting as previewed further below. Budgetary domains are defined in this book as complex realms of fiscal content, choice and governance. A budgetary domains conceptual approach compels us to look across multiple departmental clusters of government co-existing and competing within each domain and hence at multiple political-economic structures of power, policy, choice, inertia, and governance. Government departments can be a part of more than one domain. More specifically, a budgetary domain, set in the crucial context of overriding macroeconomic policy, is analysed in terms of five elements that help define a field of activity and democratic choice and inertia, namely: mixes of dominant and contending ideas, discourse, and agendas; entrenched and shifting systems of public and private power; • multi-departmental/agency governance institutions at the federal level; • bundles of spending and taxation and related governing instruments including, where appropriate, regulatory ones; and • mixtures of federalism and multi-level and multi-scale governance (federal, provincial/territorial, Aboriginal, city/local, regional/ spatial). • •

The three budgetary domains and the relevant competing crises which we examine in Part Two of the book are as follows: The social budgetary domain and diverse crises of poverty, inequality, and pensions;

•



Introduction 7

The micro-economic and industrial budgetary domain and crises of innovation, productivity, and particular industrial sectors; • The green budgetary domain and climate change, energy, and green industry crises. •

Moreover, these budgetary domains are anchored in the basic dynamics of macroeconomic policy as examined in Chapter 3. These dynamics centre on the interplay between traditional cyclical macro crises and balanced budgets, and larger overall crises with structural budgets defined in relation to what government revenues and expenditure would be and should be if economic output was at its potential level. These are shown overall as a strong underlying shift towards a paradigm of structural fundamentalism, in short, of “getting the fundamentals” right. Crises as examined in this book are a form of political-economic reality, discourse, analysis, and advocacy that can encompass: Speedy, unexpected periods of disorder or shock in a short time period; • Slow developing crises arising from continuous failure to recognize or act; • Senses of continuous crisis in some persons’ lives compared to others; • Intergenerational and temporal crises of diverse kinds; • Use of crisis discourse as way to exert political power; • Differentiating crises from normal problems and problem solving in the face of uncertainty and varied risks. •

The 2008–12 period was defined easily as a crisis because of its speedy occurrence in a very limited time period, its apparent unexpected and unforeseen nature and scope, and its global reach, intensity and media coverage (Jayadev and Konczal 2010; Hood and Lodge 2010; Underhill, Blom, and Mugge 2010). A crisis defined as a sudden sharp abnormal event is not unusual in political and economic discourse, in political history, and in fiscal and budgetary policy. In Canada and elsewhere in the early 1970s and again in the late 1970s, energy crises clearly emerged quickly, mainly because of sudden major increases in world oil prices, two and then three-fold,

8

Canadian Public Budgeting in the Age of Crises

with almost immediate links to ensuing fiscal crises and surges in deficits (Doern and Toner 1985). Major human-made or natural disasters also are almost immediately cast in the language of crisis, with examples such as 9/11, Bhopal, New Orleans, BSE, major floods, earthquakes, and ice storms easily coming to mind (Nohrstedt and Weible 2010). Yet crises enter the language of political discourse in other ways as well and, for this reason, a book focusing on an “age of crises” needs to go beyond crises as sudden or unexpected events, shocks, or dynamics. Edelman’s early seminal work is a crucial building block – both in his work on the symbolic uses of politics and in his discussion of crises of many kinds and levels (Edelman 1964; 1977; 1978). Edelman observed wisely that “likely it is not only the threats of which men are told but the frequent and unremitting succession of crisis and détente in the news that produces political docility” ­(Edelman 1964, 14). He added: “If a man’s experience with events that concern him, as far back as he can remember, consists of emergencies, crises, and hazards followed by temporary periods of relief and hope, followed by new crises, what influence will this have upon his behavior? It may well induce helplessness, confusion, insecurity, and greater susceptibility to manipulation by others” (Edelman 1964, 14). The present fiscal, banking and sovereign debt crisis has frequently been accompanied by sidebar commentary and advocacy about how states should never fail to “take advantage of a good crisis.” But what exactly is a good crisis, especially one that might have been averted in the first place? Many events are also labelled crises, simply because the media and other political players are lazy with words, much like many scandals or abuses of power since Watergate in the 1970s are curiously labeled with an added “gate” descriptor. So, clearly, some crises are real but some are manufactured political drama and theatre; all the more so, it can be argued, in an age of Internet communication and the fast mobilization of varied political and social voices, not to mention choruses of opinion. This is precisely why we need to remember that the political world spells both “threat and reassurance” on a varied but also continuous basis; and that talk of crisis, however real or manufactured, has real political effects for citizens and democratic systems. The analysis in this book thus probes the nature of a crisis that, instead of being sudden, is in fact slow moving, cumulative, and



Introduction 9

even subliminal, recognized by some and ignored by others, including political leaders and inert majorities. The literature on agendasetting confirms these kinds of items and causes that move from, but also rarely go away from, the middle and outer edges of political and policy agenda-setting (Howlett, 2009; Bakenova 2002; Kingdon 1997). A related need in understanding the state of crises is to appreciate from whose point of view crises are said to exist and, if they are credible crisis claims, who the winners and losers might be regarding each claimed crisis, given current and future choices, and given the different time frames for ranking and resolving any proffered crises. Crises also involve senses of continuous crisis and human stress in some persons’ lives compared to others. One sees this in many aspects of social policy and related program budgeting as individuals at risk and also families face day-to-day and month-to-month crises and deep uncertainties in their lives. Intergenerational and temporal crises of diverse kinds are also a part of the definitional landscape as are their accompanying structures of political power, including voting power. Some sense of both agenda-setting and decision making is needed in the analysis, in part because citizens and organized interests do not work in only a two category world of crisis and non-crisis. Policy and fiscal problems are often easily and frequently cast simply as problematic rather than crisis-like as both governments and citizens face uncertainty and complexity. Political language and decision making is thus adept and adaptable. Long-established decision theories such as Lindblom’s disjointed incrementalism (Lindblom 1968) show that governments and other institutions often move in small incremental ways where means and ends are not clearly differentiated. This theoretical theme has been built upon and recrafted by many including recently by John Kay whose theory of obliquity argues why many of our goals are best achieved indirectly (Kay 2011). It has also been a growing feature of those authors who focus on political and policy issue management in an Internet age (Pal 2010). If public budgeting today takes place in an age of crises then these related issues need especially to be examined. Such issues require analysis in any case, because public budgeting always involves both calculated and tangential decisions to do nothing, to respond minimally and symbolically with gestures and to both bluntly and tactically postpone. These political issue management and agenda-setting

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Canadian Public Budgeting in the Age of Crises

arts and subterfuge are also important in the democratic calculus of public money and hence in diagnosing the discourse of crisis, including the content of this book. Also examined in a way that differentiates this book from other academic literature is our exploration of temporal budgeting. The concept of time, we contend, is central for budgetary analysis and has not received the attention it deserves in the literature. The study of budgeting processes, decisions, and outcomes must consider the idea of time – not only in the elementary sense that resource allocations occur over a period, but also in recognizing that budgeting is relevant to temporal issues of policy change and continuity; intergovernmental transfer and tax collection agreements; and, public pension promises across generations. In addition, time is foundational to the conduct of social survey data collection, program evaluation and performance measurement in cross-sectional and longitudinal dimensions. Political meanings of time are readily noticeable in discourses on “wait lists” for health care or social services; on “shovel ready” projects for rapid stimulus of weak economies; on “excessive delays” over the approval of new drug products or resource development projects due to “red tape.” The idea of time, then, is essential to conceptualizing and understanding public budgeting. Current literature on the overall political economy and management of public budgeting does not probe these diverse temporal varieties and features of budgeting deeply or comprehensively enough. Thus we look closely at major varieties of temporal budgeting that range from annual versus multi-year budgets, to different conceptions of operational spending versus capital investments of distinct kinds (physical infrastructure, human, social, and natural capital), and ultimately to intergenerational and demographic concepts of time and thus to diverse notions of who budgets are for and who will pay the taxes that underpin the fiscal state. main questions and arguments

The central questions addressed in this book are as follows: (1) What were the causes and consequences of the 2008–12 budgetary, banking, and sovereign debt crisis for Canada, seen in a global and North American context and in relation to changing macroeconomic policy? (2) How do these causes and consequences play out in



Introduction 11

each budgetary domain, and why are budgetary domain issues and impacts important and likely to be different? (3) What crises versus normal policy challenges exist and compete for attention and resolution within and partly across these budgetary domains, and what is Canada’s democratic, budgetary, and policy capacity to deal with them? (4) How do the temporal varieties of public budgeting impact on budgetary institutions and decision processes? (5) How does Canada’s system of public budgetary governance need to change to deal democratically with budgeting in an age of crises and in relation to diverse contending criteria of, and time frames for, democracy? Six main arguments are previewed here and developed throughout the analysis as a whole and in the main domain/crises chapters in Part Two of the book. Our first overall argument is that the current budgetary crisis is located in a larger age of crises. Accordingly, Canadian politicians and voters badly miss the point if they think that Canada has avoided the worst of the crisis besetting other nations or that in any case the crisis is about to end in the next few years as the federal budget returns to balance. The serious United States fiscal and sovereign debt crisis has huge implications for Canada not only because the US is Canada’s biggest trade market but because of the actual or potential contagion effects in global markets. Combinations of sovereign debt and fiscal crises in groups of EU and Eurozone countries are also dangerous for Canada. Secondly, we argue that the budgetary crisis beginning in the 2008–12 period was, for Canada, mainly an externally driven crisis centred in the US and its banking and housing/mortgage collapse, and resulting bailouts and deficit surges. Canada avoided the worst of these particular impacts from its biggest market partly through past, mainly Liberal policies that, through design or default, yielded more secure banking and housing practices as well as healthy fiscal surpluses in the 1998–2006 period. Nevertheless Canada still needed to incur a large $56 billion fiscal deficit and had to launch a major $62 billion stimulus program because of the US and global recession (Canada 2010; Office of the Parliamentary Budget Officer 2010). The degree of adverse impacts on Canada were exacerbated by federal policy in the Harper Conservative era, which saw the inherited large fiscal surplus depleted by dubious short-term tax and spending measures, by a failure to even acknowledge a coming

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Canadian Public Budgeting in the Age of Crises

r­ecession already evident in 2008, and by the practice of dysfunctional partisan politics that lead to it closing down parliament twice to avoid accountability for its fiscal incompetence in these early, key stages (Maslove 2009; Doern and Stoney 2010). Minority government did not help in these difficult circumstances but as of 2 May, 2011 a new Conservative majority government triumphed electorally and was given overall political credit for its later perceived management of the crisis. Thus, as the book shows, larger issues of both failed and then transformed multi-political party democracy identified below in both minority and majority contexts are clearly a key part of the story and of the challenges facing Canada (Aucoin, ­Jarvis, and ­Turnbull 2011; Malloy 2010: Stoney and Doern 2011). However, in contrast, the third main argument advanced is that over the longer thirty-year period of budgetary policy and politics examined in the book, policy and political dysfunction and larger fiscal failures and gaps naturally extend well beyond any one political party or cluster of business or social interests. It is for this reason, conceptually and empirically, that budgetary domains and the nature of crises need more careful and focused contemporary and historical analysis. The book does not cover all of the budgetary domains that compose the modern public budget. For example, we do not cover domains such as foreign and defence spending or government procurement, although we do refer to them contextually. Yet, the budgetary domains we do explore add up to the largest part of public budgeting whose own internal logics, values, economics, politics, and tax and spending governance is too often lost in the maze, all the more so, in an era of sound-bite politics and noisy partisanship. We argue that each budgetary domain, as defined, must be better understood on its own terms and in relation to its own evolution, crises, realities, agendas, choices, and inertia. Our fourth argument, arising out of both the Canadian and global budgetary experience, is that macroeconomic policy, the policy that anchors and feeds into other budgetary domains, faces its own internal crises and goal conflicts. Despite the long-term movement away from Keynesian stabilization approaches and the emergence of structural fundamentalism, of getting the structural fundamentals right, governments are still now expected to assume responsibility for unemployment and inflation. They are thus trapped in a dilemma where they are expected to stimulate the economy and balance the budget while at the same time seeking to deal with



Introduction 13

­ nderlying structural problems in any number of markets or secu tors of the economy. The fifth argument given prominence in the analysis relates to the above previewed discussion of the nature of public budgeting crises. We argue that while the character of crises may well be best known and analyzed as sudden, short-term, unexpected, and intense shocks, it must be complemented by an appreciation of other crises; crucial, slower moving or more slowly recognized crises where budgetary governance and larger political forces by design sublimate crucial policy and socio-economic problems and their possible solutions. This sublimation is a central characteristic of the power structure, general politics, and decision processes of Canadian public budgeting and of budgeting in other countries to which we refer. At the same time, not all policy or fiscal problems are crises. The issue of crisis discourse and definitions, therefore, must be related to normal policy making and to the often experienced challenges of dealing with uncertainty. Sixth, we contend that the temporal varieties of budgeting need deeper analysis and greater explicit democratic recognition and exposure both as they affect the nature of budgeting and budgetary governance, and in terms of sharpening the focus on identifying who wins and who loses on both the spending and tax sides of the political economy of fiscal choices. Seventh, and more normatively, we argue that there is a compelling need for greater democratic governance of public budgeting in all of its actual and potential arenas of debate and accountability and in a way that much more readily scrutinizes budgets over longer time frames including intergenerational budgeting. These governance reforms, as later chapters show, relate broadly to internal ­cabinet debate in an era of excessive prime ministerial power and to parliamentary and interest group scrutiny. In these core arenas of democracy in need of reform we argue that the different and conflicting core criteria of democracy that might be advocated must be explicitly acknowledged, including: representative cabinet-­ parliamentary democracy; federalist democracy; interest group pluralist democracy; civil society democracy and varied forms of direct democracy including the fast growing role of social networks. Thus overall, the intent of Canadian Public Budgeting in the Age of Crises is to broaden and deepen our understanding of Canadian ­government spending, borrowing, and taxing, historically over a

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Canadian Public Budgeting in the Age of Crises

thirty-year period, in the 2008–12 crisis period and its aftermath, set in the crucial context of macroeconomic policy shifts and in a broader international and comparative context. And our intent is to deepen that understanding by embracing the complex and multi-­ layered economic, democratic political and power structures of budgetary governance. To do so, we develop and deploy our domains and crisis dual framework but as well we draw on and link it academically to a rich existing vein of literature on budgeting, public finance, governance, globalization, and democratic politics. structure

The book is organized in two parts. Part One examines the book’s analytical framework and the three literature streams it builds from and complements, and which it advances in the three ways stressed from the outset of this Introduction. It also examines the imperatives of the global budgetary, banking, and sovereign debt crisis, the larger historical context for it globally and in Canada, and it is anchored in a discussion of the changing focus of macroeconomic policy and ideas and also in the nature of Canada’s changing budgetary governance and overall patterns of spending and taxation. Part Two of the book presents our empirical analysis of the three major changing budgetary domains on which we focus and their competing crises and responses to those crises. It also examines the temporal varieties of public budgeting, including intergenerational budgeting. Within Part One, Chapter 1 sets out in detail our two-part analytical framework of budgetary domains and crises previewed above, set in the context of academic literature on the macro political economy of public budgets; budgetary governance in a networked world; and crises, uncertainty, and risk. Chapter 2 sets out the nature of budgeting in the overall global fiscal crisis, set in a basic political-economic context. The current crisis is looked at in terms of old theories and practices and also new ideas, a conceptual range that extends from Keynes and later monetarist theories to neo-liberal ideas and more recent concepts of systemic financial risk and ideas regarding banks, firms, and even countries that are “too big to fail” and which are being subjected to ever more intrusive kinds of “stress tests.” The immediate origins and causes of the 2008–12 global crisis and Canada’s place in it are also examined here.



Introduction 15

Chapter 3 then anchors the book’s analytical review of crucial shifts in the basic dynamics of macroeconomic policy. It focuses on the interplay between traditional cyclical macroeconomic policy and balanced budgets, and larger overall tensions and conflicts with structural budgets defined in relation to what government revenues and expenditures would be and should be if economic output was at its potential level. These involve analysis, pressures, and forces that go well beyond normal business cycles and cannot be dealt with in the same macro way. These are shown as a strong underlying shift towards ideas regarding structural fundamentalism, in short, to “getting the fundamentals” right. Chapter 3 also looks at broad set of historical trends in Canada’s spending and tax choices and patterns. These are examined through a review of the basic macroeconomic and budgetary policies of the Harper, Chrétien-Martin, and Mulroney eras. Chapter 4 completes the crucial context-setting nature of Part One by looking at the evolution of Canadian budgetary institutions and governance, and so the changing nature of budgetary power, politics, and ideas. It probes the changing configurations of budgetary governance in realms such as: prime ministerial and cabinet power; parliament; and in the varied interests structured around both capitalism and also fast-changing social regimes. The first three chapters in Part Two then proceed on a budgetary domain-by-domain basis with each of the three budgetary domains examined in relation to its five main elements and to its core crises. Chapter 5 examines the social budgetary domain, the largest by far in expenditure terms and centred on major social transfer payments and hence fiscal federalism, with the analysis zeroing in on diverse crises of poverty, inequality, and pensions. Chapter 6 deals with the microeconomic and industrial budgetary domain, a domain that, relatively speaking, has smaller amounts of more flexible discretionary spending at its disposal but one that faces already long-simmering challenges and proffered crisis reframing regarding both innovation and productivity, but also of short, sharp industrial/sectoral crises and related resource claims and ideas, and a strong historical overlay of regional policy and politics, and of new spatial spending demands and impacts. Chapter 7 zeroes in on the green budgetary domain encompassed by energy, environmental, and green industry spending and taxation. Here again, energy crises of the short, sharp shock kind are

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e­xamined, and slower developing and often reframed ones are shown relating to climate change and the fostering of green industries as interests and advocates compete for public money, political attention and action, or calculated avoidance. Chapter 8 examines temporal budgeting where varied notions of time are explored, from annual to intergenerational and many kinds in between. It also shows the intergenerational and demographic bases for real or potential crises. Temporal budgeting further involves choices and democracy, or the lack thereof, regarding current and future taxpayers and citizens and individuals born and not yet born and with and without votes. In Chapter 9, conclusions are offered relating to the dual budgetary domains and crises-centred analytical framework, the varieties of temporal budgeting and the key research questions and also the main arguments previewed above. We identify implications about public budgeting and, in the wake of the continuing fiscal, banking, and sovereign debt crises we offer suggestions for enhancing the state of budgetary democracy in the face of the crucial need to tax and spend in this age of crises.

pa r t o n e

Analytic Framework, Historical Context, the Global Crisis, and Canadian Macroeconomic Policy

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1 Budgetary Domains and Crises Academic Foundations and Our Analytical Framework introduction

The purpose of this chapter is to survey the academic conceptual foundations for the book and in particular to set out in more detail our budgetary domains and crises analytical framework. We show how this framework builds from three streams of academic and related literature and also how it advances academic and applied understanding of the study of the political economy and public management of budgeting in Canada. The conceptual literature emerges from diverse social science disciplines and fields, including economics, political science, sociology, public policy and governance, and public administration. The empirical budgetary domain and crises analysis in Part Two of the book draws on other more particular policy-relevant literature, as well. c o n c e p t u a l f o u n d at i o n s

Three conceptual literature streams provide a crucial theoretical and applied fiscal and policy foundation, which deal with the macro political economy of public budgets; budgetary governance in a networked world; and, crises, uncertainty and risk. We review each in turn but also comment on ways in which they are linked and overlap. Table 1.1 previews the content at a glance. the macro political economy of public budgets

This conceptual literature encompasses crucial and much debated theories and practice about public budgets and fiscal policy that

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Canadian Public Budgeting in the Age of Crises

Table 1.1: Academic Conceptual Foundations in Brief The Macro Political Economy of Public Budgets • •

Keynes and Keynesianism Monetarist Theory and Neo-Liberalism

Budgetary Governance in a Networked World •

Spenders, Guardians, and Principal-Agent Theory Governance, New Public Management, and New Political Governance • Networks, Levered Money, and Meta-Governance •

Crises, Uncertainty, and Risk • •

Core Crisis Features Uncertainty, Risk, and Systemic Risk

are ultimately focused on the political economy of key policies and decisions. Invariably, the debate entails related questions about public versus private power (especially business power) and about the nature and efficacy of state intervention and of the proper efficient functioning of markets. We look briefly at analyses dealing with Keynes and Keynesianism and monetarist theory and neo-­Liberalism ideas and debates. Keynes and Keynesianism The natural starting point is the publication in 1936 of John ­ aynard Keynes’ classic treatise, The General Theory of EmployM ment, Interest and Money (Keynes 1936). Keynes produced a general macro theory that provided an intellectual foundation, and a coherent paradigm, that justified government intervention in situations where markets were not producing good or acceptable results for the economy and society as a whole. In particular, Keynes argued that aggregate demand in the economy might not be sufficient to generate full employment, as was clearly shown in the 1930s. Therefore government action via increased spending or reduced taxation should be undertaken to increase demand to the point where the unemployed resources, particularly labour, would be more fully employed. This macro policy intervention was therefore temporary in nature and was intended to establish growth and to stabilize the economy at high levels of employment without inflation. The clear implication is that there would be a budget “deficit/surplus



Budgetary Domains and Crises 21

cycle” moderating the economic cycle (Skidelsky 2009; Eatwell and ­Milgate 2011). Keynes’ ideas were by no means immediately adopted or accepted, given the previous ingrained historical assumptions about the need for balanced budgets and for a more minimalist role for the state. But the depression of the 1930s in the UK and US and, of course, in Canada helped create the objective conditions that led to the eventual ascendancy of Keynesian theory into policy practice. President Roosevelt’s “New Deal” program that began in 1933 to drag the US out of a deep depression was also pivotal as a kind of initial demonstration project (Krugman 2008). Keynes’ theory and its policy prescriptions were variously adopted but often not until after World War II and into the 1950s and 1960s. By this later period, the Keynesian paradigm had expanded into a larger discourse often cast as Keynesianism but which grafted on to the initial theory much broader notions of state intervention and the post-World War II birth of the social welfare state (Rice and Prince 2013; 2000; Lewis 2003). The early genesis of these views came through the Beveridge Report in the UK under the post-war Labour Government of Clement Atlee, and the Marsh Report in Canada. Thus initial paradigms for dealing with a given socio-­ economic problem can be used by a wider set of interests to help argue for other forms of policy intervention. But there was no necessary or inevitable connection between these two themes of Keynesian stabilization and demand management and larger forms of permanent extended state activism. It is quite possible for a government to be Keynesian in macro-economic demand management terms and still be wary of or opposed to larger or wider forms of more permanent market and social intervention. None of the above implies that Keynesian demand management policies as designed and practiced by some governments in later recessions were fully successful or were not controversial. However, the era from World War II to the late 1960s were often seen as socially and economically successful overall. Keynesian demand management policies or stimulus policies have clearly re-emerged in the global economic crisis that began in the in the 2008–12 period but in this instance, the need has been for global Keynesian policy as well, particularly as practiced by G20 member states (see Chapter 2). Demand management via stimulus and related monetary actions such as interest rate reductions and

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­ uantitative easing (the modern electronic equivalent of the printing q of money by central banks) have been undertaken but with sharp differences among states as to how big such a stimulus should be, when these programs should be wound down, and how coordinated both sets of choices should be in the global interest versus the interests of individual nation states facing their own particular situations and challenges, economic and political. We also see in Chapter 3 sharper challenges and conflicts between macro cyclical fiscal policy, including stimulus actions and structural fundamentalism, with the latter focusing on the need to take action or reduce state activity to deal with the capacity of the economy to meet its full potential. Monetarist Theory and Neo-Liberalism If the core economic problem that Keynes addressed was depression and unemployment, then in the monetarist and larger neo-liberal era of the 1970s and 1980s the central issue increasingly was money and inflation. Monetarist theorists and critics of Keynes and Keynesianism, centred in the University of Chicago, argued that inflation was essentially linked to the supply of money relative to the level of economic activity and appropriate levels of money supply were thus the dominant determinant of the level of economic activity (Friedman 1956). These Chicago School economic theorists led by Milton F ­ riedman advocated the need for strong central banks whose sole mandate should be controlling the supply of money so as to produce low stable price levels overall. Friedman as a public intellectual was also actively advocating the importance of free markets both for macro prosperity and to foster individual freedom and hence was a key voice for neo-liberalism in ideological terms (Friedman 1962). Once again, the initial monetarist paradigm easily became the basis for related larger arguments about policy and state intervention and non-intervention. Monetarist theories also gained some credence because of the underlying weak performance of key western economies in the 1970s and, later, the combined high rates of both unemployment and inflation  – in a word, “stagflation.” These realities led monetarist and other critics to argue against the presumed Keynesian advocate’s view that there was a policy-led appropriate trade-off between unemployment and inflation that could be managed. Some



Budgetary Domains and Crises 23

of the inflation in the 1970s was undoubtedly caused by the 1973 and 1979 oil crises, which saw oil prices double and then triple, but regardless the stagflation reality of the late 1970s and early 1980s was the new underlying political-economic imperative of the era. Support for monetarist theory and some related central bank money control policies found their initial strong political support in the Margaret Thatcher Conservative government in the UK starting in 1979 and then with the Ronald Reagan Republicans in 1980. And just as Keynes became Keynesianism, so too did monetarist theory morph into a broader umbrella concept that allowed pro-market neo-liberalism to coalesce and re-emerge. This came in the form of both Thatcherist and Reaganite discourse and action to reduce the size of the state and to defend the role and dynamism of markets and their argued capacity to produce both greater prosperity and individual freedom and choice. The basic thrust of these neo-liberal policies came in the form of the major privatization of state enterprises in the UK, as well as actions to limit the power of trade unions (Veljanovski 1987). In the US it came in the form of the deregulation of key industries with the belief that reduced taxation policies and deregulation would yield “supply-side” growth and prosperity (King 1987; Heald 1983). The UK did not deregulate to the same extent in part because its privatizations immediately required the establishment of new regulators. And the US under Reaganism did enjoy lower and stable inflation but its supply-side policies combined with heavy Cold War defence spending produced massive deficits during the 1980s. In neither of these two home country bases for the new paradigm was overall social spending reduced in the 1980s as a proportion of total national budgets, compared with the 1950s and 1960s. Clearly, monetarist and neo-liberal ideas and theories still have many strong advocates in the context of the budget and related banking crisis that began in the 2008–12 period (see Chapter 2). Undue faith in “light touch” regulation of the banking sector has undoubtedly reduced the veracity of deregulation views when applied to the US and UK banking sectors (Davies 2010). The Canadian manifestations and differences regarding the Keynesian and monetarist-neo-liberal eras of ideas and practice emerge in Chapter 3 of this book where we show the overall dynamics of macroeconomic policy and practices and conflicts between stabilization actions and ascending ideas regarding structural

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f­ undamentalism. Neither of these paradigms has left the field of battle in the macro-political economy of budgeting or in the present fiscal crisis and austerity strategies as examined in Chapter 2. b u d g e ta ry g o v e r n a n c e i n a n e t w o r k e d w o r l d

The second foundational stream of literature deals with changes in budgetary governance and ideas about governance functioning in an increasingly networked world. For our purposes this deals with ideas and literature that examine Spenders, Guardians, and Principal-­ Agent Theory; Governance, New Public Management, and New Political Governance; and, Networks, Levered Money and Meta-Governance. Again, we look briefly at these ideas and theories in both a comparative and Canadian context. Spenders, Guardians, and Principal-Agent Theory This subset of conceptual issues begins with spenders and guardians theory which emerged in the budgetary politics literature, although it extends to frameworks by economists and others that deal with principal-agent theory and broader views about the nature of agency as a complex relational concept and as a form of delegated governance. Spenders and guardians as a concept emerged in the 1960s in the early work of Aaron Wildavsky (1963; 1979) who sought in the US context to understand more precisely the calculations and strategies applied as budgetary players attempt to bargain about and decide such intrinsically political questions as how much an agency should get relative to other agencies, and how much is a fair share. ­Wildavsky saw budgeting as a set of reciprocal expectations between spenders and guardians. Departments, for example, would be expected to pad their requests for funds to guard against other current-year or future-year cuts. Spenders were the large array of departments and agencies (and Congressional allies and spenders in the US separation of powers system) and guardians were cast as a very small set of actors such as the treasury whose job was to control the totals spent relative to total tax revenues available. Canadian examples of the use of a spenders and guardians approach included early work by Rick Van Loon (1981), which drew analytical attention in the early 1980s to the problem of having



Budgetary Domains and Crises 25

too many controllers or guardians in the federal government’s then new Policy and Expenditure Management System. The present authors’ 1988 book employed the spenders and guardians approach but argued that the actual array of guardians was always much broader, in that there are also guardians in every department and also that the Department of Finance was in some respects a major spender (Doern, Maslove, and Prince 1988, Chapter 11). Differences were also noted under conditions of budgetary expansion versus restraint. Both Donald Savoie (1990) and David Good (2007) broadened the analysis further, with Good in particular focussing on a larger set of relationships and strategies between spenders, guardians, prioritysetters, and budget watchers. Underpinning these kinds of budget-focused thinking was the expanding literature on principal-agent theory anchored in public choice theory, and larger overall issues about the nature of agency (Hindmoor 2007; Le Grand 2003; Hay 2002; Dunleavy 1991). Principal-agent theory emerged in the work of Niskanen (1971) and focused on theories of the bureau. Under such theories, relationships in hierarchies were deconstructed into individualistic conceptions of how principals related to their agents, with both seen as rational individuals (including other subordinates further down in the hierarchy). The model developed raised important issues about power but also about significant asymmetries of information and knowledge that often favoured agents, and also about the need to foster competition and greater choice in service provision. Not surprisingly, these ideas about the “economics of politics” resulted in reform practices, such as forms of levered and challenge funding (Foley 1997) and also academic and interdisciplinary criticism, centred ultimately in a defence of broader determinants of human, political and bureaucratic behaviour (Hay 2002). Julian Le Grand’s work fixed on broader notions of motivation, agency, and policy development and implementation in different policy fields and contexts, including public services versus public finance (Le Grand 2003). Other critiques were more specific in relation to potential fallacies of control by central treasuries (Parry, Hood, and James 1997), dilemmas in contracting (Robinson 2000), continuing inertia in complex bureaucracies as new theoretical ideas emerge on top of old existing ones (Patashnik 1999), and complex relations in the management and control of science and scientists and science budgets (Guston 1996; Doern and Kinder 2007).

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Governance, New Public Management, and the New Political Governance Governance as a concept emerged in the literature on politics, policy and public administration over the past thirty years (Aucoin 1997, 2008; Richards and Smith 2002; Rhodes 1997). For our purposes, it necessarily overlaps with the development of concepts centred in the new public management (NPM) and, more recently, the concept of the new public governance (NPG) that focused on the excesses of prime ministerial power in relation to other ministers and parliament (Aucoin, Jarvis, and Turnbull 2011; Aucoin 2008). The meaning of governance can be expressed as an effort to recognize more explicitly that governing is more than government, more than the state, and more than public policy pronounced and implemented by the state and its bureaucracies. Thus gradations emerge in that governance can be quite state-centred yet also, at different stages of development, more arm’s-length and socially and economically rooted in private realms. It also implies the state playing a role characterized at times more by steering than rowing, and also employing softer instruments of governing rather than harder command and control regulatory ones. At its core, governance is a set of interacting policies, decisions, processes, laws and values involving joint action by the state and its agencies, business interests, non-governmental organizations (NGOs) and civil society interests and entities (Hood 1998; Rhodes 1997). It is also characterized by great differences and inequalities in power, influence, and capacity among these agencies and interests, with business interests typically having the greatest staying power in the long game of governance. As a form of increased and complex delegated authority, governance was also influenced by concepts such as NPM, the essence of which was to make government less hierarchical and top-down and more sensitive to citizens, customers, and clients through alternative service delivery modes of organization, greater transparency, and more complex forms and arenas of accountability and performance management (Aucoin 1997, 2008; Rhodes 1997). It also partly allied with neo-liberalism, through calls for smaller governments, lighter regulatory burdens, and an enhanced focus on competitive international markets and benchmarking. However, more recent emphasis has been given to concentrations of power in and around the prime minister vis-à-vis parliament, the



Budgetary Domains and Crises 27

cabinet, and the bureaucracy (Aucoin, Jarvis, and Turnbull 2011; Aucoin 2008; Savoie 2010). Aucoin refers to this as a shift from NPM to the “new public governance” (NPG) centred on exceedingly detailed prime ministerial control of policy, politics, appointments, and political communication. In Canada, this has been especially noted with respect to the Harper era and in the context of minority government, but some of these developments pre-date Harper and are globally widespread (Savoie 2010; Doern and Stoney 2010). These changes are also seen as being particularly to blame for a substantial weakening of the democratic and representative role of parliament and of the cabinet (Aucoin, Jarvis, and Turnbull 2011; Malloy 2010; Savoie 2013). Governance is without doubt increasingly imbued with, and linked to, arrangements in global authority and control. The logic of these globalization-propelled international developments meant that governance was also self-evidently multi-level governance (Bache and Flinders 2004). Multi-level governance as a related conceptual construct emerged partly because of the unique example of the European Union as a club of nation states. It also resonates in political federations such as Canada where federalism has always meant that multilevel governance is a constitutional certainty and practical reality, marked by controversy and jurisdictional tensions but also key areas of cooperation and joint action (Doern and Johnson 2006). With respect to the use of the main instruments of policy, governance can be all-encompassing. Governance includes the use of taxation, spending, regulation, and persuasion, and all of the subtypes within each major instrument. In short, it involves the deployment of the full set of tools in the governing tool box. In recent decades, governance also implies a partial relative shift in the mix of instrument deployment towards softer tools of guidelines, codes, and incentives, and systems of public information, education, and persuasion (Thaler and Sunstein 2008; Prince 2010). Networks, Levered Money, and Meta-Governance Conceptual literature and ideas about networks, levered money and meta governance are a final grouping of literature with relevance to the overall governance of budgeting. Networks as a broad and pervasive form of social organization have received ever greater analytical attention in the study of economic and social

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Canadian Public Budgeting in the Age of Crises

i­ nstitutions and thus hold considerable importance for understanding contemporary debates on, and reforms to, budgetary governance and democracy. In political and policy analysis, networks were initially cast by some authors as a particular inner feature of broader arrays of socalled policy communities (Coleman and Skogstad 1990). Policy communities developed as an analytical category that went beyond traditional interest or lobby groups. Later analyses have broadened networks to some extent (Howlett 2011; Cairney 2012; Howlett and Ramesh 2003; Pal 2006; Monpetit 2004, 2009). Meanwhile, in economic and related fields, networks were being analyzed in a much broader context where they were contrasted with markets and hierarchies as basic modes of social and economic organization (Agranoff 2007; Thompson 2004; ­Taylor 2001; Thompson et. al. 1991). Hierarchies are associated with bureaucracy, especially traditional Weberian state bureaucracy, and hence with systems of top-down superior-subordinate political and administrative relations accompanied by formal rules, with related forms of civil service bureaucracies seen as essential to representative cabinetparliamentary and other systems of democratic government (Hood 1998). Markets are organized on the basis of voluntary means of exchange tied to money, commerce, and the making of profits but with key rules and protections for property rights and transactions provided by the state. Networks are contrasted with both of the above in that they are forms of organization characterized by nonhierarchical and voluntary relations based on trust and commonality of shared interests and values where profit is not a defining characteristic (McGuire 2005; Agranoff 2007; Thompson 2004; Borzel 1998; Kickert 1997). Some attributes of networks as an institutional mode are expressed in terms of constructing partnerships. Such partnerships can be truly voluntary in nature but more often they take on the form of policyinduced or required contractual or quasi-contractual partnerships between or among public and private sector entities and interests. In this context, they begin to take on some of the inherent characteristics of markets or hierarchies, as well (Kinder 2010; Hubbard and Paquet 2007). The world of complex partnerships is also one where levered money is an increasingly built-in policy strategy. Sometimes described as “challenge funding” the practice involves governments



Budgetary Domains and Crises 29

being ­prepared to hand out funds only if the recipient can bring funds from other sources. In short, to get money one has to have money and bring money (Doern and Prince 2011; Doern and Kinder 2007). The rationale for this approach is that the policy idea behind the funding is likely to be more tenable and grounded if participants are required to bring money, including their own money, to the total funding and program or project package. The approach has longer historical roots in Canadian federalism, of course, where conditional grants have been frequently used in federal-provincial finances, but it has become a common strategic approach in research grants, s­ cience and research infrastructure (Doern and Stoney 2009), and in the broader realm of infrastructure funding, including recent fiscal recession stimulus spending (Pal 2011). The Internet as a defining and increasingly dominant and enabling technology has also become a crucial arena for and engine of, social and economic network formation and for designed systems of E-Commerce and E-governance. For many public and private interests, the Internet has greatly reduced the costs of communication and joint action (Borins and Brown 2008). Moreover, in commercial terms, Internet development fosters arguments that the “wealth of networks” is the new driver of technology and profit and of democratic participation (Benkler 2006). Analyses of networks in public policy and in the conduct of science and research also bring out the tendency for networks to be ever more complex, embedded with transaction costs and related layers of bureaucracy; not necessarily bureaucracy of the hierarchical kind but rather of a more horizontal, transactional, and virtual kind (Flinders 2008; Doern and Kinder 2007). These complex networking and partnership arrangements generate accountability regimes that are intricate and which produce the need for reporting and answerability systems that are multidirectional in nature  – in short, accountability “up” to ministers and parliaments; accountability “down and out” to clients or partners; and accountability “across and among” numerous entities, including across different parts of the government (Hill 1999; Taylor 2001; Flinders 2001). The complex nexus of hierarchies, networks, and markets has also generated theoretical interest in what some authors refer to as meta­ governance (Meuleman 2008; Peters 2009; Osborne 2009). Some define it in terms of realms of complex policy so as to analyse how governments endeavour to direct developments and also maintain

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Canadian Public Budgeting in the Age of Crises

accountability in highly networked economic and social ­contexts and situations. It implies governing from the centre in a way that requires direction but it also involves large amounts of delegated and devolved governance. Ever broader sets of broad policy values and goals have to inform such metagovernance approaches. The focus by Meulemann (2008) is much more explicitly on the feasibility of actually designing and managing governance realities that are increasingly combinations of hierarchy, networks, and markets. c r i s e s , u n c e rta i n t y , a n d r i s k

The third stream of academic literature centres on debates and ideas about the nature of crises, uncertainty, and risk. This is a much more dispersed and diverse cluster in terms of conceptual thinking both in terms of policy fields and academic disciplines. The policy fields include areas such as floods, hurricanes, nuclear reactors, epidemics, transportation accidents, oil spills, bank failures and bailouts, and major food safety and drug regulation crises over particular foods or medicines such as genome-based medications and tests, and the BSE and thalidomide crises in earlier decades. The disciplines involved range from the natural and health sciences to engineering, economics, political science and public management. We, of course, are mainly interested in budgetary crises in the book as a whole, but these clearly overlap with views of policy crises, real or imagined, in different policy fields. Thus, for our purposes, we are also interested in policy literature that has differentiated between pre-crisis stages and post-crisis responses and also normal policy-making, policy change, and policy discourse. We look briefly at: core crisis features; and then at uncertainty, risk and systemic risk. The analysis of core crisis features is partly definitional and mapping in nature and often focuses on the substantive impacts and actions in specific case studies of varied sizes and impacts and across numerous policy fields. Nohrstedt and Weible (2010) usefully define crises as “periods of disorder in the seemingly normal development of human affairs, along with widespread questioning or discrediting of established policies, practices and institutions” (Nohrstedt and Weible 2010, 3). But there are clear differences among authors in examining crises, such as between arguments that link crises to external versus internal events or shocks, or to what other authors refer to as different kinds of changed framing of policy problems



Budgetary Domains and Crises 31

and determined efforts to focus or refocus policies and events differently (Gundel 2005; Boin et. al. 2005). Crises also generate analytical differences as to whether they really cause policy change (James and Jorgensen 2009) and are almost immediately caught up in a much earlier literature on incremental and more gradual change (Lindlom 1968) versus major change ­(Etzioni 1968), and also on the capacity of immediate interests within policy fields to resist change in periods of crisis. The sheer complexity of institutions and of any given proffered crisis event and discourse also enters the analytical equation (Boin et al. 2009). Broad crisis features and discourses have multiplied and morphed over the last several decades, going from claims of democratic overload, and predictions of fiscal crises and a legitimation crisis of the 1970s; through to deficit crunches and economic recession crises in the 1980s and 1990s; worries of social policy dumping and deindustrialization in advanced economies, due to the inexorable forces of free trade and economic globalization; and, to the growing discussion in recent decades of aging populations and resulting pension crises, health care funding burdens, and intergenerational tensions (this last theme is dubbed “apocalyptic demography” by some social critics). In budgetary and fiscal policy, crises have often focused on different kinds of actual substantive policy content and trajectories of behaviour. James O’Connor’s book in the 1970s examined the “fiscal crisis of state” but tied the long-term crisis of issues such as social and income inequality to the inherent bias in the functions of the capitalist state (O’Connor 1973). The capitalist state’s three core functions were argued to be capital accumulation, legitimation, and when needed, coercion. Along with other similar neo-Marxist literature (Panitch 1977) the crisis of bias was permanent, longstanding, and adverse regarding social spending and redistribution and could only be remedied by much broader egalitarian ideas and forms of democracy. In a very different kind of analysis in the mid-1990s, Foster and Plowden (1996) wrote about the “state under stress” but saw the overall stresses as being mainly manifest in the longer term fiscal crisis, a crisis defined mainly by greater pressures to spend that were not matched by citizens’ willingness to be taxed. They also factored in the then early forms of the New Public Management and contracting in the UK in particular, and argued in part that these reforms

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may well be hollowing out the state in such a way that it cannot respond to its and society’s greatest policy problems. On the other hand, consider how Castles (2004) writes with respect to the welfare state: “For what is now more than three decades – since the time that the First Oil Shock spelled the end of an era of taken-for-granted, continuous economic growth – influential commentators have been arguing that the welfare state project is in dire trouble” (Castles 2004, 1). However over the course of a book filled with detailed and careful empirical and comparative analysis, Castles concludes: that “there has been no generalized crisis of the welfare state in recent decades” (Ibid., 9) and that “crisis threats made with increasing stridency since the mid-1970s have remained uniformly unfulfilled” (Ibid., 168). Castles concludes that times have changed and with them, so too have programs but that “the ‘golden age’ of the welfare state, when welfare programmes were growing from small beginnings, is no longer with us, and we now live in an era in which the vast majority of social programmes have attained their mature form” (Ibid., 169). Murray Edelman’s (1977; 1988) cogent views on crises and politics are also crucial for understanding the current age of budgeting. He argues, for example, that the “evocative potency” of crisis as a term relates to its association with “the most feared common threat that the polity is endangered by developments outside its control” (Edelman 1977, 43). He goes on to spell out the key elements of a crisis, such as (i) exceptional and singular or recurring and systemic; (ii) as distinct and unique or linked and interconnected with other issues; (iii) as linked to a set of actors outside or external to the state/country or as inside, domestic, internal to the state, community, or economy (Edelman 1977). On the temporal nature of crises, he argues that “past crises become symbols whose meanings affect later developments” (Edelman 1977, 48). Thus, there is a form of “path dependency” connected with a crisis that plays a role in social learning and political memories. On the political and power effects of a crisis, Edelman wisely observes that in calling a set of events a crisis, the intended effect from authorities is to appeal for community unity, expect shared sacrifices of some kind, and general support for governmental actions, some of which may be extraordinary in scope and impact (Ibid., 44–9). “Like ‘problems,’ crises typically rationalize policies that are especially harmful to those who are already disadvantaged. Wars, recessions, depressions, severe ­earthquakes,



Budgetary Domains and Crises 33

and steep price rises impose especially heavy burdens on the poor and the powerless, while they also justify increases in the power of regimes” (Edelman 1988, 31–2). Finally, as we see further in Chapter 2, the scale of characteristics, impacts and determinants of a given crisis are also of importance analytically. Howard Davies’ (2010) analysis of the current financial crisis unambiguously calls it “the most destructive economic event of the last eighty years” (Davies 2010, 1) and attributes its causes to any number of private and public institutions, professions, actors, and designers and takers of risk in its epicentre in the US but also in other countries. Similar views, as Chapter 2 also shows, have accompanied the current sovereign debt crisis both inside and outside the Euro zone and the European Union and the institutional capacities to contain large scale multi-country contagion. Concepts of uncertainty, risk, and systemic risk are also germane to analyses of crises, budgetary and otherwise. Uncertainty is in one sense a key characteristic of many, indeed most, decision making situations. Risks are inevitably twinned with uncertainty since they relate to potential harms and adverse impacts on individuals, families, groups, communities, sub-populations, nation states, firms, and spatial areas. Risks can be voluntary or involuntary and are so diverse, extensive, and ever-present that the literature often speaks of the “risk society” (Beck 1992; Hood, Rothstein, and Baldwin 2001). In policy fields and program areas ranging from food, drugs, nuclear reactors, pensions, and in the broader design of government subsidies, loans and contracts, risk is associated one way or another with a trilogy of key concepts and decision stages, including risk assessment, risk management, and risk communication, each linked in practice to conceptions of relative certainty and uncertainty (Doern and Reed 2000). Risk Assessment refers to the determination of a quantitative or qualitative value of risk that is related to a specific situation or identifiable hazard. Analytically it involves calculations of the size or magnitude of a potential loss (of life or other harm) and also the probability or degree of certainty of its occurrence. It is often cast as a key step in overall risk management but risk management is also more particularly defined as the taking of steps to either eliminate or to reduce such risks as much as is reasonably possible by introducing control measures ranging from outright bans right through to provisions for proscribed use and pre-market

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assessment and post-market as well as life-cycle review and monitoring (for example of a new production plant or project). In debates about food, environmental and other product safety systems, there have always been debates about whether risk assessment should be kept separate, institutionally independent, and arm’s-length from risk management or whether they are best kept closely housed and linked within key governance agencies (Allemano 2008; Leiss 2000; Royal Society of Canada 2001). Risk communication involves any number of processes of disseminating information about risks and degrees of uncertainty, and also about risk avoidance, prevention, and management to citizens, communities, interests, and firms on a continuous targeted basis. But such communication also involves potential bombardment and risk overload, all the more so in a mass media and Internet world. Risk assessment and risk management can obviously be very micro in the sense that it can be focused on a given new product. But, as was the case with the discussion above of metagovernance, the risk literature also increasingly focuses on larger clusters or groupings of uncertainty and risk, and hence at variously defined risk-regulation regimes for classes of products such as in biotechnology and genetics (Doern and Prince 2012), or in the functioning and nature of complex production and use characteristics and uncertainty in “risk domains” (Hood, Rothstein, and Baldwin 2001, 36), which in turn may function in even larger “regulatory regimes” nationally and internationally (Roseneau 2007; May 2007; Geyer and Rihani 2010). These larger risk groupings and impacts also reflect the need to be more conscious of systemic risk across many product, process, and institutional lines and in the face of policy and institutional complexity, public and private (Cairney 2012; Geyer and Rihany 2010; Fischer 2009). The banking crisis has clearly been focused on systemic risk and how to do a better job in the future about entire financial systems, national and international, rather than just banking (Yeh 2010). Indeed, aspects of the banking and financial product mix were cast as being closer to gambling than banking (Davies 2010, 79–83). The climate change debate is also overwhelmingly about systemic risk to the planet from multiple sources of greenhouse gases (­ Newell 2012). So are reforms to food policy regulation where concerns arise about macro groupings such as foreign food imports and their extended farm-gate to plate supply chains, and also about integrated



Budgetary Domains and Crises 35

sustainable food production and consumption in these supply chains (Paarlberg 2010). The public-private notions of governing risk have been also been captured in the concept of “management-based regulation” which explicitly recognizes that in many fields regulation is increasingly a matter of de facto co-governance with private firms and related interests and organizations (Coglianese 2008; Bennear 2007). Its underlying concept is “to deploy regulatory authority in a way that leverages the private sector’s knowledge about its particular circumstances and engages with firms in developing their own internal procedures and monitoring practices that respond to risks” (Coglianese 2010, 160). As a final, smaller scale example of views about budgetary uncertainty and risk per se, consider the role and use of contingency funds in federal budgeting (Doern 2009). The federal government always has some kind of capacity for contingency funding in that if larger unforeseen risks and emergencies happen, it can seek supplementary estimates from parliament. During the Chrétien-Martin era, however, earmarked contingency funds became a key part the annual budget. Such more transparent funds were presented as actions to ensure more prudent budgeting. Estimated as a percentage of the federal budget (1 or 2 per cent) or simply based on recent years’ practice, a fund was established. There is always the practical question as to whether the contingency proves to be adequate enough to cover the actual costs of an emergency such as SARS or the BSE (mad cow) crises. The Martin Liberal contingency fund was only designed to cover adverse variances in interest rates, exchange rates, etc. It was not available for program cost overruns or new program demands. Harper Conservative suspicions caused them not to establish a contingency fund. And they certainly did not regard the large fiscal surpluses they inherited from the previous Liberal government as a contingency fund. Indeed those surpluses were treated only as excessive taxation and were largely gone when the recession started due to combined Conservative tax reductions and spending increases. t h e b u d g e ta ry d o m a i n s a n d c r i s e s a n a ly t i c a l f r a m e w o r k

The conceptual literature surveyed above informs and underpins key aspects of the book’s discussion of the current budgetary and banking crisis, macroeconomic policy and budgetary politics ­analysis

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in Chapters 2, 3, and 4 respectively and its two-part budgetary domains and crises analytical framework (see table 1.2) as empirically examined in the three budgetary domain chapters in Part Two of the book. The analytical framework and the empirical analysis throughout will enable us to answer the central questions posed in the book. They also help us understand some of the temporal varieties of budgeting that we focus on in Chapter 8. As an analytical category the notion of a budgetary domain is defined as a complex realm of fiscal content, choice and governance. As in some of the literature surveyed above, it is a term often used directly, or it can be and often is used interchangeably with terms such as “jurisdiction” (as in the federal or provincial domain, constitutionally speaking) or as a “regime” such as in analyses of risk regimes, regulatory regimes, and international regimes of governance. Metagovernance also emerges in the literature to ensure a more accurate and in-depth look at these varied middle worlds of budgetary activity, ideas, and politics and as they seek to manage the combined features of hierarchies, markets, and networks. Domains, therefore, involve groupings of budgetary and policy content and decision-making that are much larger and more complex than single departments and agencies of the federal government, but which fall well short of an analysis of the entire federal fiscal policy governance system, let alone all of governance. We examine three defined domains, as noted above, but because of political-economic debate, academic theory and discourse, and institutional politics, there are bound to be both agreements and disagreements about the boundaries of key domains. Indeed, boundary issues are also often a key feature in the analyses of domain crises. The five elements that we map in each of the three domains are in our view more and more essential for past, present and future budgetary analysis. Some domains have been present for very long periods (the macroeconomic and social domains) and others such as the green domain, are somewhat more recent and are contending for attention and funding and for entry into the always limited space for power at the centre of democratic government and politics, and also for market power and primacy. Each of the five elements in budgetary domain analysis are necessary, but pose different challenges regarding qualitative and quantitative data and evidence and also regarding the time periods being covered.



Budgetary Domains and Crises 37

Table 1.2: The Two-Part Budgetary Domain and Crises Analytical Framework Budgetary domain defined as a complex realm of fiscal content, choice and governance. Analysed in terms of five elements that help define a field of activity and democratic choice and inertia, namely: • mixes of dominant and contending ideas, discourse, and agendas; • entrenched and shifting systems of public and private power; • multi-departmental/agency governance institutions at the federal level; • bundles of spending and taxation and related governing instruments including, where appropriate, regulatory ones; and • mixtures of federalism and multi-level and multi-scale governance (federal, provincial/ territorial, Aboriginal, city/local, regional/spatial). Three domains empirically examined: • The Social Domain (including its diverse crises of poverty and inequality) • The Micro Economic and Industrial Domain (and its innovation, productivity, and industrial crises) • The Green Domain (and its energy, climate change, and green industry crises) Crises defined as a form of political-economic reality, discourse, analysis, and advocacy that can encompass: • speedy unexpected periods of disorder or shock in a short time period; • slow-developing crises arising from continuous failure to recognize or act; • senses of continuous crisis in some persons’ lives compared to others; • temporal and intergenerational crises of diverse kinds; • use of crisis discourse as way to exert political power; • differentiating crises from normal problems and problem solving in the face of uncertainty and varied risks. The above types of crises are empirically examined in each of the three domains and with respect to temporal and intergenerational budgeting as discussed in Chapter 8.

The mixes of dominant and contending ideas, discourse, and agendas are found in historical, but often still relevant, advocacy of paradigms such as Keynesian economics and monetarism/neoliberalism. The mixes also show up in the changing content of budget speeches, Throne speeches, and interest group, think tank, and academic papers, not to mention the diverse kinds of changed discourse and sound-byte politics developed by the media, Internet bloggers and social networks, and also by political parties. Domains also contain entrenched and shifting systems of public and private power. Within the state, public power can involve the impacts of minority versus majority governments but also the extended power of prime ministers vis–à-vis the cabinet compared to earlier periods or as exercised with greater focus in some domains

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rather than others. Private power typically focuses on the power of business, Canadian and global, including its preferred departments of focused lobbying such as Finance, the Bank of Canada, and also variously mandated “industry” departments. Governance as a concept is, of course, quintessentially about interactions of public and private power and democracy, and therefore co-governance with market stakeholders and social interests and networks. Domain analysis involves the analysis of multi-departmental/ agency governance institutions at the federal level. This refers to structures of both line departments headed directly by ministers and larger arrays of arms-length agencies both within a department and/ or as a part of a larger ministry of agencies not as directly controlled by ministers, indeed often made independent so as to partly de-­politicize decision making. Domains are arguably an even more necessary analytical construct in Canada precisely because the Canadian federal cabinet is so large compared to other countries’ executive systems (about thirty-five to forty ministers). Domains mean that one is looking for multiple departments and agencies both cooperating and in conflict with one another or simply stalemating each other on their own or under the designed tactical and strategic politics of those at the centre. Domains are crucially composed of bundles of spending and taxation and related governing instruments including regulatory ones with significant mandated private spending for firms and consumers/citizens. We naturally focus on spending and taxation, but we also take note of the issues regarding so-called “regulatory budgets” as needed. The domains examined vary considerably on the size, nature, and flexibility of spending and taxation, with taxation impacting through overall personal and corporate taxes and revenues but also through various tax expenditures and tax credits. Some domains also involve earmarked funding, such as special funds for pensions and employment insurance, which are held on a quasiarm’s-length basis from the central treasury. Domains constitute mixtures of federalism and multi-level and multi-scale governance (federal, provincial/territorial, city/local, spatial). Canadian federalism creates politics and policy that divide constitutionally between national and provincial governments yielding both conflictual and cooperative joint action and also various kinds of bilateral and multilateral federalist bargains and views of democratic action. Fiscal federalism involves an elaborate array



Budgetary Domains and Crises 39

of large federal or joint funding, especially social funding, that have emerged under established programs including equalization, education, health care, Aboriginal, and immigration programs. But federalism is also multi-level and multi-scale spatial governance, largely because of the increasingly direct funding relationships between cities, municipalities, and the federal government and also because of global governance and the impacts of trade laws and other international regulatory systems on different coordinated and uncoordinated federal, provincial, local, and other levels of governing authority. The various contents revealed by these five elements will yield a varied potential ranking of domains, hierarchically and in terms of agenda power and also in relation to the types of crises that might be prevalent, such as sudden unexpected crises or slow moving ones or even crises based on the tactical reframing of issues. The order of our three budgetary domain chapters in Part Two reveals some of our views about the hierarchical mapping of budgetary domains in Canada. Crises as a form of political-economic reality, discourse, analysis and advocacy are defined as or can encompass, first, speedy unexpected periods of disorder or shock in a short time period. The current 2008–12 period, globally and in Canada, as examined in Chapter 2 certainly deals with this arguably best-known version of a crisis. The energy crisis of the late 1970s and early 1980s and its extension into deep and sudden fiscal deficits, as examined in Chapter 3 and in Chapter 7’s analysis of the Green domain also fit the definitional bill here. In a different, more precise way, the recent auto crisis and bailout of 2009–2012 is also important in the context of Chapter 6’s account of the microeconomic and industrial domain. The notion of crises as slow developing crises arising from continuous failure to recognize or act is certainly a second definitional and analytical zone. It arguably requires more analytical and policy and political detective work, not to mention the analysis of political discourse. We encounter it and its analytical challenges first in our examination in Chapter 3 of the emergence of structural fundamentalism as a set of concerns aimed at determining whether or not normal macro fiscal cyclical budgeting is ignoring or dangerously downplaying policies and tax and expenditure decisions needed to establish and promote an optimal, high-performing economy. The analysis in Chapter 6 of the microeconomic and industrial domain

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traces both deep problems of productivity and innovation crisis as slower-forming crises or argued crises and the sufficiency of action and inaction as agendas change or are advocated and resisted. The perception of a crisis as a sense of continuous crisis in some persons’ lives compared to others certainly arises in Chapter 5’s examination of the social budgetary domain, where different notions of continuous poverty (and even definitions of poverty) and disability arise and are periodically responded to by budgetary actions partially real, or only gesture-like to show concern, but still inadequate for the individuals and families involved. Some aspects of this kind of crisis also emerge in Chapter 6 regarding single industry towns and regions strongly dependent on one major employer, and regarding Aboriginal peoples in Chapter 7, where energy and related Green domain issues are expressed through northern and Arctic strategies, spending and discourse. These kinds of crisis involve still different forms of analytical detective work and advocacy by diverse but usually weaker charities and related NGOs, and also by Aboriginal peoples. Crises defined as temporal and intergenerational crises of diverse kinds is the fourth definitional viewpoint to be examined in the book. Although we examine these kinds of real or proffered crises in Chapter 8, there is a clear sense that they cut across all three of the domains examined in Part Two as well as our account of structural fundamentalism versus normal cyclical fiscal policy in Chapter 3. The largest intergenerational crisis is centred on large scale demographic change (in Canada and internationally) that impacts on health care, pensions, education and daycare spending, and related revenue-raising. Other forms of temporal crises are also a part of the discourse or reframing of fiscal challenges in debates and actions about whether certain kinds of spending need to be treated as investment versus normal operational spending given their importance in fostering medium and longer-term economic capital, infrastructure, human capital development, and longer-term prosperity. Though they do not address definitional aspects of crises per se, our two final analytical aspects of crisis analysis warrant separate treatment within and across the three domains, and in relation to all four of the crisis definitional areas established above. Thus the use of crisis discourse as way to exert political power takes us fully into Edelman’s insights regarding the “evocative potency” of various crises, policy or budgetary. While such power wielding is typically



Budgetary Domains and Crises 41

in the hands of the state it is, in an Internet and social network age, also possessed and utilized by business interests and social and charitable NGOs. If crisis discourse is deployed it is also often countered by those who see such political language as excessive and inaccurate. In a similar analytical way the task of differentiating crises from normal problems and problem solving in the face of uncertainty and varied risks is a key feature of our overall framework. The state, in concert with complex public and private economic and social interests, and in the face of technological change must deal with or postpone dealing with numerous problems and challenges. They involve different degrees of uncertainty and risk and thus complex agendasetting and continuous strategies of discourse and reframing. Consequently the concept of budgeting in an age of crises has a potential and difficult double conceptual and empirical challenge: the analysis of serious genuine crises being dealt with or avoided versus others that are, in fact, closer to normal, smaller-scale problems that continuously sit in the middle and lower ranges of political, policy, and fiscal agendas where spenders want the answer to be “yes” and various guardians answer “no” or “not yet.” conclusions

Three literature streams provide the academic foundations that underpin this book: the macro political economy of public budgets; budgetary governance in a networked world; and crises, uncertainty, and risk. Each provides partly separate and partly linked theoretical and applied conceptual foundations for analysis, both normatively and empirically. The first literature stream offers key insights into historic and still relevant current ideas about macro fiscal and economic policy and about extended applications into wider views about state intervention and power under capitalism and market economies. The second literature stream highlights the new and old concepts about government versus governance, the effort to make service delivery more arm’s-length from political executives, yet also recent strong tendencies to aggrandize prime ministerial power and control. The third literature stream brings to bear important features of the diverse nature of crises, uncertainty, and related risks, relating them to major shocks and departures from normal stable policy making and fiscal activity. As well, this diverse nature of crises embraces some that drift, are resisted, and/or are reframed ­tactically

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and with the full arts of inertia at play, and other crises that are the more dubious products of sound-bite political rhetoric and economic discourse. Centred on the concept of budgetary domains, their five elements and the definitional kinds of crises and their analytical challenges, our analytical framework is a major contribution of the book. It underpins the qualitative and quantitative analytical data that Part Two’s budgetary domain chapters include and analyse, in relation to answering the main research questions posed in the book’s Introduction. The conceptual foundations we have traced here find expression and relevance in both parts of the book. They have influenced the construction of our two-part domains and crisis analytical framework. In relation to current academic literature, we argue that our dual framework is increasingly needed and valuable. The concept of budgetary domains and their five defined elements that we map in each of the three budgetary domain chapters are, in our view, more and more essential for past, present, and future budgetary analysis. The elements are complex but they are very real analytically and practically for telling the Canadian budgetary story. Crises defined and examined in six key ways as a form of politicaleconomic reality, discourse, analysis, and advocacy are a necessary and vital complement in present-day and future budgetary analysis, and indeed regarding how we interpret past budgetary choices and inertia. Three other key context-setting parts of the Canadian politicaleconomic budgetary story now need to be presented and discussed; in Chapter 2, a diagnosis of the current 2008–12 fiscal, financial, and sovereign debt crisis both globally and for Canada; in Chapter 3, an understanding of the dynamics of macroeconomic policy and of the key spending and tax trends across the different Liberal and Conservative government eras since 1980; and, in Chapter 4, a historical and contemporary picture of budgetary institutions and decision processes and hence of key aspects of political power and budgetary accountability.

2 The Global Fiscal, Banking, and Sovereign Debt Crises International and Canadian Responses introduction

The global fiscal, banking, and sovereign debt crises that began in the 2008–12 period and are still reverberating, were unprecedented in scope and impact. In terms of our conceptual discussion of a crisis in Chapter 1, these combined crises were of the sudden unexpected disorder or shock example of a crisis. But, as we show, other notions of slower developing crises are also present, depending in part on when one starts the story and in what particular country or group of countries. The epicentre was in the banking, mortgage, and fiscal systems in the US, along with early bank bailouts in the UK, but this cluster of crises embraced all Western economies as well as a fast-changing, developing world in which China, India, and Brazil were now growing and altering the politics and economics of international governance. The viability of banks and of national budgets were quickly joined by concerns about overall sovereign debt and hence the fiscal viability of some nation states, especially in the euro zone and in the larger European Union but eventually in 2011 in the US as well, although not in a sovereign debt way. The US episode on raising the debt ceiling in 2011 was really a sovereign debt/fiscal viability issue that was a purely political crisis. The purpose of this chapter is to set out the global origins and key features of these crises and the initial political-economic responses to them. The focus in the first section of the chapter is international but the chapter’s second section then highlights the Canadian impacts and the responses of the Harper Conservative government. In this sense the chapter is a crucial empirical entry point for the book’s overall analysis, but it also serves as a base point from which we look

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both back historically and forward into the medium and longer-term future. The chapter also takes further note of a range of older and newer theories and practices regarding the causes and cures for the crises and for the global avoidance of new crises in the future. These theories and practices range from Keynesian and ­Monetarist theories and neo-liberalism as reviewed in Chapter 1, as well as concepts of systemic financial risk and banks and countries that are alleged to be “too big to fail.” the global crises and responses

The global fiscal and banking crisis emerged and shook the world initially in the 2008–12 period with serious and also uncertain impacts for the second decade of the twenty-first century now underway. The attributed causes of the crisis began much earlier and with inevitable differences in: when to start the causal story; what institutions and countries should be blamed; and what macroeconomic and regulatory policies, or failures to act, were most blame-worthy (DeLong 2011; Stiglitz 2011). For those countries which comparatively managed to avoid the worst of the impacts, we look as well at what kinds of policy or banking virtue were claimed either validly or with the great advantage of political and economic hindsight. The US and uk Epicentre of the Banking and Sub-Prime Mortgage Crises The US and the United Kingdom, and more particularly New York’s Wall Street and London’s financial heartland, The City, were the initial core locales of the global banking crisis origins (Sinn 2010). As the duelling, competing leaders in financial markets, they were where the new banking hubris was born and encouraged, either ignored or undetected by financial regulators (Krugman 2008; R ­ einhart and Rogoff 2009; LaBrosse, Olivares-Caminal and Singh 2011). Whether cast benignly as innovative banking or more accurately as casino capitalism, the banking parts of the global crisis were forged by a combination of factors and primal urges ranging from excessive profit and greed, to new mathematically modelled and computer designed technologies for assessing and taking risks and for the packaging and re-packaging of varied financial instruments that many bank executives scarcely understood (Davies 2010; ­Carmel 2009; Taylor 2009; Schwarcz 2008). Regulators functioning under



Global Fiscal, Banking, and Sovereign Debt Crises 45

publicly avowed “light touch” regulation in the UK and the cumulative effects of earlier financial deregulation in the US took a deserved top-ranked place in the institutional failure and blame game league rankings (Dungey, Fry, Conzalez-Hermosillo, Martin 2011). Added to this core story was the US sub-prime mortgage part of the crisis. Guided partly by longer term George W. Bush era policies to foster home ownership, the complex American mortgage lending market had gradually produced lending and buying practices that went well beyond normal market and risk calculus (Engel and McCoy 2011; Cohan 2010; Krugman 2010a). Mortgages were given to large numbers of Americans without any or significant down-­ payment requirements and mortgage financing was also caught up in the risks absorbed by US government-run mortgage bodies such as a Fanny Mae and Freddy Mac. It was precisely many of the new, already lax mortgage instruments that then became repackaged into the bank asset nether world referred to above. When the crash came in 2008 and beyond, the effects were felt everywhere in the US as individual citizens had their mortgages foreclosed when they could not pay, or others were able to easily walk away from their homes, leaving empty homes blotting otherwise pleasant-looking urban neighbourhoods or, worse yet, hollowing out entire areas of American cities. The first banking crisis policy response was in the UK and US when bank bailouts became necessary largely on the grounds that banks – or at least some banks – were indeed too big to be allowed to fail. In the UK, this came first with a smaller UK bank, Northern Rock, followed by partial state ownership of large mainstream banks such as Lloyds TSB and the Royal Bank of Scotland (Haseler 2010; Hood and Lodge 2010). In the US, bailouts of its much more decentralized banking system focused on the need to deal with the varied overreaches and dubious risk practices of particular large, well known, and powerful financial institutions such as Lehman Brothers. It was allowed to go bankrupt in 2008 and the shock to the financial system was such that it caused a run on even ultra-conservative money market funds. This kind of panic caused the Bush administration treasury department to seek permission from Congress to use taxpayer money to support the system (Foley 2010; Carmel 2009; Reich 2010; Krugman 2010b). Even though there were some grounds to believe that both the UK and US governments would eventually get some of their b ­ ailout

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money back, the immediate effect was that a smallish UK deficit quickly became a big and noticeable one, and the already large US deficit became even bigger. Moreover, as the overall effects of the crisis kicked in, in the form of negative growth and growing unemployment, both central banks lowered interest rates to unprecedented levels. They also began the practice of quantitative easing, the modern day electronic equivalent of printing money when a central bank buys its own government-issued bonds, such as gilts, or bonds issued by companies and this results in giving money to sellers (mainly banks) which in turn will hopefully be inclined to lend more. The core banking crisis and its impacts on deficits and on a recession now seen as the worst overall since the 1930s quickly spread to other countries (Eatwell and Milgate 2011). Indeed, some scholars were moved to say that this was not a recession but was, rather, fast becoming a “great contraction”, much deeper, longer lasting, and more difficult to recover from than a mere recession (Rogoff 2011; Economist 2011). The other countries included, most visibly, those often small countries whose own banking systems had national brands of financial hubris but were also tied to what was happening to the US and UK. This included countries such as Iceland and Ireland, and then a kind of second phase crisis concern quickly became apparent for sovereign debt of EU and eurozone countries such as Greece, Portugal, and Spain (Georgiopoulos and Papachristou 2011; Economist 2011). However, the crisis story in each of these countries was different in that that of Greece could be traced back as a slowmoving crisis of excessive spending and borrowing almost as soon as the Euro zone was formed in 2001. Meanwhile, that of Portugal and Spain were more products of the 2008–12 period in that their public finances and deficits were well within the then operating EU budgetary guidelines/rules. The US and UK epicentre was also taken special note of by the fast growing Chinese, Indian, and overall Asian and East Asian economies whose banking systems had not imploded and whose econo­ mies then fared better in the aftermath of the recession. They still had concerns about the world economy and their own prosperity and, as we note further below, they were also gearing up to increase their influence and power in the coming negotiations over what kinds of global fiscal and financial regulatory regime would emerge in the wake of the crisis.



Global Fiscal, Banking, and Sovereign Debt Crises 47

There was little doubt early on that a new and changed global power structure was being created, partly through an energized G20, the relative demise of the G7 and G8, and also through changes in the funding and governance of international economic agencies such as the World Bank and International Monetary Fund, and the international Basel Committee on Banking Supervision grouping central banks and bank supervisors (Stiglitz 2011; Kirton, Larionova, and Savona 2010). The G20 was established in 1999 following the 1997 East Asian financial crisis (Kirton 2005). As Canada’s Finance Minister, Paul Martin had been a leading advocate of the G20 arguing that there was a growing global need for better representation of developing countries and East Asian economies in global economic governance. G20 meetings involved initially annual meetings of finance ministers and also central bank governors. Following its first eight years, the G20 was given only passing marks largely because it was assessed to be mainly an entity that supported the agendas of the smaller Western dominated G7 (Martinez-Diaz 2007). However, the G20 status and power structure changed markedly during the 2008–11 period. Political leaders attended the early crisis period 2008 summit in Washington, the 2009 summits in London and Pittsburgh (Helleiner and Paglairi 2009), and the 2010 Toronto summit. The G20 became the focal point for the drafting of consensus joint approaches on stimulus programs, when to end such programs, and also for banking regulation reforms aimed at dealing with systemic risk and preventing a repetition of the current crisis. While there was considerable momentum in these meetings and discussions, it was also the case that member nations that had done well or better in the crisis did not necessarily want to be dictated to as to how they should deal with their particular manifestations of crisis, not to mention their democratic politics. Hence, there would have to be flexibility given the different situations member countries faced. The net stimulus programs of OECD countries varied greatly with that of the US assessed as being at the lower end of the range (Stoney 2012; Aizenman and Pasricha 2011). From Banking Crisis and Recession to Sovereign Debt Crisis Deficits and recessions, however caused, have always been linked to current and cumulative concerns about national debt, renamed

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during the current crisis as sovereign debt. In Canadian history, these breakdowns can be traced back to the 1930s when responses involved the linked issues of strong opposition to the banks, the formation of Social Credit parties in the Canadian prairies, and a fear that some provinces would go bankrupt (Ascah 1999). In the current crisis period, debt levels expressed as a percentage of national/sovereign annual GDP became the performance and warning indicator of choice, aided by the rankings and ratings of bodies ranging from private credit rating agencies to the World Bank and IMF, and also central banks and the OECD. Increasingly involved, as the overall fiscal crisis got worse and ever more global, were what Nobel economist Paul Krugman called the “bond vigilantes” – investors who would, could, or did “pull the plug on spendthrift governments, driving up their borrowing costs and precipitating a crisis” (Krugman 2010, 1). In 2011, it was not at all uncommon to refer to the ever more serious Greek sovereign debt crisis as sovereign debt’s equivalent to the banking system’s “Lehman Brothers moment” when fears of multicountry contagion grew, especially regarding the euro and poorer eurozone countries (Economist 2011). Following the initial high profile fiscal and banking crises in Iceland and Ireland, the sovereign debt crisis and focus spread to countries such as Greece, Portugal, and Spain and even larger economies such as Italy and France. There were also direct links to the banking crisis because banks were also heavily involved in bonds and sovereign debt holdings. Greece’s debt as a percentage of GDP is 142.8 per cent, with Italy at 119 per cent, whereas Finland’s debt was only 48.4 per cent and Sweden’s stood at 39.8 per cent (Day 2011). The politics and economics of bank stress tests also emerged more sharply in 2011 when the European Banking Authority released its first stress test reports. Eight European banks failed the test of their ability to withstand a prolonged recession. This process required ninety European lenders to reveal their profit forecasts, a breakdown of their sovereign bond holdings, and funding costs (O’Grady 2011). The stress test failures contain their own slippery slopes and logics in that, when a bank fails a stress test, other banks may refuse to lend to it and the public withdraws funds. Interbank lending may then dry up, and bank lending to business and the public declines. And then the sovereign debt crisis re-emerges or worsens. Had these initial stress test results showed too many banks in failed positions, contagion might follow. If too few failed, the credibility of the tests



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would also have created its own disbelief, mistrust, and other forms of contagion. The Greece, Portugal, and other potential EU and euro member countries’ crises also led to sharp debates as to which countries, and therefore whose taxpayers, would most have to provide the funds to bail out and shore up the sovereign debt reduction strategies of the looming, multiple worst-case countries queuing up for help. Germany in particular saw itself as being, and being portrayed, as the ultimate guarantor in Europe. The debate in Europe also extended to potential debt defaults, possible withdrawal from the euro, and also governmental anger at the private bond rating agencies which had failed to raise the alarm when the mortgage crisis and debt repackaging emerged (Munchau 2011; van Duyn and Milne 2011). EU and eurozone policy debates and responses ranged quickly and widely, all with implications for the unity of the now twenty-sevencountry EU and the much smaller eurozone membership. Debates also centred on whether Europe needed its “own IMF” or whether a restructured existing IMF could do the job (Economist 2010, 84). The IMF offered initial reassurance that it could handle the job (Economist 2010, 84) although, later in 2010, Germany indicated that it would present plans for a “crisis resolution mechanism” for the euro zone which would lay down rules for emergency funds for member states facing debt rescheduling (Peel and Spiegel 2010). Such a mechanism would be a permanent replacement for the $611 billion European Financial Stability Facility set up as an emergency measure following the initial Greek debt crisis in June 2010, but which expires in 2013. European policy, in concert with US policy, also devised and began to use banking and other above-mentioned related “stress tests” regarding sovereign debt exposures (BlundellWignall and Slovic 2010). A particular crisis and response regarding the Greek debt crisis and fears of broader European contagion gained focused political attention, initially with the EU summit negotiations which resulted in the 21 July, 2011 EU statement. It reaffirmed EU leaders’ commitment to the Euro (provided a larger second bailout fund for Greece), greater private sector and bank involvement, new stabilization tools, steps to reduce reliance on private debt rating agencies, and moves towards more tightly coordinated fiscal policies among Euro zone member countries (EU 2011). Almost immediately, however, there

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were warnings from debt rating agencies that the Greek bailout could worsen the EU debt crisis (Bawden 2011; van Duyn and Milne 2011). Indeed, the role of debt rating agencies as a part of the regulatory warning system was itself becoming more significant and controversial (Alcubilla and del Pozo 2012), especially after some of them downgraded the US credit rating and, later, France, and several other EU member countries. Late in 2011 and in early 2012, under German leadership, twentyfive of the twenty-seven EU members (with the UK as the main optout member) agreed to a new fiscal and debt pact with binding rules and now subject to enforcement actions through the European Court of Justice (Economist 2012). The treaty will come into force when twelve of the eurozone’s seventeen member countries approve it. These kinds of agreements were motivated by a desire to end contagion but also reflected the EU’s divided views of just how much of a greater political union the EU could become (Kopf 2011; Nechio 2011). However, in mid-2012, following the election of Socialist François Hollande as the new President of France, the politics in the EU and eurozone shifted somewhat to a greater growth agenda, and also to a higher probability that Greece might be abandoned by Europe as a eurozone member; even wealthy Germany, as the de facto lender of last resort, was seen as unable to bail out Greece. National responses to the linked crises and to their growth, employment, and social consequences took many particular forms, and policy discourse and policy responses were all influenced and shaped by where countries located and ranked themselves internationally and/or in terms of immediate neighbours and trading partners. OECD data on planned government borrowing as a percentage of GDP in 2007 compared to 2010 showed that the level of deterioration was 8.3 percentage points for the US, 11.3 for the UK, and for OECD countries overall an average of 7.4 percentage points (OECD 2009, 231, see Table 4.4). When it looked at future fiscal trends projected to “beyond the crisis” in the medium term, the OECD grouped countries into three categories: those requiring no consolidation, those requiring three years of consolidation, and those needing seven years. Fiscal consolidation refers to percentage points of GDP improvement in the underlying fiscal balance, including the removal of fiscal stimulus packages in operation in 2010. Both the US and the UK are in the seven year consolidation group.



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The Economist magazine used combined IMF and OECD data and projected gross debt (rather than just deficits) in 2014 compared to debt in 2007, and projected the overall fiscal adjustment required for government debt as a percentage of GDP. The adjustment is projected to be 5.7 for the UK and 3.5 for the US (Economist 2009, 73). Meanwhile, nation states throughout the OECD group of developed economies announced and quickly began implementing their own Keynesian-style economic stimulus programs (Eatwell and ­Milgate 2011). These typically focused on so-called shovel-ready infrastructure-oriented job creation activities but not entirely because, not surprisingly, many kinds of “announceable” distributive spending actions became politically attractive. Not long afterwards, in ­2010–11, the focus shifted to various approaches regarding how soon and to what extent to wind down stimulus programs, and also to assess to what extent they had been successful or not in stimulating the economy or in saving jobs (Jayadev and Konczal 2010; Hood and Lodge 2010; Wilks 2010). With large deficits now the norm, attention also shifted to what kinds and levels of austerity and budget-cutting measures would be needed to restore fiscal balance and more sustainable economic growth and, crucially, social progress, equality, and fairness values and goals. In the UK austerity measures announced in 2010 and 2011 were quite severe, whereas in the US they were modest relative to the size of the economy and following the 2010 Congressional election, deficits, debt controls, and stimulus were caught up in the bitter gridlock that is inherent in the US separation of powers system but, in this case, was also even more gridlock within the Congress. canada in the global crisis: no bank crisis but big deficits

Canada’s place in the global crisis under the Harper Conservatives has been forged and characterized by stages of recognition and policy response from 2008 to 2011, all of which had to run the gauntlet until May 2011 of minority government politics and aggressive partisanship (Malloy 2010; Stoney and Doern 2011). The essence of the Canadian story is the avoidance of a banking crisis due to more conservative and cautious lending practices by Canada’s banks and also some sensible regulatory policy regarding both banks and the mortgage market in Canada. Nonetheless, the biggest

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deficits in Canadian history were incurred due to the deep recession in Canada, caused mainly by the recession in the US, still Canada’s biggest global market by far. Various assessments show that in Canada, the impact of the global banking meltdown was less severe than it was in virtually every other industrial democracy. This appears due to the more conservative management practices in the country’s largest banks and, to a lesser extent, to the character of aggregate prudential oversight by regulators (Harris 2010). However, there were a number of episodes that did threaten financial instability in the country. The collapse of the asset-backed commercial paper (ABCP) market represents the most serious one and was accompanied by the Office of the Superintendent of Financial Institutions (OSFI) denying any culpability for the market’s collapse despite the OSFI’s overarching mission (­ Harris 2010). Other accounts during the crisis also argued that Canada’s banking system was among the soundest in the world and that no bank bailouts were needed as a result (World Economic Forum 2010). Finance Minister Jim Flaherty trumpeted the virtues of the Canadian banking and financial system in virtually every speech made in Canada and internationally (Canada 2010; 2011). Similarly, analyses of why the American subprime mortgage boom and bust did not take place in Canada centered on Canada’s different and better consumer protection laws and practices nationally and provincially (Ireland and Webb 2010). Such analyses, and inherent Canadian pride in the “superiority” of its regulatory regime, were immediately accompanied by a cautionary warning. The lending practices and subprime mortgage agents, lenders, and insurers that were major causes of the American crisis were starting to creep into Canada just before and then during the period when American subprime boom turned into the subprime bust (Ireland and Webb 2010). The net result of these more prudent Canadian banking and mortgage regimes was that Canada’s recession was almost immediately deemed to be a fiscal deficit crisis problem in the main. It was also deemed to be serious but also less severe than for other countries on both the deficit and sovereign debt fronts. Thus, the previously cited OECD data on planned government borrowing as a percentage of GDP in 2007 and 2010 showed that the level of deterioration was 7.5 percentage points for Canada, compared to the above-­mentioned 8.3 for the US and 11.3 for the UK (OECD 2009, 231). When it looked at



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future fiscal consolidation needed in the medium term Canada was put in the OECD’s middle three-year group, whereas both the US and the UK are in the seven-year consolidation group. Similarly, on the fiscal adjustment needed for government debt as a percentage of GDP, the adjustment is projected to be just 1 percent for Canada (ranking in the top three countries) compared to 5.7 for the UK and 3.5 for the US (Economist 2009, 73). In this overall context, the three main stages of Canada’s responses to the recession crisis can be cast as: (a) the slow recognition of the recession in the fall of 2008 both before, during, and after the fall 2008 election when the Harper Conservatives failed to obtain their coveted majority government; (b) the development and implementation of a stimulus program in the 2009 to 2011 period, plus a major bailout of the auto industry in concert with the US auto bailout; and, (c) the Harper Conservatives’ majority government election victory in May 2011, linked to the development of an austerity and budgetcutting program over the 2011 to 2015 period to restore fiscal health and economic growth. We look briefly at each in turn. Other aspects of this period and their medium and longer-term implications emerge in later chapters. The Slow Recognition of the Recession The first stage of the Canadian fiscal crisis and recession story was the slow recognition in 2008 by the Harper Conservative government of its looming presence globally, a laggard recognition explained largely by political dysfunction of a high order (Maslove 2009). The government had come to power in 2006 and had inherited a healthy $13 billion fiscal surplus. In its first two years, this actual or potential contingency margin disappeared through initial fiscal decisions to lower the Goods and Services Tax (GST) in two stages – from 7 per cent to 5 per cent – through decisions to lower business taxes, and through commitments to extend federal social transfer payments (Doern 2007; 2006) While a global recession had not yet begun, the extent to which the new fiscal conservatives were hunkering down was revealed by their decision to cancel the previous government’s normal annual “contingency fund,” a small, rainy day amount of $3 billion or so to deal with unexpected fiscal developments. The Conservatives were acting partly because of their own fiscal promises (especially

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regarding the GST), and because they saw fiscal surpluses as clear-cut evidence of excessive taxation. When the global recession, including some bank failures, became evident in 2008, they barely registered in the Harper government’s positions in the fall 2008 election campaign, which Harper had called. A no deficits, small surplus position anchored the Conservative view of the immediate future revealed in the post-election fall economic update presented by Finance Minister Jim Flaherty. The political dysfunction aspects, indeed political incompetence, of the late 2008 period emerged when the same economic update statement contained a decision that the government would eliminate public funding for political parties and also ban strikes by public servants for two years, while all but ignoring the serious recession which was by then underway in Canada. The refusal to acknowledge the economic circumstances combined with the punitive partisan strike against the opposition parties quickly led to their announcement that a Liberal–NDP coalition was ready to govern with the voting support of the Bloc Québécois. Harper was then forced to seek a prorogation of a newly elected parliament to avoid losing a vote of confidence in the House of Commons. Within weeks, the core premises and promises of the earlier economic update statement had to be abandoned in the rushed and very different Conservative budget of 27 January 2009 (Canada 2009; Canada 2009a). The Stimulus Program of 2009–11 At first glance, the Harper government’s 2009 budget contained enough measures to meet the then informal G20 brokered international agreement to develop stimulus packages amounting to 2 per cent of the national GDP. The 2009 budget and Canada’s Economic Action Plan announced almost $40 billion in stimulus, including housing measures such as a home renovation tax credit, but stressed from the outset that the stimulus had to be temporary. It asserted that its approach would boost Canada’s GDP by about 1.9 per cent and produce net job increases of 190,000 (Canada 2009; Canada 2009a). The budget also included up to $200 billion for gaps in the credit market via an announced Extraordinary Financing Framework. However, from the outset there were concerns about the adequacy of the stimulus package (Maslove 2009). One concern centred on



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its reliance on provincial and municipal take-ups to generate the full amount of fiscal stimulus. Provincial governments were already facing deficits for the first time in a decade and were struggling to maintain their own program spending (Maslove 2008). Local governments were, as always, even more in a fiscal straightjacket. The main, two-year response to the economic crisis was the Conservative’s eventual $62 billion stimulus program with spending spread over two fiscal years, with the program scheduled to end in March 2011. It was the centre-piece to an even greater degree in the 2010 Budget. The Conservatives had ideologically been reluctant to stimulate the economy through massive government spending but soon learned that they had to, and soon began to exploit the opportunities for political capital that stimulus-related distributive and porkbarrel funding provides. Nowhere was this more apparent than in the case of infrastructure and stimulus spending. In the 2007 budget Harper had already committed $33 billion over seven years to his Building Canada Plan and this plan was topped up with another $4 billion of the 2009–11 stimulus money. More than $7 billion in cost-shared infrastructure funding was available in the 2009 budget and another $19 billion in new federal stimulus under Year 2 of the Canada Economic Action Plan’s total commitment of $62 billion, as shown in the 2010 budget. The Harper 2010 Speech from the Throne (SFT) set out recession priority themes and commitments centred on completing Canada’s Economic Action Plan (mainly the second year of the federal stimulus program) and Returning to Fiscal Balance, but also stating that a “balanced budget is not an end in itself, but the foundation of a strong resilient economy” (Canada 2010). The March 2010 budget speech by Finance Minister Jim Flaherty built on many of the same SFT themes and priorities (Canada 2010a). The Speech stressed the much better position that Canada was in compared to other countries regarding the recession and global crisis, on both the fiscal and banking aspects. It then went on to set out its key budgetary plans including some smaller new spending initiatives linked to some of the earlier SFT measures. Through the above agenda, the Harper Conservatives sought to position themselves with respect to extricating Canada from its fiscal deficit, and also to securing their long-sought achievement of a majority government, a goal achieved in the 2011 federal ­election

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where voters rewarded the Conservatives broadly for their perceived economic crisis management competence to date, including their handling of the stimulus program (Stoney and Doern 2011). The election earned them sufficient new seats, mainly in Ontario and especially in the greater Toronto area, and resulted in the emergence of the New Democratic Party as Canada’s official opposition for the first time, the historic demotion of the Liberal Party to third party status, and the virtual demise of the Bloc Québécois in Quebec. The politics and economics of the federal stimulus program as a response to the recession and crisis went through several stages of development, comment, and criticism (Dutil and Park 2012; Bennett 2012; Stoney 2012; Pal 2011; Office of the Parliamentary Budget Officer 2009; 2010). Project announcements focused on “shovelready” infrastructure but it also included some initiatives tied to green infrastructure and to community facilities. Many of these were similar to those in other G20 countries as their programs were announced and implemented. Indeed, some US stimulus measures were themselves producing mixed cross-border effects on Canada, both negative and positive. The initial negative effects centred on concerns about US stimulus “Buy America” procurement provisions, which Canada argued were contrary to NAFTA and WTO trade agreements if they ruled Canadian suppliers ineligible to compete for contracts (Haussman and Biette 2010). Some positive impacts emerged later when US analysis showed that some particular stimulus programs were benefiting Canada. Thus, regardless of the partisan and national nature of stimulus politics, the real world of stimulus projects and spending (and tax breaks) was never neat, contained, and predictable; all the more so in a global recession of this magnitude and, initially, in a minority government context of relentless political warfare that some saw as a serious and demoralizing democratic deficit (Malloy 2010; Doern and Stoney 2010). Initially, the problems and political criticisms included: (a) the slowness in getting the program started partly due in Canada to the Harper government’s own signature Accountability Act ethos and provisions, and to an implicit tactical view that the slower they were approved/funded the greater the ease with which they could be withdrawn, especially if other economic forces were meanwhile improving the economy. Later reports and studies attributed delays mainly to reasonably sensible federal-provincial and local government coordination requirements (Dutil and Park 2012; Bennett



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2012; Auditor General of Canada 2011); (b) the extent to which jobs are being created/saved and the evidence mounted in accountability reporting and evaluations, and how transparent these data were, a criticism voiced by the parliamentary budget officer (2009; 2010) but also in a different way by a study of community views of stimulus projects (Bennett 2012); and, (c) the degree to which federal government was favouring ridings held by the Conservative Party in its allocation of stimulus funds and also practicing the inevitable political arts of claiming partisan credit in announcements about all projects. While some partisan and pork-barrel arts were in evidence, on the whole studies suggest that they were not excessive, in part because of administrative processes and criteria that had to satisfy and meet the preferences of three levels of government, not to mention joint funding (Dutil and Park 2012; Bennett 2012; Stoney 2012; Pal 2011). Despite these problems and criticisms, the Conservatives, headed by a super-centralizing and controlling prime minister, by the end of 2010 and heading into the May 2011 election successfully avoided getting the political blame in that both polling data and then votes in the 2011 election suggested that Canadians understood that this was an externally imposed crisis, not a made-in-Canada one, and that the Harper government was seen as doing a reasonably good job as economic manager in difficult times. Another crucial but separate feature of federal stimulus policy was the bailout of the Canadian auto industry in 2008–2009 (Waddell 2010). Indeed, as a crisis within a crisis, it was largely kept separate from the basic throne speech and budget speech narratives. Ottawa’s negotiated bailout of General Motors and Chrysler involved an intense, fast moving, multi-party process involving the departing Bush and new Obama Administrations in the US, the companies, and the Canadian Auto Workers (CAW). It was social policy as much as stimulus-centered industrial policy as it kept the companies in business despite talk, as 2009 began, of sudden collapse and closures that could devastate large parts of the economies and related employment in both countries. The Ontario Government was also a key player. The joint response crafted by the federal and Ontario governments was a one-off approach dictated by crisis expediency. Despite the rescue, there remains no ability for government to enforce any of the commitments made by the companies about production, research

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and ­development, or investment should their revival not go well. ­Waddell also suggests, however, that the federal government hoped to translate the unprecedented co-operation it enjoyed with the Obama administration on the auto sector into some degree of joint analysis and action that could both restructure manufacturing on a continent-­wide basis and address potential trade irritants before they emerge (Waddell 2010). Austerity Budget-Cutting for 2011–2015: Politics and Budgets The main contours of the austerity and budget-cutting plan were already in evidence in the 2010 and 2011 Conservative budgets. The commitment that renewed future budget balance would not come at the expense of pensioners, or by cutting transfer payments for health care and education, or by raising taxes was pivotal. Moreover, the Harper government said that it would protect the growth in transfers that directly benefit Canadians. This kind of massive protective ring-fencing of what could not be cut, changed, or taxed meant that the Conservatives had a dual message. The first was that they would not do what the Chrétien-Martin Liberals did under mid-1990s Program Review cuts ­(Swimmer 1996, Doern 2009), which was to significantly cut social and transfer payments (see more in Chapter 3). The second message, by logical and direct inference, was that deep cuts in the eventual austerity plan would focus on federal programs and hence contribute to the strong Harper Conservative preference for a reduced federal role expressed in ways that are found in more particular program realms. These themes were further evident in the October 2010 federal economic update which basically reported good progress for Canada compared to other OECD countries and which accordingly stayed the course set in the 2009 and 2010 budgets (Canada 2010b). While preparing its own austerity plan for the 2011–15 period, the Harper government and the opposition parties alike were able to watch the 2010–11 austerity policies and politics in the US and UK in particular. In the US the angry, grass-roots Tea Party and anti-Obama voices were leading the main thrust of the US partisan debate in the direction of anger at the bankers, but also at too much government intervention regarded as the cause of the deficit and job losses despite much evidence to the contrary (Reich 2010; ­Krugman 2010b). In the 2010 US Congressional election, the Republican Party



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captured control of the House of Representatives and promised an assault on the US deficit. In the UK, Canada’s successful Liberal government deficit reduction approaches in the mid-1990s were getting considerable political and media attention in the run-up to the British election (Wilks 2010). The 2010 UK election that resulted unexpectedly in the first coalition government since World War II began to produce different kinds of politics and debates, initially in quite an open manner as the Conservative-Liberal Democrat coalition jockeyed for position in a national unity kind of effort at austerity and budget cuts governance. For the UK, the size of the cuts were greater proportionately than for Canada, but one of the first acts of the coalition was to announce that it too would ring-fence large parts of the British budget, in particular health, thus requiring even deeper cuts in the remaining departments and policy areas of the budget. By early 2011, massive shifts in university funding were underway through a tripling of tuition fees, as well as a structural radical reform of the National Health Service. Both these major fiscal measures were strongly criticized and opposed. The 2011 Harper Conservative budget further reiterated but also sublimated the austerity plan. Finance Minister James Flaherty’s 2011 budget of 22 March was prepared with a high expectation of an election to follow soon, and it did (Stoney and Doern 2011). As a political and economic election platform document it followed earlier scripts in the Tory run-up to the budget and thus it was thin and oblique on any overt cutting and trimming (that would come in later years and few details were provided). But it was chock full of numerous highly visible gesture items to hoped-for grateful voters, aimed both at the Conservatives’ own political support base and also at their hoped-for majority-producing voters in winnable swing electoral ridings. It was a successful political-electoral strategy that secured a Conservative majority government (Lee 2012). The 2012 Harper majority government budget was titled and pitched as a Jobs, Growth, and Long-Term Prosperity Budget (Canada 2012). Finance Minister James Flaherty stressed the structural problems that Canada must now address both for long-term prosperity and “to ensure the sustainability of public finances and social programs for future generations” (Canada 2012, 2). The structural fundamentalism of the budget is then shown on initiatives such as innovation, resource development, new free trade agreements, and

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building a fast and flexible economic immigration system. To ensure that the key structural themes in budget 2012 are paramount, it is only later that some departmental program cuts were gradually announced. conclusions

This chapter has set out the origins and key features of the global fiscal, banking, and sovereign debt crises and the initial politicaleconomic responses to it, first internationally and then in Canada by the Harper Conservative government, functioning until May 2011 in a minority parliament and now in a majority government context. As the defining overall crisis of the sudden, deep, disorderly kind, it anchors the rest of our analysis which increasingly focuses on an age of crises. But we have also had glimpses in the chapter into other slower forming kinds of crisis in individual countries both in the fiscal and banking context and in how the sovereign debt crisis grew slowly and then in a more contagion-like fashion. In addition, we have seen crises within crises such as that which accompanied actions to bail out the North American auto industry. The epicentre of the banking and fiscal crises was in the US and UK banking systems with tight links to the US subprime mortgage market, with almost instant and fast-moving adverse impacts on fiscal budgets in both countries. These impacts were due to the need for bank bailouts but also related stimulus programs to keep economies afloat and to minimize serious job losses. The crisis became quickly global as the focus shifted to the equally daunting impacts on sovereign debt, including particularly contentious and serious impacts on the EU and eurozone countries and their governance structures, but eventually to the US itself. We have also drawn initial attention to the global economic governance structure and its shift towards an enhanced role for the G20 and away from the long established, Western-dominated G7. This shift in power relationships was caused by the crisis itself which sharply demonstrated a desire by key developing and growing countries such as China, India, Brazil, and the East Asian economies that they would not tolerate handing over decisions on their economic health to countries and banking systems which had failed so badly and irresponsibly.



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The Canadian response to, and role in, the crisis has been shown to be one which basically avoided the main banking elements of the crisis. The Canadian banking system had been more prudent, more risk averse, and more conservative in its lending practices and the Canadian mortgage system had been better regulated as well, although not perfectly so. Thus, the Canadian crisis was mainly a fiscal crisis and recession caused by the larger international crisis overall, and particularly by the US crisis and recession and its direct impacts on the Canadian economy, whose main export engine is the American market. The Canadian response to the crisis has been presented as a three-stage response, characterized first by a slow reaction to recognizing the crisis by the Harper Conservative government as it practiced the arts of political dysfunction. In the subsequent two stages of the 2009–11 fiscal stimulus and then the early shaping of its austerity and budget-cutting phases, the Harper government’s political responses were far better honed to the serious task at hand, albeit still being scratched out both in a hyper-partisan minority parliament and then in the 2011 federal election and its majority government aftermath. The end result of the 2011 election was the strong majority government won by Harper and the concurrent rise of the NDP, as well as the strong rejection of the Liberal Party and the demise of Bloc Québécois.

3 Macroeconomic Policy The Fall and Rise of Keynes and the Emergence of Structural Fundamentalism introduction

The story of macroeconomic budgetary policy  – or fiscal policy  – over the last several decades can be told from a number of perspectives. Chapter 1’s sketch of core macroeconomic ideas across the last six decades offered a broad perspective on political economy. A complementary theme is the debate among academic economists, with the Keynesians and neo-Keynesians facing off against the monetarist, neo-classical, and rational expectation economists. As these alternative names suggest, the debate is not between two homogeneous camps; there are subtle nuances and not so subtle differences between the proponents on each side. By and large, the academic debate centers around competing theories of market operations and whether (primarily) market outcomes can be manipulated by government taxing and spending to produce better levels of employment, aggregate price stability and economic growth, or whether markets anticipate fiscal actions and neutralize them or, even worse, generate inferior results (Krugman 2008; Skidelsky 2009; Lewis 2003). Mindful of these ongoing theoretical debates, our focus in this chapter is on the dynamics of macroeconomic policy set in the context of both the present overall fiscal crisis, as presented in Chapter 2, and historical patterns of macro spending, tax trends and trajectories, and macroeconomic policy in the Mulroney, Chrétien-­Martin, and Harper eras. the shifting dynamics of macroeconomic policy

In recent decades, compared to the 1960s and 1970s, fiscal policy has been directed primarily to addressing long-term structural issues.



The Fall and Rise of Keynes 63

It has been much less short-term cyclically oriented as governments have explicitly become less confident about their ability to smooth out fluctuations in the economy. We characterize this macroeconomic policy as “structural fundamentalism.” Yet, at the same time, the earlier era of active Keynesian-style stabilization policy fundamentally altered citizens’ expectations of government. Even today, after many years of neo-liberal political discourse and policy making, a legacy of active fiscal policy remains in Canada’s public culture, creating political pressures which force government responses, thereby setting up a tension between long term structural goals and short term stabilization goals. The period of the 1950s, 1960s, and early 1970s was the heyday of Keynesianism, or at least its application in the form of aggressive use of fiscal policy levers to fine tune the macroeconomy. And it seemed to be highly successful. During that period employment grew steadily, inflation remained low, and the economy grew at a healthy pace. Indeed, during this period one could find articles touting the end of the business cycle (Time Magazine 1964; 1965). All that hubris ended abruptly in the aftermath of the OPEC oil price shock in 1973. By mid-decade, the economy in Canada and in other industrial nations was experiencing simultaneous high unemployment and high inflation  – the term “stagflation” was coined then to describe the situation in shorthand (Bruno and Sachs 1985, 2) and the style of fiscal stabilization policy that had been in vogue suddenly seemed ineffective. Moreover, in the latter half of the 1970s the federal budget deficit began to grow, partly due to the state of the economy and partly due to the indexing of the personal income tax introduced in 1974 (Department of Finance 1974, 13). Then came the sharp recession of 1981–82 and a second oil price shock, leading to an even larger federal deficit. The relatively sudden derailing of the Keynesian orthodoxy – at least the version of it that was being practised in the 1960s and 1970s – combined with the academic challenges to Keynes (Skidelsky 2009) changed the dynamics. One may be skeptical of the influence of “ivory tower” debates on real-world policy, but there are two places in Ottawa where they are followed closely: the Department of Finance and the Bank of Canada. Overall, the stagflation experience and the academic debates resulted in a loss of faith in the ability of governments to fine-tune the macroeconomy. Moreover, from a political perspective there was certainly less willingness to promote, adopt, and be held accountable for policies

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that would imply governments could fine-tune. Consequently, there was a clear shift in the tone of budgets and budget speeches. They became much more restrained in expressing confidence about the ability to influence macro outcomes in the short term, and began to focus much more on what governments could do to positively influence important structural characteristics and weaknesses of the economy over the medium and long terms. In that sense, budgets became about mid-range or mezzo-economic policies as much or more than about macroeconomic policies. The shift towards structural targets encompassed concerns such as the general economic environment for investment (pursued mainly through tax measures to provide investment incentives); Canada’s long-standing problem (relative to our trading partners) of weak productivity growth (tax measures and grants to stimulate research and development, support for education and training); sectoral (e.g., manufacturing, high-tech, green technologies) and regional considerations; and public infrastructure (including mainly “hard” infrastructure, but more recently also broadband capacity). In addition, a conventional wisdom developed that the budgetary balance itself was a significant factor in getting the “fundamentals” right to promote economic growth and prosperity; hence eliminating and staying out of deficits became an important policy objective in its own right. Sometimes this argument was expressed as a problem of public deficits “crowding out” private investment, and sometimes as a more diffuse matter of investor and consumer confidence. Even as governments retreated from active stabilization policies, however, they were forced to contend with political realities. As a result of the years of Keynesian policy and the associated rhetoric, expectations became entrenched in general public culture and in many organized interests that governments were expected to intervene when unemployment rates went up, that governments were responsible for keeping inflation in check, and that governments were expected to promote economic growth. It is in this context that we briefly consider the budgetary record over the past two decades through a macroeconomic filter. Later in the chapter we look at tax and expenditure trends and trajectories. Following the ­1991–93 recession, the 1990s, for the most part was a period of relative economic health. The unemployment rate trended downward and employment grew more or less steadily throughout the period. (See figure 3.1.) Inflation rates were generally within the target levels



The Fall and Rise of Keynes 65

Figure 3.1  Rate of unemployment and employment growth, 1989–2009

Source: Statistics Canada CANSIM Tables 282-0002, 282-0012.

set by the Bank of Canada. These trends were reversed briefly in the aftermath of the terrorist attacks in the United States in September 2001, but the trends of lower unemployment rates and employment growth were soon restored. During the 1990s and through to the onset of the financial and economic crisis of 2008–12 the budgetary policies of the federal government were largely focused on the state of the budget itself (that is, eliminating the deficit) and structural issues in the economy. Thus the budgets of 1992 and 1993, during a time of recession, were not particularly stimulative either in rhetoric or in actual policy measures. In the 1992 budget, expenditure restraint and deficit cutting were emphasized at least as much as the few tax measures that might be expected to stimulate investment. The deficit projection for 1992–93 was actually less than the expected deficit for 1 ­ 991–92 (Department of Finance 1992, 71). Regardless of whether or not that reduction was achieved, the projection is indicative of the government’s position not to provide net new fiscal stimulation in the face of what was, at the time, a fairly sharp recession. In 1993, the budget argued that the key to job creation would be through a program of deficit and debt reduction, and expenditure reductions were the order of the day (Department of Finance 1993).

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By the time of the 1994 budget, the Chrétien Liberal government had assumed office. The focus of most of the budgets through the remainder of the decade was on eliminating the deficit and making a start on paying down the accumulated debt. Again, the focus was the “crisis” of the deficit/debt, not the state of the economy per se. Of course, this was facilitated in the latter half of the 1990s because the macroeconomy was performing well, thereby creating the policy space for government retrenchment. (See figures 3.1 and 3.2.) Deliberate active macroeconomic stabilization did not rise to the fore again until the financial and economic crisis arose in 2008. By then the Harper Conservative government was in office. The course of events in the fall of 2008 and the winter of 2009 illustrates the pressure governments come under to address, in this case, unemployment aggressively and directly. These pressures are the political legacies of Keynes. Prior to the sudden onset of the crisis, the Harper government’s budgetary attention had been focused on not returning to deficit financing. But tax reductions – particularly the cut in the GST by two percentage points – combined with spending in targeted sectors of the economy, the North, defence, and Conservative family, and law and order priorities, eliminated most of the surplus. The financial markets crisis of the fall of 2008 and the accompanying severe recession in the real economy posed serious threats to the Canadian economy. In the United States, the recession had started well before the financial collapse (National Bureau of Economic Research 2011). While, as we have seen in Chapter 2, the Canadian financial system was in much better shape than the American and was well positioned to withstand the storm, the severe recession in the US would have negative effects on Canadian exports, and indeed the Canadian economy entered into recession in the fall of 2008. After emerging from the October 2008 federal general election with a slightly strengthened minority government, the Harper government presented to parliament an economic and fiscal update at the end of November (Maslove 2009). The statement presented an optimistic picture of the state of the economy, and along with it a much too optimistic projection of the government’s financial situation. It also contained a number of overtly political measures (elimination of subsidies to political parties, suspension of collective bargaining for public servants) and essentially ignored the economic recession. Perhaps what is most striking about that document is not what it did or did not contain, but the reaction to it.



The Fall and Rise of Keynes 67

Figure 3.2  Interest rates and the consumer price index (CPI), 1989–2009

Sources: Bank of Canada, Bank of Canada Review, Banking and Financial Statistics, Table F1, various years; Statistics Canada, CANSIM, Table 326-0021. Notes: The Prime Rate refers to the prime business interest rate charged by chartered banks, and the Bank Rate refers to the rate charged by the Bank of Canada on any loans to commercial banks. The Prime Rate and Bank Rate are rates effective at year end. The trend line for the CPI shows annual percentage change in the index.

In the wake of the financial crisis, centered in the US but threatening to spread much more broadly, and the widely perceived downward spiral in the economy, the November 2008 economic statement clearly missed the mark. It was much more than just the opposition parties threatening to defeat the government and trying to form a coalition to replace it. There was in fact a general sense that the economy was entering a tough period. Official data available later confirmed that Canada indeed entered a recession in the fall of 2008 (Statistics Canada 2009) and thus there was an expectation that the government needed to address that problem. That broader political pressure, much more than the machinations of the opposition parties, is what led the Harper government to introduce a fiscal stimulus program in the budget of January 2009. The government was reluctant to do this and to incur a large deficit for several years but nevertheless it responded. One interesting impact of macro budgeting is on the pattern of government spending. In “normal” periods, where the focus is on

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eliminating a deficit or controlling expenditures to forestall the emergence of a deficit, governments tend to engage in expenditure review exercises to identify obsolete or at least lower priority spending programs, or simply to impose spending restraints bypassing any formal review or evaluation process. Given the distribution of government spending (see figure 3.3), a large portion of the cuts and restraints are in the social domain. For example, restraints or absolute cutbacks were imposed on the federal transfer to the provinces in support of health care (formerly called Established Programs Financing – EPF) in the budgets of 1983, 1985, 1989, 1990, 1991, 1992 (Maslove 1992), and also in 1994 and 1995. This case is particularly noteworthy because it involved a form of expenditure once labeled as “statutory,” implying that the government’s ability to cut spending was constrained compared to its discretionary spending programs. Of course, discretionary programs were also cut in the various restraint budgets. When called upon to provide stimulus for a struggling economy, however, the budget engines are not simply reversed. This is best illustrated by the experience of 2008–09 noted above. The budgetary stimulus that was included in the January 2009 budget was largely in the form of financing for “shovel-ready” hard infrastructure programs. To be effective stimulus, spending initiatives must be executable quickly; hence the term “shovel ready.” However, a quick stimulus could also be achieved by boosting social spending, even temporarily. So, what explains the bias towards hard investments in stimulus programs compared to the broader range of program areas affected by spending cutbacks? Some of this explanation has been shown in Chapters 1 and 2 in the updated pork-barrel political value of such stimulus spending, but later domain analysis in Part Two of the book suggests other contributing influences as well. t h e m a c r o c r i s i s i n t h e u n i t e d s tat e s

Macroeconomic policy in the United States is always a crucial influence and political-economic reference point for Canada for all the reasons set out in previous chapters. The American story of macroeconomic responses to the recent crisis is quite different than the Canadian, partly because the recession in the US was much more intense than in Canada, and partly because the ideological divisions over the role of government are much more sharply defined in the



The Fall and Rise of Keynes 69

Figure 3.3  Expenses as a percentage of total program expenditures

Source: 2010 Fiscal Reference Tables, 2010 Federal Budget. Notes: “Other” category includes direct program expenses which are operating expenses for departments, transfers administered by departments for farm income support, natural resource royalties paid to provinces, student financial assistance, and expenses of Crown corporations.

US. To understand the recent US episode, we must first establish briefly some of the historical context. Over approximately the last decade (if not longer) a number of serious structural problems have been building in the US. Economic growth and employment growth have been anemic. This by itself would have put strains on the US budget as weaker growth limits revenue increases that are normally generated year over year. But, to exacerbate the budget picture, the policies of the George W. Bush administration created a serious structural imbalance. Tax rates were repeatedly cut while expenditure increases were not restrained, and in several cases major new expenditure items were added into the mix. The wars in Iraq and Afghanistan were undertaken and a costly plan extending pharmaceutical benefits to seniors on Medicare was initiated, all without any consideration for how they would be financed. Other program expenditures grew as well, partly as a result of the normal inertia for growth in public expenditure

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­ rograms that go largely unexamined for long periods, and partly p as a result of pork-barrel politics that became ­commonplace in the Congress and were never seriously challenged by the President. Other US budgetary pressures also continued to build. The socalled “entitlement” programs  – social security and Medicare for seniors  – were becoming increasingly expensive, and no plan was developed to deal with their projected rapid escalation as the baby boomer generation entered retirement. All these factors taken together resulted in moving the US budget from a healthy surplus position at the end of the Clinton presidency into a huge structural deficit by the time Bush left office. In contrast, this was the same time period when the Canadian government finally confronted and eliminated its deficit. Then, in 2008, the American economy moved into recession and the financial markets were in crisis led by the catastrophic collapse of the housing market. Employment began to rise precipitously and the continued existence of important manufacturing industries was threatened. In fiscal terms, the federal budget deficit worsened (adding cyclical revenue declines and expenditure increases to the structural deficit), and the budgets of virtually all states, which had already been stressed, moved into serious deficit positions as well. The response, first in the waning days of the Bush presidency and later in the early days of Obama’s time in office, was composed of three main elements. First, funds were allocated to bail out Wall Street banking and investment firms whose solvency was threatened; these were mainly in the form of loans and purchases of shares of the troubled firms. Secondly, another sum again in the form of loans and equities purchases was used to support key industrial sectors – primarily the auto sector – to allow them time to restructure. The argument in support of both of these initiatives was essentially one of pragmatic necessity; if these firms and sectors collapsed the recession would be much more severe and recovery much longer and more difficult. The third element was a largely Keynesian-style stimulus program, much of it in the form of direct federal infrastructure spending and grants to the states for similar purposes. These measures did succeed in reversing the decline but the federal deficit ballooned even more. The measures were far from universally supported. Some argued that the size of the stimulus was insufficient (Krugman 2008, 2010). Others were strongly opposed to government bailing out private investors and to the growing deficit and



The Fall and Rise of Keynes 71

debt. Furthermore while the decline was reversed, the recovery was anemic at best and unemployment rates were essentially stuck at high rates through 2011 and most of 2012. All this set the stage for a major debate in the US government about the proper role for and size of government, including macroeconomic responses to economic fluctuations. In large part the debate was confused and not clearly defined, because it was joined around the legislative requirement to raise the US debt ceiling, a procedure that up until that time had been largely a perfunctory congressional task. The issue was forced by a group of right-wing Republicans (the Tea Party caucus) who used their leverage after the 2010 Congressional election to turn this usually routine procedure into a major confrontation in the summer of 2011 over the budget and the future role that the US government might play in the economy. As is always the case, in the heat and media coverage of the moment, attention tends to focus on political maneuvers and looming deadlines, but the underlying differences at issue in the debate are about what is important over the long haul. A growing conservative movement (though still a minority) was emerging in the US over this period that believed government had over-reached, over-taxed, and over-spent and that this was the root of the economic difficulties facing the country; government was the problem not the solution. Activist government – in the areas of taxation, spending, and regulation – needed to be brought to heel. Regulation was excessive and distorted the efficient functioning of markets. (In the most extreme versions of the argument even the Federal Reserve became a target for elimination.) Taxation was excessive and created disincentives to invest and create jobs (the fact that the US had almost the lowest tax revenue to GDP ratio among developed countries notwithstanding). Most domestic spending was wasteful and created a “nanny state” where people were encouraged not to take responsibility for their own welfare. The distillation of these often vague sentiments and the actions of key interest groups to articulate a more or less coherent argument along these lines, led to the election of a significant Tea Party faction in Congress in the elections of 2010. The positive argument they made was that free markets were almost always efficient and their unhindered operation would generate outcomes that were in almost all cases superior to government provision or government regulation. Strictly limited government was the preferred approach to virtually every

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policy question whether it be in the area of energy, environment, growth and investment, or macro-stabilization. The “liberal” side included many in the Democratic Party who, while admitting that areas of wasteful spending crept into the budget over the years and needed to be pruned, argued that government intervention to regulate the economy in both macro and micro arenas was still required. The large US debt needed to be addressed, but in the context of the continuing weak economy, actions to cut spending in the short run risked sending the economy back into recession. Further, the “liberal” position, carried forward by some members of the Democratic Party, argued that the composition of the budget was also an important macro concern. Not only would restraining spending alone be undesirable because it would diminish the capacity of government to act, but some increases in tax revenues were necessary to restore a more equitable distribution of income that had become excessively skewed in recent years. federal budgets and macro policy in the mulroney, c h r é t i e n - m a rt i n , a n d h a r p e r e r a s

With the above core macroeconomic dynamics in mind, we turn to a complementary overview of Canadian federal budgets and macroeconomic policy over the last decade of the twentieth century and the first decade of the twenty-first. This covers the latter years of the Mulroney Progressive Conservative government, the Liberal governments of Chrétien and Martin, and the Harper Conservative government – governments of distinctly different philosophies, and styles of governing and majority versus minority government contexts for governing and budgeting We begin by examining the summary budgetary data for this ­two-­decade period. Figures 3.4 and 3.5 show the trends for the key budgetary variables, revenues, expenditures, and the deficit/surplus. The federal government entered the 1990s with a large annual deficit (and therefore a growing debt) which actually emerged in the previous decade. The deficit then shrank rapidly during the latter half of the 1990s, moving into surplus by 1998. The surplus (as a percent of GDP) grew in the early years of the new millennium, before shrinking and falling back into deficit towards the end of the period. Figure 3.4 also shows that the main reason for the move from large deficit to surplus in the first half of the period was primarily



The Fall and Rise of Keynes 73

Figure 3.4  Summary statistics as percentage of GDP

Source: 2010 Fiscal Reference Tables, 2010 Federal Budget, Statistics Canada CANSIM Table 380-0016.

the decline in federal spending relative to GDP. In the latter part of the period, expenditures continued to fall though at a slower pace, while revenues as a percent of GDP also declined. Figure 3.5 shows quite starkly the deep deficits of the early 1990s and of the 2009–10 period with healthy surpluses in the ChrétienMartin era in between. It also captures the move from structural deficits to surpluses or near balance. Figure 3.6 shows the composition of federal revenues. The Personal Income Tax is the most significant source, accounting for about half of all of Ottawa’s revenues. The Goods and Services Tax (GST) made up an increasing share of revenues throughout the period until its rate was cut from 7 per cent to 6 per cent and then to 5 per cent after 2005–06. Corporate income tax increases early in this period and then is reduced under the Liberals initially and then more significantly under the Harper Conservatives, but also under general global pressures which saw such business taxes reduced in many competitor OECD countries (OECD 2010). On the expenditure side, figure 3.3 shows that transfers to individuals and to other

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Figure 3.5  Federal government surplus/deficit

Source: 2010 Fiscal Reference Tables.

g­ overnments (primarily provinces and territories) together account for more than half of federal program spending (that is, excluding debt servicing costs). The Mulroney Conservatives: Much Ado about Deficits but Important Structural Change The macroeconomic and budgetary record of the Mulroney Conservatives is mixed. On the one hand, major structural changes were successfully implemented, establishing a base for improved economic performance in the following years; on the other hand, despite a constant rhetorical drumbeat about the need to curb the deficit, there was nothing concrete accomplished on this file. What the rhetoric did succeed in doing was to help raise the spectre of a budgetary crisis, setting the stage for Canada to address the issue at least a decade before most other OECD countries. It is worth stressing in this context that political parties are always deeply reluctant to give credit to their partisan predecessors in office. This happened with the Chrétien-Martin Liberals regarding some of Mulroney-era fiscal and related policy changes and it has also happened with Harper era silence about some previous Chrétien-Martin positions and actions. In terms of structural change, there were two major revenue-side initiatives enacted by the Mulroney government. One was a major



The Fall and Rise of Keynes 75

Figure 3.6  Revenues as percentage of total revenues

Source: 2010 Fiscal Reference Tables, 2010 Federal Budget. Notes: Personal Income Tax includes non-resident income tax. “Other revenues” includes customs import duties, other excise taxes and duties, and other revenues.

overhaul in 1986–87 of the income tax system, the first significant reform in almost two decades (Maslove 1989 IRPP). The second was the introduction of the Goods and Services Tax beginning in 1991, replacing the (in tax terms) ancient and inefficient Manufacturer’s Sales Tax (Maslove 1991). The first reform generally went in the direction of broadening taxable income bases and lowering marginal rates. The second introduced value-added taxation to Canada. In part, these tax reforms were prompted by the successful negotiation of a free trade agreement with the US (soon to be expanded into NAFTA) and the perceived necessity of improving the competitive position of the Canadian economy by lowering marginal income tax rates and removing taxes embedded in the prices of export goods. Of course there was vocal opposition to these changes, but, compared to other attempts at tax reform (especially the previous attempt, the ill-fated effort of 1980–81), they were accomplished with relatively little opposition (Hale 2001; Doern and Phidd 1992).

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On the macroeconomic policy side, however, the Mulroney era story is quite different. It was not for lack of rhetoric. The latter years of the Mulroney government were full of dire warnings about the deficit and brave statements about the government’s determination to deal with it: These measures pale in comparison with the price we would all pay if we failed, and the far greater price our children would pay if we allowed our problem to become their crisis. Budget Speech, 1989 I can assure you that the government and the people who work for it will feel the pinch.  Budget Speech, 1991 It cannot be business-as-usual for any government that truly cares. Budget Speech, 1992 Realism tells us that it will not be easy to win the battle against high deficits and rising debt. But experience does show us that Canadians have what it takes to succeed. Budget Speech, 1993 Deficit and debt reduction were the central themes of the budgets of at least the last five years of the Mulroney government. Yet, by the time the government left office in 1993 the deficit in absolute terms and as a percentage of GDP was higher than in 1989. Partly this was a consequence of the sharp recession of 1991–92, which depressed revenues and boosted certain expenditures (e.g. Unemployment Insurance payments). But partly, this was also because the government’s fiscal actions did not match its rhetoric. Certainly there were some expenditure cuts. Restraining transfer payments to the provinces (payments in support of health care and social assistance) stands out. In many other areas, however, little or no progress was made. One reason for this is that the government had adopted a five-year fiscal horizon (the current budget year plus the next four). Many expenditure cuts were projected to occur in the latter years of each fiscal planning period, making it relatively easy to project deficit reductions but to delay



The Fall and Rise of Keynes 77

(­indefinitely in many cases) the actual hard decisions involved in cutting programs. By the end of the Mulroney government, while little or no tangible progress was made in bringing down the deficit, the years of rhetoric from the government and many business and other private sector interests had succeeded in creating a widespread perception that Canada was facing a big deficit problem, possibly an imminent crisis. The Chrétien-Martin Era: From Deficit to Surplus This perception undoubtedly aided the next government – the Liberal government led by Jean Chrétien – in its moves to take on and slay the deficit dragon. Though elected in 1993, the Chrétien budget era really began with its second full budget in 1995, delivered by Finance Minister Paul Martin. The international currency market had recently put incredible pressures on Mexican and some Asian currencies, because of the perceived deficit and debt problems of those countries, and in the weeks leading up to the 1995 budget, Martin became concerned that Canada could be next on the firing line. Years of unsuccessful attempts to reduce the deficit and a rising debt/GDP ratio were attracting the attention of currency markets he became convinced. A run on the Canadian dollar could result in dramatically higher interest rates, with a depressing impact on investment and consumer spending. Pressure from the currency market, Martin believed, could result in Canada having to approach the International Monetary Fund for assistance to support the Canadian dollar, and the ensuing IMF conditions would require drastic fiscal retrenchment, largely removing any discretion the government had in how to address the deficit. He became determined that the 1995 budget would once and for all seriously tackle the deficit. The 1995 budget was a watershed (Swimmer 1996). There have been very few budgets that fundamentally set the government, if not the country, on a different trajectory, but this was one. The budget contained some tax increases but its main thrust was major cuts to a wide range of spending programs. Transfers to the provinces in support of health care, post-secondary education, and social assistance were restructured into one program, the Canada Health and Social Transfer (CHST) and reduced by about one-third (in actual dollars)

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over two years. Ottawa’s direct spending programs were also cut back, from dairy and transportation subsidies, to the Unemployment Insurance program, to reductions coming from a review of virtually all other programs. On the revenue side, corporate and capital taxes were increased, as were excises on tobacco and gasoline. This budget and subsequent budgets that maintained this harsh fiscal stance were successful in eliminating the deficit and creating a surplus much more quickly than anyone imagined at the outset of the exercise. By 1998 the threshold from deficit to surplus was crossed, and in subsequent years substantial surpluses worked to bring down the debt/GDP ratio rapidly and sharply. What, then, accounts for this remarkably successful project to eliminate the deficit in stark contrast to the lack of progress over most of the previous decade? Several factors likely made a difference. First, as already noted, while the previous government did not make any real progress in reducing the deficit, their constant drumbeat about it probably created awareness among Canadians and more of a willingness to see the government take tougher action than would have been acceptable in earlier years. The business community in general was strongly onside. Secondly, one cannot downplay the importance of the steadfast support that Martin received from the prime minister, Jean Chrétien. Unlike Prime Minister Mulroney, who sometimes could be persuaded when ministers appealed to him for relief from a decision of his finance minister, Chrétien made it very clear to his Cabinet that he would not listen to any such appeals. Indeed, according to some accounts he told them that special pleading would be rewarded with additional cuts to their portfolios. Not allowing any distance to develop between the prime minister and the minister of finance was crucial, and all the more remarkable in the case of Chrétien-Martin because the personal relationship between them was less than warm. This prime ministerial support was facilitated by the broad swath of the budget’s cuts. As suggested above, almost no area of spending was exempted; the widespread sharing of the pain made it difficult for any interest to argue that it was being singled out or that it should be given any preferential treatment. Other, more technical factors were also important. While the previous government presented a five-year fiscal framework in its budgets, Martin generally limited his horizon to two years. The rationale was that the five-year planning period allowed too much



The Fall and Rise of Keynes 79

leeway to take the path of least resistance and hence the plan for the more contentious cuts to occur in the outlying years. The consequence, of course, is that the hard decisions were almost always put off, allowing the government to continue to claim them as deficitcutting measures, but not actually following through. With a twoyear horizon (the current budget year and the next), Martin argued that he and his cabinet colleagues were being forced to “walk the talk.” Another Martin innovation was the establishment of a contingency fund, intended not to finance new programs or cost overruns during the year, but to be a backup against adverse changes in the fiscal environment (for example, as a result of slower economic growth or higher than forecasted interest rates). This reserve amount (usually around $3 billion each year) was budgeted but never called upon, and as a result the budget deficit came down faster than the budget statements predicted. Finally, each year during this period (roughly from 1996 through 2002) Martin’s budgets and economic updates understated the degree of success achieved in moving from deficit to surplus. That is, the results for each fiscal year were more favourable than the projections provided along the way. These “errors” in forecasting appear to be deliberate. If they were truly forecasting errors one would expect that in some years there would be overestimates and in others there would be underestimates; in Martin’s tenure as finance minister the “errors” were always on the pessimistic side (that is, the deficit forecast was always larger than it turned out to be, and later the surplus projection was always smaller than it turned out to be). This bias would appear to be the result of one or both of two considerations. First, simply as a matter of prudence, the Finance Department may have opted to use excessively pessimistic scenarios in their forecasting because errors in one direction are much happier events than errors in the other. Secondly, and more strategically, the minister and his officials may have chosen deliberately to underestimate. By making the problem look even bigger than it was, they made their success look even more impressive. Further, and perhaps most critically, Martin knew that as soon as the threat of the deficit eased, the pressure from spending ministers would again grow as his cabinet colleagues lined up to seek funding for their new and existing programs. The longer that the focus could be on the deficit, the longer that spending pressure could be delayed.

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By the time the minister delivered his budget in 1998, the deficit crisis was over and the government’s fiscal position had moved into surplus. Even then, while projecting surpluses into the future, Martin tried to maintain the fiscal stringency of the previous few years by shifting the focus to paying down the accumulated debt. Nonetheless, there were important new initiatives announced in the budget, including tax cuts and the Canadian Millennium Scholarship Foundation (an early example, along with Canada Foundation for Innovation, of the increased use of foundations as spending and investment vehicles) (Aucoin 2003; Lopreite and Murphy 2009). And, for the first time in several years, an actual increase occurred in the grants to the provinces under the CHST. By the time Martin left as minister of finance and the Chrétien era was drawing to a close, a number of fundamental shifts had been affected, often with long-lasting consequences, budgetary and structural. The finance minister and his Department, who had long been recognized as the most important member of Cabinet other than the prime minister, emerged with his power further enhanced and his dominance over the spending ministries clearly established. The federal budget had been fundamentally shifted from a structural deficit to a structural surplus. Canada moved fairly quickly from having one of the highest debt/GDP ratios in the G7 to having the lowest. The exchange value of the Canadian dollar rose and foreign investors’ perceptions of Canada improved. Perhaps the most consequential adverse budgetary and social impact was on federal-provincial relations. The sharp cut in transfers with little advance notice disrupted provincial government planning and budgeting. In some respects it is not unfair to say that Ottawa partially solved its deficit problem by downloading it to the provinces. The loss of trust of Ottawa generated in the provincial capitals was deep and long-lasting. In particular several provinces argued that Ottawa could no longer be regarded as a partner in health care and that the federal government no longer had any moral authority to influence their provision of health care services. Paul Martin returned as prime minister in late 2003 and his roughly two years in office were notable for four budget initiatives. Each of these initiatives might be seen, in part, as Prime Minister Martin reaping benefits from the large surpluses earlier created by Finance Minister Martin. First up was the 2004 First Ministers 10-Year Plan to Strengthen Health Care that was signed at the conclusion of a



The Fall and Rise of Keynes 81

meeting between Martin and the provincial and territorial government leaders. In it Martin agreed that Ottawa would increase its grants through the CHST from about $15 billion in 2004–05 to $19 billion in 2005–06 and thereafter (until 2014) increase the grant at 6 per cent per year. This agreement represented a major fiscal commitment and essentially fully restored the health transfer to what it would have been in the absence of the earlier cuts imposed by Martin as finance minister. Whether this agreement “bought” better health care provision from the provinces is, however, very questionable. The second initiative was the “New Deal for Cities and Communities,” the substance of which was to provide funding for municipal infrastructure renewal (primarily environmentally “green” initiatives such as transit, and water and sewage capacity) that would eventually reach a steady state of $2 billion per year (Bradford 2004). This was tagged as the Gas Tax transfer because it was nominally linked to the revenues that Ottawa collected from the excise tax on gasoline. In fact, of course, the link was only notional; the transfer, as in all other cases, represented a decision to spend out of the government’s consolidated revenue fund. During 2004 federal negotiators concluded agreements with each province and territory allowing for the transfer of funds through the provincial treasuries mainly to municipal governments for the intended investment purchases (Adams and Maslove 2013). The third major initiative was a program to fund child care places. Similarly to the gas tax transfer, in 2004 there were agreements negotiated with each of the provinces. The final initiative with major fiscal consequences was the so-called Kelowna Accord negotiated between the federal government, the provinces and territories, and Canada’s Aboriginal peoples. The Accord committed Ottawa to spend $5 billion over five years on programs relating to Aboriginal health, education, housing, economic opportunities, and relationships. Both of these latter two arrangements were cancelled by the Harper Conservative government after it was elected in early 2006. The Harper Conservatives: Deficits and Stimulus, and Majority Government Structural Change Aside from the two program cancellations noted above, the Harper Conservative government, first elected early in 2006, undertook, in the following years, two major budget initiatives. The first was the

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reduction in the Goods and Services Tax (GST) rate from 7 per cent to 6 per cent in 2006 and then to 5 per cent in 2008. The cut in the GST was the only explicit budgetary promise (out of five main policy promises) made by Harper during the election campaign of late 2005 and January 2006. Understandably, the GST reduction was a highly popular political move. As an economic measure, however, it had much less to recommend it. If one was going to cut taxes, virtually every professional economist in Canada favoured instead a reduction in a tax that would have a greater stimulatory impact in investment and productivity enhancement; cutting a consumption tax provided neither. At the same time the reduction of two percentage points reduced Ottawa’s revenues by about $13 billion per year thereby essentially eliminating the remaining structural surplus in the budget that had been left by the Martin Liberals. In a scenario where the economy continued to grow at a healthy rate year over year, one might argue that this is not important, but given that the Canadian economy was soon to enter a deep recession, the GST reduction clearly was a factor underlying the return to large deficits, at least for a period of several years. The second main budget initiative of the Harper government in its first years in office was the economic stimulus program following the onset of the recession in 2008 (Pal 2011) The program – investment in public infrastructure, some requiring matching funds from provincial and/or municipal governments – was, on one level, a straightforward Keynesian economic stimulus package. But that is not to say it was lacking in drama. In November 2008, the Harper government delivered an economic statement in the House of Commons that, in terms of a policy response, all but ignored the recession. The response of the opposition parties in the minority parliament was so strong that Harper was forced to prorogue parliament to avoid being defeated in a Commons non-confidence vote. In January 2009, parliament was recalled and a budget was quickly introduced. As noted earlier, the government was under political pressure to respond to the recession that it all but ignored in its November statement. The centerpiece of the budget was the socalled “Economic Action Plan” which called for $30 billion of stimulatory federal spending over the next two fiscal years, mainly in the form of infrastructure investments. While much of this was purely federal money, a significant amount was used to lever ­additional



The Fall and Rise of Keynes 83

infrastructure spending by provincial and municipal governments (Maslove 2009; Doern and Stoney 2010). As we have seen Chapter 2, Harper achieved his long-sought majority government in the May 2011 federal general election and in both the 2011 and 2012 budgets clearly continued a similar medium term fiscal and policy agenda (Stoney and Doern 2011; Doern and Stoney 2012). This agenda emphasized ending the stimulus program, restoring balanced budgets, and as later chapters show in more detail, pursuing spending and tax policy changes that would produce a lower tax economy as well as better performance in its evolving view of structural fundamentalism for Canada. As we saw in Chapter 2, structural challenges and changes were much more prominent in budget 2012, whose purposes were focused on fostering long-term prosperity and hence focused on fields such as innovation, resource development, and a faster and more economic emphasis on immigration (Canada 2012). While the book’s focus is on federal budgeting and thus our discussion above has necessarily centred on key federal prime ministerial eras, there is little doubt that shifting conditions and developments at the provincial level have had impacts as well. This certainly occurred in the late 1980s and early 1990s where provincial developments in Alberta, Quebec, BC, and Saskatchewan raised the spectre of high deficits and the need for deficit reduction and revealed also the presence of structural deficits (de Clercy 2005; MacKinnon 2003; Boothe and Reid 2001; Maslove 1994; Maslove, Prince and Doern 1986). Linked federal-provincial and related fiscal policy are also one of the five elements in our analysis of budgetary domains and of temporal and intergenerational crises and hence will be discussed further in Part Two of the book. conclusions

Recent dynamics of macroeconomic policy have been our focus in this chapter. We set our analysis of these core dynamics in the context of the present overall fiscal crisis, and a historical look at macro spending and tax trends and the macroeconomic policies of the ­Mulroney, Chrétien-Martin, and Harper governments. The analysis shows that macroeconomic fiscal policy has been directed primarily to addressing long-term structural issues and has been much less short-term cyclically oriented, as governments have

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explicitly become less confident about their ability to smooth out fluctuations in the economy. Yet the earlier Keynesian era of active stabilization policy fundamentally altered citizens’ expectations of government, creating political pressures that have forced government responses, thereby setting up a tension between long-term structural goals and short-term stabilization goals. We have also contrasted the US macroeconomic policy and fiscal crisis of the current period with the macro situation in Canada. In essence, we have argued that Canada had confronted many but not all of its deficit challenges and some of it structural ones well before the US and indeed well before many other industrialized countries. We have also shown that macro fiscal budgets reflect an amalgam of the government’s core values and goals, such as its basic views of the nature and extent of state intervention in the economy and in society and the need to address the constraints and pressures of international markets and economic and political conditions and of unforeseen domestic developments and controversies as well. At times the government’s core values emerge quite clearly; at times the larger market, economic and national and international political imperatives drive the fiscal agenda. Thus overall, we have characterized the policy paradigm that replaced short-term stabilization as “structural fundamentalism.” The goal of fiscal policy became “getting the fundamentals right” so that the Canadian economy was well placed to do as well as possible under varying economic circumstances. The fundamentals were two: the fundamentals of the public purse, such as budgetary deficit; and the structural fundamentals of the economy, such as the taxation, investment, and regulatory regime and environment. While there have been short and specific revivals of Keynesianism, the structural fundamentalism paradigm still reigns in Ottawa.

4 Canadian Budgetary Institutions Power, Politics, and Contending Ideas

introduction

In this chapter our focus shifts to Canadian budgetary institutions and hence to an examination of the nature of power, politics, and ideas about budgetary claims, processes, and outcomes. The purpose is to relate budgeting to Canadian political and social institutions of governance, both in relation to key developments and as context for our empirical analysis in Part Two of three budgetary domains and of temporal and intergenerational budgeting and crises. We explore the following questions: From where do the politics of budgeting come? What does power mean with regard to public budgeting? What are the main structural forms of public and private power operating in, through, and around budgetary governance in Canada? How powerful is a prime minister in the overall budgeting process actually? How do strategic and contested ideas such as “public consultations” and “fiscal crisis” in its different definitional forms affect budgetary politics, relations of power, and budgeting outcomes? How well does democratic accountability operate in Canadian budgeting? In modern Canadian politics and governments, budgeting is a highly institutionalized set of events and processes. Our focus on political institutions includes governance as well as government, business, and social structures and state agencies. The determination of a budget represents the quintessential decision that governments make on a regular basis. Each budget, on both its expenditure and revenue sides, incorporates the values, conflicts and inconsistencies with which governments and other social institutions must deal. A

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public budget must respond to, or at least appear to recognize, the demands of various interests in the population that can converge or conflict in numerous ways. At the same time, it must further the government’s own agenda and its conception of the national interest and common good, both within and beyond the boundaries of macroeconomic policy. We show that the discourse of prime ministerial government is not the full discourse of power itself. The role of prime minister and governing from the centre, properly understood, sits within the general institutional context of the state, both federal and intergovernmental, as well as of market structures, civic associations and indigenous nations. This prime ministerial governing centre is surrounded by and interacts with: the massive stock of existing programs and statutory expenditure commitments, accounting for upwards of 95 per cent of any annual budget; the intricate constraints of debt management, monetary policy, and fiscal policy, each facing complexities of national and global events or, as we have seen, crises in many forms; myriad pressures for increased and new spending; expressed resistance against virtually any planned reductions and against many suggested new spending items; the inevitability of partisan calculations, including different kinds of regionalism, joined with the necessity for analytically credible budgeting and prudent forecasting of revenues and expenditures. Further considerations weigh on a prime minister in budget making and in how and when to exercise overt leadership or behind-thescenes influence. Foremost among these considerations is to avoid displaying differences between the Prime Minister’s Office (PMO) and the Department of Finance, or with the finance minister in cabinet, in government caucus or in parliament or in relation to the general public (Goldenberg 2006). Prime ministerial relations with ministers of finance have, however, varied greatly (Savoie 2010; Doern and Phidd 1992). In the Chrétien era there was a long serving finance minister in the person of Paul Martin who became a rival to Chrétien and eventually succeeded him as prime minister. Stephen Harper has similarly had a lone finance minister, James Flaherty, but with little sign that the latter is a rival. In other eras such as the Trudeau years, finance ministers were shifted more frequently and hence relationships of power were quite different, even though both ministers at some fundamental level have to get along and must rely on each other.



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A prime minister must pay heed more broadly to maintaining cabinet solidarity by managing differences, preventing major splits over policy, and keeping all ministers on side with the few major priorities of the prime minister and PMO through support for more specific program initiatives and modest projects. The interests of MPs and Senators in the government caucus cannot be ignored either, especially as elections near; neither can the interests of key economic stakeholders or the expectations of core political constituencies of the governing party. b u d g e t i n g p o l i t i c s a n d p o w e r r e l at i o n s h i p s

The politics of budgeting emanates from a number of sources and power relations (Lewis and Hildreth 2011; Lewis 2003; Wildavsky and Caiden 2004; Rubin 2000; Doern, Maslove, and Prince 1988). In one sense, it entails the inescapable necessity to make choices with limited or scarce resources in finances, materials, personnel, information, and time. Related to this are ongoing debates over what constitutes public resources, how to obtain them, from whom, and how best then to deploy those resources. Budgetary politics, however, is much more than making choices on public monies among a number of possible goals and activities. We conceive of the politics of budgeting in broader terms and is thus not limited to making trade-offs due to scarce material resources or to governments making decisions on spending, taxing, borrowing or lending. The politics of budgeting further involves the institutional context and related structures, processes and relations of power; it involves the social structures of the market economy, civil society, and indigenous nations; and, it involves substantive and symbolic resources such as dominant ideas, contending values and related discourse. Alongside resource scarcity, the political nature of public budgeting derives from the exercise of public authority (read: state power or legitimate coercion). Additionally, the politics of budgeting reflects the multiplicity of views, claims, and preferences of myriad interests, social groups, geographical regions, industrial sectors, and generations of people. This context contains an inequality of interests in terms of their influence, profile and status, budget lobbying tactics, agendas and staying power, and gains and losses. Budgetary politics also have to do with various forms of knowledge, time spans and

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uncertainty, including imperfect information such as forecasts and contested information such as evaluations and audits. The politics of budgeting refers broadly to a set of concerns about the conflicting purposes of budgeting, the way the relative power of groups and interests are reflected in budgetary choices, and the manner in which democratic accountability operates through various political institutions. It involves strategies and capacities to say no or to postpone and say “not yet, perhaps next year.” Budgeting politics is, to a significant degree, about process and relationships highly regarded and disputed in their own rights. It is concerned with the cumulative effects of budgetary choices on the legitimacy and functioning of public institutions themselves. Governmental budgeting is also about conflict resolution, a perspective that easily blends the viewpoint of economists (scarce resources/ tough choices) with that of political scientists (conflict, power, process, institutions). Public budgeting is power, which refers to actual capacities by organized interests in public and private settings to act or choose not to act. Public budgeting is a process of determining who gets what and who pays for what, when, and how. As a consequence, budgets confer benefits and burdens; disbursements and disappointments. Public budgeting focuses on spending and taxation but ultimately it entails the use of several tools of power, usefully thought of in terms of the full array of related basic instruments of governing: self-­regulation, exhortation and persuasion, symbolic politics, expenditures (direct spending and tax expenditure measures), taxation and other forms of revenue raising, regulation, and service provision (Prince 2010). In relation to public budgeting, several functions or uses of social power operate, namely: the capacity to scan and forecast economic developments and social trends; the capacity to recommend ideas or, conversely, to oppose a budget claim and generate an alternative proposal; the capacity to set priorities and plans for a government or organization; the capacity, by large organizations as well as oneself, to implement a policy or program or, conversely, to resist and contest that implementation; and, the capacity to monitor, audit, or evaluate annually or over time, an entire budget, specific policy field, or a particular program. Each of these dimensions of power draws attention to particular actors and organizations, resources and relationships. Thus budgeting is embedded within, and expressive of, a



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series of both public and private power structures. Having noted the policy instruments of governing and the functions or uses of social power, we need to discuss briefly the conceptions of power at work in contemporary Canada. We believe that it is ever more essential to understand how four grand structural forms of power operate in and around budgetary governance. The most familiar, certainly in the literature on budgeting, is a state-based conception of power. This view considers public power as political sovereignty, with authority vested in parliament, the executive and judicial branches of government; and, the role of the Charter of Rights and Freedoms, and federalism, with its constitutional distribution of legislative powers. A second approach is a market-based conception of power, focusing on ideas and practices of capitalism, which include property rights, capital formation and profits, business interests, economic relations, and material resources. This is the exercise of power and influence by private interests  – industrial associations, investment firms, domestic businesses, or multinational corporations as well as organized labour and the workers’ movement – in government decision making (Camfield 2011; Sell 2003; Doern and Phidd 1992). A third approach expresses a liberal democratic conception of power, highlighting the significance of civil society, or more particularly, human agency and social development, fundamental freedoms and liberties, personal beliefs, families, and social identities. In the Canadian context, the ideas and realities regarding multiculturalism, social tolerance, and community diversity more generally are other prominent features of civil society (Rice and Prince 2013). Historically, it has also centred on the relative role and power of organized labour including its role in the formation of the New Democratic Party and its predecessor, the Co-operative Commonwealth Federation, labour relations and collective bargaining rights, and various issues related to worker compensation and occupational health and safety (Stuewe 2010; Doern and Phidd 1978). Recent analysis has suggested that Canadian labour is itself in crisis (Camfield 2011). A fourth working conception of power in Canada, in many ways ancient and in others emergent and under revival, is indigenousbased. Indigenous forms of power are rooted in spiritual, political, and social customs and the conventions of particular cultures; some of which is in Canadian law and much of which resides with Indigenous nations and peoples (Saul 2008; Borrows 2002; Cairns 2000).

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To an important degree, the exercise of budgetary power is about extracting resources from citizens, corporations, consumers, and others through tax measures, custom duties, user fees, and other charges. In public discourse, this power of taxation is unpopular, intrusive, and coercive. By itself, this is an incomplete description of the power instruments and effects of budgeting by governments. Budgeting power is also productive, based in, and expressed through relationships of support – the provision of loans to businesses and students; income security benefits to families with young children and to senior citizens; compensation to victims of crimes and disasters; financing of essential public health services; and, tax incentives for economically and socially worthwhile activities. And despite the imposing image of “the taxman,” state power does not always prevail; especially in current times of neo-­liberalism and tax relief politics. Public powers of budgeting are relational in nature, dependent on others for their legitimacy, compliance, and effectiveness. This relational concept of power echoes our discussion in Chapter 1 on budgetary governance as networked and on principal-agent theory. In part, networked budgeting relates to the reciprocal expectations, calculations, and actions between spenders in departments and guardians in a treasury and, outside government, the non-hierarchical transactions and contractual partnerships between organizations. Our notion of power also generally supports principal-agent theory, which deconstructs hierarchies by focusing on how individuals interact in circumstances with varying kinds of information, constraints, resources, and choices. Routinely, government budgets respond to the claims of economic groups and interests, aiming to support the workings of industrial sectors, to invest in the labour force, to bolster consumer confidence, and to enhance overall market activity. That said, the promotion of economic interests and the accumulation of private capital are not the sole preoccupations of public budgeting. As later chapters show, public budgeting is substantially about managing social issues, promoting civil society and social economy, and supporting numerous kinds of families and communities; as well, with indigenous peoples across the country it is about funding old relationships, many of which are troubled, and forging more positive new relationships. Power within and across these four structural fields is not evenly distributed; different interests have different capacities to act, and they articulate different views of what the priorities should be.



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I­ nterests do not always agree on how the past should be interpreted, let alone what the future holds, or what risks should be taken, rights acknowledged, and resources committed. i n s t i t u t i o n s o f t h e c a n a d i a n s tat e

In the Canadian state, several institutions are of central importance for an understanding of public finances and budgeting. These are: parliament and parliamentary-based budgetary watchdogs; the cabinet and cabinet committee system; the prime minister and central agencies; and, the constitution, intergovernmental relations, fiscal federalism, and the federal spending power. Parliament and Budgeting: Power of the Purse? Or the Power to Pester and Promise? An elected parliament or legislature is the most legitimate political institution that Canadians have, since they have some voice in choosing the assembly or commons of representatives. From parliamentary government, comes the idea that it is only the executive, the cabinet, which can introduce money bills and expenditure initiatives. It also inherits the notion that elected legislative bodies grant “supply” and hold ministers to account, collectively as a cabinet and as individuals (Ward 1962). Of course, parliamentary government in Canada functions through the vehicle of political parties and partisan competition that occurs both during general elections and all the time between elections. The heat and rhetorical flourish of election campaigns produce a pro-spending bidding war of sorts among the political parties. In recent times, election campaigns also feature party competition over promises of tax relief versus pledges of tax increases in personal income or corporate taxation. Interacting through the mass media and social media, this partisan competition (and, occasionally, cooperation if not possible coalitions) at the federal level among the Conservative Party, the New Democratic Party, the Liberal Party, the Green Party, and the Bloc Québécois, and between government and opposition produces conflicting pressures on budgets. These parties also represent important ideological clusters of opinion and beliefs about the role of government generally, and the role of the federal government more specifically, and about preferred spending and tax measures. In parliament,

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the opposition parties and individual members of parliament (MPs) have the right to oppose, criticize, scrutinize and, in a general sense, prevent clandestine governing. The normative concepts of responsible government and democratic accountability anchor this system. In theory, ministers are individually and collectively responsible and accountable to parliament. Financial accountability is aided by the need to obtain annual approval of the proposed spending Estimates (in the so-called Blue Book), including borrowing requirements, and the condition that past spending, the public accounts, is audited by an independent officer of parliament, the auditor general of Canada. The norm of annual budgetary approval, however, is not strictly adhered to in practice, in that certain programs, especially in the social domain, involve multi-year statutory agreements with the provinces and territories or income security programs for individuals and families. Social programs, nonetheless, can be and have been changed or eliminated. In addition to the Office of the Auditor General, parliament has established a number of other watchdog agencies in recent years, introduced under the Harper government’s accountability agenda of 2006–08. These watchdogs include a commissioner of lobbying, a Public Sector Integrity Office, a conflict of interest and ethics commissioner, and the Parliamentary Budget Office. The roles were also enhanced for the existing parliamentary commissioners responsible for privacy and access to information. Within the federal government itself, additional watchdogs established by the Harper government include a procurement auditor, as well as enhanced powers for the comptroller general and the appointment of a chief audit executive in each federal agency and department (Good 2007). The Parliamentary Budget Office (PBO) assists opposition parties and all MPs in their fundamental role of scrutinizing budget estimates as well as offering MPs and the general public and mass media, another source of analysis on the government’s economic and fiscal statements, the financial implications of proposed legislation, and budgetary ramifications of major economic and social trends facing Canadians. The PBO’s role has been contentious, especially for the Harper government, with struggles over staffing and funding the office and the actual independence of the PBO position (Clark and DeVries 2010). Thus, despite this reform and others, parliamentary scrutiny of budgeting remains intensely partisan and the “power over the purse”



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is generally feeble (Chenier, Dewing, and Stillborn 2005; Malloy 2010; Aucoin, Jarvis, and Turnbull 2011). A Globe and Mail (2012) editorial quite accurately highlighted a number of remaining weaknesses. It noted for example that “when the government unveils its annual budget … the spending estimates that accompany it have not been prepared in conjunction with the budget” and also that “the majority of department estimates are never subject to committee oversight … and go directly to supply stage without discussion” (Globe and Mail 2012, 1). The Cabinet: The Political Crucible for Budgeting Cabinets are the political crucible for federal budgeting. Composed of about 40 ministers, a cabinet is chosen and dominated by the prime minister, but at the same time, restrains the prime minister’s behaviour in important ways. Cabinets are quasi-representative collections of people, chosen with attention to regional, linguistic, gender, and other considerations who want to do good things in genuine ways but who also have high expectations of being able to demonstrate, at least on occasion, that they have influence and power. So too do their senior public servants and the departments and agencies they head. Budgetary processes must in part accommodate these needs, and such accommodation may or may not coincide with desirable program needs or efficiency criteria. In a cabinet, power is both conferred and earned through a combination of skill and luck in building upon regional, personal, and structural power bases. Cabinet ministers can use their regional electoral base to secure budgetary resources (Crosbie 2007; Savoie 1990). Personal skill and leadership garnered in a variety of ways – through loyalty, handling crises well, a reputation for being wellbriefed and prepared, good media relations  – are in many ways the most difficult to measure, with the exception of the time when leadership conventions happen. Structural bases refer to the kind of authority inherent in the department or portfolio assigned to a minister. Internal bureaucratic-executive processes also produce demands for varying definitions of policy analysis so that decisions are carefully considered and consistent with overall priorities and other program areas. This can stretch out the budgeting process. Concerns for timely and decisive budgeting, on the other hand, can lead to demands

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Table 4.1 Cabinet Committees under the Harper Government, 2012 Priorities and Planning Operations Treasury Board Treasury Board Sub-Committee on the Strategic and Operating Review Social Affairs Economic Prosperity and Sustainable Growth Foreign Affairs and Defence National Security

to shorten the process so that decisiveness occurs. The cabinet and executive, therefore, produce both an institutionalized and highly personalized budgetary process as ministers and officials with widely varying bases of power manoeuvre to do public and private good. Table 4.1 outlines the cabinet committee system under the Stephen Harper government circa 2012. Most of the basic elements of this system began during the late 1960s, and the number of committees has waxed and waned over subsequent decades, with the Harper cabinet committee system smaller than that of previous prime ministers such as Pierre Trudeau or Brian Mulroney. The prime minister chairs the Priorities and Planning (P & P) and National Security committees. Also called the inner cabinet, the P & P committee “provides strategic direction on government priorities and expenditure management, ratifies committee recommendations, and approves appointments.” The Operations committee “provides day-to-day coordination of the government’s agenda, including issues management, legislation and house planning [that is, House of Commons], and communications.” Treasury Board is “responsible for accountability and ethics, financial, personnel and administrative management, comptrollership, approving regulations and most orders-in-council” (PMO 2011). The bulk of public spending, policy, and program delivery occur under the auspices of the committees for Social Affairs, Economic Prosperity and Sustainable Growth, and Foreign Affairs and Defence. Cabinets are to govern responsibly while opposition parties in legislatures are to counter, criticize, and prevent unofficial and surreptitious governing. Thus, the overall budgetary system in a system of cabinet-parliamentary government aims to hold elected m ­ inisters accountable and responsible for the decisions. Yet the modern



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­ rocess also induces the frequent practice of “ministerial irresponp sibility.” Under this political custom, an entire cabinet or a specific minister selectively accepts credit when good results can be claimed and strenuously deflects blame onto others (previous ministers or governments other levels of government, other sectors, or even other countries) when bad results are apparent or decisions are unpopular. Prime Ministerial Power and Budgeting Processes Canadian studies on the politics of budgeting focus on executive power, especially the power of the prime minister and Prime Minister’s Office and the central agencies of Finance, Privy Council Office, and Treasury Board Secretariat (Good 2007; Hale 2002; Savoie 1990; 1999; 2003; 2010; Doern and Phidd 1983; 1992; ­Hartle 1988). In this perspective, federal politics in general and budgetary politics in particular are largely about the major influence of the political executive in decision making and over parliamentary government. There is obviously considerable validity to this interpretation of Canadian government. The image of the prime minister in recent times, whether Liberal or Conservative, is as a dominant and domineering actor in the cabinet and federal government (Dunn 2002; Crosbie 2007; Aucoin, Jarvis, and Turnbull 2011), a friendly or not so likable dictator, depending on the personality and style of the incumbent (Simpson 2001; ­Martin 2010). A senior member of the Brian Mulroney cabinet, writes: “There is no longer even any pretence that the prime minister is the ‘first among equals’ – he has become an imperial ‘potentate”’ ­(Crosbie 2007, 393). A seasoned observer of Ottawa states, “Experience in the federal government reveals that, when important spending cuts have been achieved, the prime minister’s hand has been present and highly visible” (Savoie 1990, 149). Prime Minister Jean Chrétien’s senior policy adviser from 1993 to 2003 notes that, “the budget has become the single most important policy document of the year for the government. (It not only establishes all the government’s spending priorities, but it also uses the tax system as an important instrument of social policy). This means that the prime minister and the PMO need to be heavily involved in budget making” (Goldenberg 2006, 132). As David Good, both a scholar and practitioner of public budgeting in Canada, expresses it, “after all the prime minister stands at the top with his hands on the levers of power” (Good 2007, 102).

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This picture of the prime minister is like a modern day L ­ eviathan; a giant political figure looming over the government and parliamentary system, exercising top-down influence all the while. Yet, is federal budgeting effectively prime-minister-centred budgeting? Are the prime minister and PMO pre-eminent in how Ottawa spends and taxes? Does prime ministerial power dominate the making of the expenditure and revenue budgets of the Canadian government? Rather than ask, “who has the power over public budgeting?” we look for where and in what form the power to budget is located and exercised. The question of who has the power, leads to a focus on a few positions at the apex of cabinet government, with formalized procedures, constitutional conventions, and hierarchical arrangements. Power is a bundle of fixed and discretionary authorities attached to select positions and agencies. From this approach comes a concern with how budgets can be better coordinated and managed in line with overall government priorities, thus the organizational need and democratic desirability (democracy interpreted in a narrow manner, perhaps) of the strong hands of the prime minister on budget making. The typical reaction in the literature and mass media suggests an undue concentration of influence by the prime minister, advisers, and central agencies at the expense of ministerial influence and departmental input. This conceptualization of prime ministerial power tends to overlook two important realities of budgetary governance: first, the diverse components of public budgets and multiple relations and processes involved in budget making; and, second, the role and influence of other interests and institutions, both public and private, in policy networks and communities. Our preferred question, of where and in what form the power to budget is located, prompts a line of analysis that encompasses a broader range of institutions, values and interests, and public and private power interactions. It leads to a consideration of the various budgetary domains with their five different elements as set out in Chapter 1 and as we examine in more detail in Chapters 5, 6, and 7. From this approach, come an interest in how power circulates through countless roles, structures, and relationships inside and outside government, and ultimately an interest in the state of democracy in budgetary governance. A prime minister or premier’s explicit budgetary role varies both among first ministers and under different times and circumstances



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(Good 2007; Goldenberg 2006; Savoie 1999; Doern and Phidd 1992; Maslove 1988). A first minister must be aware not to undermine the minister of finance but, at the same time, his or her ultimate agenda is that of the government and the party as a whole rather than that of the budget itself. A first minister’s agenda, therefore, is not always precisely the same as that of the finance minister. The prime minister is the chief point of contact for other political leaders domestically and internationally and hence is subject to a range of pressures and personal alliances and obligations, many of which his or her colleagues may not even be aware. Important differences exist when one relates the above cabinet dynamics to revenue budgeting as compared to the expenditure budget process. Essentially two ministers decide revenue budgets; the minister of finance and the prime minister or premier. There is a far greater concentration of power practiced here than on the expenditure side, where other ministers have some room for input and influence, but some more than others in any given year. In addition, the preferred and perverse dictates of partisanship and the electoral cycle govern public budgeting (Pammett and Doran 2011). From time to time, election mandates properly produce democratically desired budgetary decisions. At other times, raw electoral calculus produces behaviour that, while perhaps understandable, the general public may find distasteful. Political spending increases can occur as some voters are seemingly “bribed” with their own tax dollars, particularly if they are coveted via so-called porkbarrel strategies focusing on close or swing ridings in the run-up to elections (Lee 2012; Dutil and Park 2012). Equally, political spending of this kind can occur if tax or revenue increases are delayed or underestimated just prior to an election call; or pre-election tactics for restraint speak soothingly of the need to “manage” better, and only after the election do the “draconian details” become apparent. Election mandates, which ought to be the first line of democratic accountability, produce varied budgetary styles and outputs (Stoney and Doern 2011; Maslove, Prince, and Doern 1986). The Constitution, Intergovernmental Relations, Fiscal Federalism, and the Federal Spending Power “Canadians spend as much time or more time as do other peoples in major debates about ends and means, about the rich and the poor,

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about freedom and equality, and about change and the status quo. But they do so in the strange vocabulary of the political elites, in terms of changing the structures and responsibilities of their systems of government” (Black 1975, 3). From Canada’s constitution and from the ever-evolving system of Canadian federalism, budgetary behaviour and norms are influenced by the assignment of powers and by major joint spending programs and equalization payments, as well as by constitutional limits on the powers of taxation and on spending (though with more room on the latter to exercise the socalled spending power) whereby the federal government can spend money on persons but cannot legislate in areas of provincial legislation. It can and does offer conditional spending and sets up programs where, as we saw in Chapter 1, agencies and interests have to bring money to get federal money. The federal government can tax by any mode or means, whereas the provinces can impose direct taxation only (which includes sales tax). One level of government cannot tax another, a reality that has led, along with other causes, to the use of Crown corporations to capture revenue shares and to disputes between senior levels of government and municipalities for grants in lieu of property taxes on Crown lands. Expenditures as noted are less constrained by purely constitutional features, and while the use of the federal spending power in areas of provincial jurisdiction has been controversial, this spending power has helped to produce an elaborate array of federal, provincial, and intergovernmental economic and social programs. Both before and after coming to power, Stephen Harper spoke of his vision of the federation which he called open federalism. “The Harper government has its own lens through which it views both social programs and the spending power, and its lens is different than that of the Liberal governments that preceded it” (Lazar 2008, 133). Major themes of Harper’s open federalism are to limit the federal spending power in areas of provincial responsibility; to ensure that new shared-cost programs in areas of provincial responsibility have the consent of the majority of provinces; and, to recognize the right of provinces and territories to opt out of shared-cost federal programs with compensation if they offer similar programs with comparable goals and systems of accountability. Shortly after taking office in 2006, the Harper government cancelled a federal-provincial-territorial agreement, called the Kelowna



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Accord, brokered by the Paul Martin government, to fund expanded and new measures for Aboriginal peoples and communities in education, health care, and housing over a 10-year period. In 2007, the Harper government terminated another Martin government social initiative, five-year intergovernmental agreements with the provinces on supporting the development of universally accessible, quality early learning and child care services. These two actions represent major retreats in social policy and retrenchments of the federal spending power. At around the same time, no doubt conditioned by the exigencies of public opinion and being a minority government, the Harper government endorsed the Canada Health Transfer (CHT) and Canada Social Transfer (CST) agreements established by the Chrétien and Martin Liberal governments, and which run until 2014. After winning a majority government in 2011, Harper then announced unilaterally rather than through negotiations with the provinces that federal health care funding would increase by 6 per cent to 2016–17 and then be indexed to GDP growth which will likely mean lower rates of growth in subsequent years (Simpson 2012). The Harper government’s policies on equalization payments and financing formulas to have-not provinces and to the territories are continuations of previous Liberal governments. Thus, a substantial part of Harper’s approach to intergovernmental relations is deeprooted in historic debates and interests in the federation. However, simultaneously, Harper’s approach to the social union in Canada offers a different kind of federal role, one that stands in contrast to the activism of the later Chrétien government (2000–03) and the Martin years (2003–06) in social policy (Bhatia 2011). On the social policy and intergovernmental record of the Harper government, Harvey Lazar concludes that the government “has asserted forcefully and explicitly that program areas covered by the Canada Health Transfer and Canada Social Transfer are areas of shared responsibility, and has extended their legislative lives. The Conservative government initially attempted to improve provincial accountability for these programs by substantial intervention. But it has since seemed to lean toward an accountability regime for these two large transfers that focus on clarity of roles and responsibilities. At the same time, the federal government does not appear to have any major new social policy initiatives in mind and it has very significantly reduced its fiscal room for launching any such initiative”

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(Lazar 2008, 139). As we see in Chapter 5 on the social domain, this has begun to change with Harper’s plans for reforms to Canada’s pension system, beginning with changes to the Old Age Security program. i n s t i t u t i o n s o f c i v i l s o c i e t y , t h e c a p i ta l i s t e c o n o m y , and indigenous peoples

Beyond the state, there are three structural forms of institutional power operating in, through, and around budgetary governance in Canada: civil society, the capitalist market economy, and indigenous peoples. Civil Society: Community Organizations, Public Interest Groups, and Family Forms It might seem obvious that civil society is of fundamental political importance to Canadian public policy and budgeting, yet the public finance and budgetary politics literature frequently overlooks or takes for granted this social institution. Civil society, as we use the term, comprises an amalgam of organizations, values, issues, activities, and power relations. It plays a crucial intermediary role among citizens, between the citizen and the state, and with other institutions both in this country and abroad. Complex, diverse, and ever changing, civil society includes non-governmental organizations and non-profits; registered charities, whether private or public foundations and other charitable organizations, including religious entities; social economy organizations such as cooperatives, community development agencies, and social enterprises; democratic interest structures such as collective rights associations and public interest groups; and, the diversity of ideas on, and forms of family in contemporary Canadian life. As a political institution, civil society is an entrenched network of roles, structures and action rooted in values of importance to human and social development. Beliefs and values associated with civil society include (i) structural ideas of autonomy from the state, self-­governance, privacy of the household, and separation of church and state; (ii) fundamental freedom ideas of conscience and religion, of thought, opinion and expression, and freedom of association and peaceful assembly; and, (iii) sociological ideas of human



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diversity and multiculturalism, community and locality, as well as caring, giving, and sharing. Civil society also structures and operates within basic relationships of power in Canada. Community organizations of remarkable variety recognize unmet needs, provide goods and services, raise monies, allocate funds, engage in policy development and, perhaps, participate in budgetary consultations. They self-­ govern with a volunteer board of directors and may work informally or officially with other groups in federations and coalitions to advocate for social changes and, at times, argue to preserve a status quo. As a sector of non-governmental organizations, charities, social economy organizations, democratic interest structures, and diverse family forms, civil society represents a complex set of accumulated spending and tax relationships with governments; relationships which are entrenched in certain ways but which, at times, seem precarious and uncertain to community groups. Tax rules administered by the Canada Revenue Agency on which organizations qualify for registration as a charity and are thus eligible to charitable donation tax credits, are a thorny issue for this sector. As Susan Phillips explains: “The determination of status as a charity is important because it enables such organizations to have potentially greater access to resources by providing incentives to give (on both an annual basis and through estate planning), but it is also an important indicator of legitimacy” (Phillips 2006, 130). She adds that: “In spite of a decade of pressure for reform, the federal government has resisted action on two of the key concerns of the voluntary sector: modernizing the definition of charity (or the appeal processes that would allow the common law to modernize itself) and liberalizing restrictions on public policy advocacy by charities” (Phillips 2006, 148). The latter concern has obvious repercussions for the quality of democratic politics in the country, a topic we examine in detail in our final chapter. Some non-profit and charitable organizations are large and elaborate structures: colleges, hospitals, and universities are examples in Canada. However, most civil society organizations, particularly those in what is called the voluntary or third sector, are small entities, with modest budgets and facilities, few if any paid staff, and heavily reliant on volunteers as personnel. For registered charities in Canada, which represent under half of the organizations in the voluntary sector, their main source of revenues is from government funding, most of which is from the provinces, followed by the

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f­ederal government, then municipalities. Depending on the definition adopted for the voluntary sector, it contributes between 2.4 and 6.8 per cent of Gross Domestic Product in Canada (Friesen, Alasia, and Bollman 2010). Collective rights associations and public interest groups are another key feature of the institutional setting of public budgeting in Canada. They can be understood as non-business or non-­ producer groups, working alongside the market economy while informed by a somewhat different set of ideas and objectives than capitalism. Whether formal collective rights associations of people with disabilities, ethno-racial groups, women or other social identities, public interest groups articulate budgetary expectations on both the tax side and the spending side of the public purse. We can readily imagine civil society organizations as members of p ­ ublic policy communities, networking with other agencies in the public, private and voluntary sectors on certain issues, programs, and social causes, representing the interests of those they serve. With respect to the power and politics of public budgeting, “their organized political base is, on the whole, much weaker, less stable, and less coherent than producer associations” which represent the leading professions or major sectors in the Canadian economy (Doern and Phidd 1992, 70). An ambivalent relationship exists between many public interest groups, community organizations, and voluntary agencies on the one hand, and government departments on the other, regarding the issue of what services government should provide directly versus what they should outsource to charitable agencies. As a basic institution in society, the family deserves special emphasis, especially given the present diversity of family forms in Canadian life. The “nuclear family,” once the predominant form of family structure in the country, made up of married heterosexual couples with children, now accounts for 40 per cent of all families (Rice and Prince 2013). And within this category, there has been a growing number of “blended families” consisting of couples with the mother’s, the father’s, or both partners’ children from previous marriages or common-law unions. Other types include single parent, joint custody, three parent, adoptive, teenage parent, later-life parent, grandparent, childless couple, queer parent, and extended families. In the expansionist era of the Canadian welfare state, from the 1940s into the 1970s, the main reason for being a lone parent was widowhood.



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Today the prime reasons are that persons have never (or are not yet) married, are divorced, or separated. The proportion of lone parent families, of which women head over 80 per cent, have increased substantially since the 1970s, now represent about 16 per cent of all families. Common-law families account for another 16 per cent of all families. In 2006, Statistics Canada began to track the number of same-sex couples with or without children and the number of these family forms are increasing and gaining recognition given the change in law in 2005 and the introduction of programs in some Canadian jurisdictions. The growing diversity in family forms has ramifications for household incomes, social care and informal support, child rearing, family law, employment standards legislation, and human rights; extending to different notions of individual well-being, labour force participation, and work-family balance issues. Capitalism: The Market Economy, Mass Media, and Medical Power Capitalism is usually thought of first as an economic institution embracing free market exchanges and property rights. It is most certainly a crucial political institution as well, in that, even though advanced industrial nations have “mixed economies,” the role of the state in such liberal democracies is structured on the core belief that capitalism is central to personal freedom and to the avoidance of a concentration of power. A number of more specific impacts of capitalism on budgeting deserve emphasis. First, capitalism supplies particular impetus to the persistent concern for efficiency as an idea (and related notions of productivity, innovation, fair return on risk) and to the view that governments are inherently inefficient and should therefore be limited to performing tasks for which they are suited and not for things which the market can do better. Second, capitalist interests and ideas exert continuous pressure to limit the general growth of spending and taxation but, at the same time, exert selective pressure to expand the state in particular ways for particular activities that benefit some industries and corporations. Third, as an overarching institution of the Canadian political system, capitalism has led to the creation under general business framework legislation of legal privileges for corporations allowing them to be, in a sense, legal persons separate from their owners, managers,

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and employees. Liabilities are thus limited in certain ways, commercial secrets are protected and tax records are treated with the same confidentiality as those of an individual. The last of these contributes, along with other factors, to a strong business sector preference for “tax breaks,” since they are more flexible as a policy instrument, in part because they are more secret than refundable tax credits. Market-based interests actually possess the power to invest or not invest in and to respond or not respond to government incentives delivered through the tax system or through direct expenditures. Interest groups have fewer direct powers, though the power of some increase by their alliance with key corporate interests. The presence of local chambers of commerce, industry associations, executive councils and other groups representing market interests is a familiar feature on the political landscape. So too are labour congresses and worker’s alliance as well as public and private sector unions ­(Camfield 2011). All want to be consulted in the budgetary process in one way or another. Interests include large individual corporations that do not have to rely on the lobbying techniques of interest groups. Large corporations and unions have the capacity to act on their own, rather than or in addition to try to persuade through lobbying efforts via an association. In some cases, a major corporation’s own budgets greatly overshadow those of smaller provinces, the territories, and indigenous governments. Business entities are recipients of fiscal packages negotiated to launch a large project. Thus, budgeting involves the world of loan guarantees, special financing, and deferred taxation in which business interests are the main players. Interacting with the above political and governmental institutions are the organizations of international bodies and foreign governments. International organizations include the Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO), and foreign government bodies such as the United States Federal Reserve, have direct implications for Canadian public finance and budgeting. The influences exerted by such multi-level governance include the fiscal policy analysis fostered by the OECD, the moves and countermoves that the WTO prompts in deciding whether, and in what form, subsidies and loans are permissible under trade law, to the interest rate and deficit financing decisions and pressures from the Federal Reserve in Washington. Another part of this international network is the circulation of



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ideas and ­paradigms including Keynesianism and monetarism, and their newer varieties of economic stimulus and state austerity, sets of beliefs and claims concerning what constitutes good fiscal policy and responsible budgeting. The mass media, interacting with think tanks and academics, is another core political institution in Canadian life with important impacts on budgetary politics. A vital part of establishing an accountable government and informing an engaged citizenry is the press, along with newer forms of social media. Thus, the media of all kinds are a part of the budgeting process. Journalistic coverage of budgets has increased and improved over the last decades, but the media are also a factor in other more dubious features of budgetary politics. Media coverage and hype give the budget speech its theatrical flavour as a staged spectacle. Media organizations are the main avenue for reporting on economic forecasts and alternative or “shadow budget” plans and recommendations developed by competing think tanks. Major think tanks such as the C.D. Howe Institute, the Conference Board of Canada, the Fraser Institute, the Canada West Foundation, and the Centre for Policy Alternatives regularly offer budgetary and related policy studies (Laurin and Robson 2012; Canadian Centre for Policy Alternatives 2012). So also do more specialized policy institutes across specific social, economic, and environmental fields. Media writers and bloggers, especially those who are political journalists, tend to focus on the latest moment and the short run. Their limited attention span, in combination with its emphasis on the hothouse partisan atmosphere of question period in the House of Commons, contributes to the need felt by most politicians to be seen doing something via spending gestures and to be heard talking about spending. In macro-budgetary terms, this can mean pressure to spend or to have another budget or a mini-budget, seen when the effects of the last one are unknown or when doing nothing would be the preferred course of action. The media also devote attention to priority setting events and documents such as the Speech from the Throne and major remarks by the prime minister, plus reports by the Department of Finance on fiscal updates, including some coverage of pre-budget consultations, as well as a media darling, reports from the auditor general of ­Canada. A political analyst notes, “the media delight in giving the auditor general’s report a full airing for a day or two each year;” and

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expresses little doubt that “the media attention to the auditor general’s report has prevented ministers and officials from pushing ahead with proposals that could be fingered as candidates for the report” (Savoie 1990, 34). Since its establishment in 2008, the parliamentary budget officer, with a steady stream of fiscal updates, research reports and parliamentary committee appearances, has also quickly become a media favourite. Governments do not simply react to media coverage; they seek to manage news coverage and content. As a former senior public servant explains, “while governments are finding it in their interests to release more information (even in the absence of external requests), the underlying contextual information surrounding an actual decision is invariably omitted and, typically, much of what the outsider sees or hears is the rhetorical ‘spin’ carefully crafted to ensure that a simple message is communicated with the minimal of media and opposition distortion. While the public buzz and gossip about what actually goes on inside government has increased, it has rarely served to provide clearer pictures, only more confused ones” (Good 2007, 5). Finally, we take special note of medical power, a structural realm in budgetary governance that is rarely fully understood for its actual power attributes. Medical power – that is, the influence and authority of health sciences and therapeutic professionals within society – stems from a number of sources and relationships. These include a body of expertise based on systematic knowledge, skills and training developed though various kinds of evidence; relatively high societal prestige and public legitimacy; and, substantial occupational autonomy through delegated authority from the state. Medical power links with other sources of influence and key interests in the political economy: research funding councils and foundations, medical schools and universities, and pharmaceutical companies. These power sources and relations illustrate the networked form of exercising authority and governing both with respect to new spending and to old entrenched spending at both orders of government in Canada. The federal and provincial levels of government also intervene in the role of medicine and other professions, and their relationships with the public, through policies and regulations on numerous issues of health and governance: for example, on which products are permitted and which prohibited in the country; on what the reporting



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obligations are for practitioners using such regulated products; and, on the organizational location for particular activities and practitioners (Doern and Prince 2012). Indigenous Peoples and Political Communities In the Canadian context, the term “indigenous peoples” refers to members of three groups collectively, the Inuit, Métis, and First Nations. Inuit are the circumpolar peoples whose homelands in Canada spread over four jurisdictions: Labrador, Quebec, Nunavut, and the Northwest Territories (Prince 2011; Saul 2008; Coates, Lackenbauer, Morrison, and Poelzer 2008; Abele and Prince 2006). Métis are a distinct people, with a distinct culture, descended from the early marriages between Indigenous nations and European settlers. First Nations is the term generally used now to refer to members of many different nations, such as Haida, Nisga’a, Dene, Innu, and Cree, among many others. There are in the order of forty to sixty historic Indigenous societies in Canada; some of these are now fragmented. Members of First Nations live in over 600, generally small, reserve-based communities created by federal administration of the Indian Act many decades ago. Some Métis live in communities dominated by or reserved to Métis, but many others live among the general Canadian population. Inuit, who probably did not have a strong sense of collective identity in pre-contact times, now tend to see themselves as members of one people though they live and for all practical purposes participate in governance in four provinces and territories: Labrador, Nunavik (northern Quebec), Nunavut, and the Northwest Territories. In all cases, including that of on-reserve First Nations communities, many members live among the general Canadian population, and especially in cities; in particular, over half of all First Nations people now live in cities. This relatively recent large-scale migration of Aboriginal people to the cities complicates federal-provincial arrangements for the provision of services (Peters 2011). Joined to the long history of treaties, broken promises, assimilation practices by Canadian authorities, and a resurgent Indigenous activism, is the more recent record of land claims, treaty negotiations, constitutional reform, landmark court decisions, and a new generation of Indigenous leaders. From this complex array of activities and struggles flow basic disagreements about the nature of our

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collective past, present times, and possible future relations between Indigenous peoples and the federal and provincial governments. An example is the Indian Residential Schools Truth and Reconciliation Commission, arising from a negotiated agreement in 2006 and established in 2008. Among the Commission’s goals are to acknowledge and record the experiences, impacts and consequences of the Indian Residential School system on former students, their families, communities, and former school employees and religious entities; and, to promote awareness and public education of Canadians about the system and its impacts. Intertwined with this is whose identities and rights should a political community recognize and support? Whether Canada is a single political space or a multiplicity of national spaces, is an inquiry of profound significance and an issue that remains unresolved. Political discourse on these questions is deeply contentious, driven by different images of Indigenous–­ Canada relations, held by varying peoples, political parties, governments, academics, and other interests in economic, spiritual, and social life. Four sets of ideas and practices compete over what IndigenousCanadian state relations are about and what they ought to be about. These four pathways to self-government distinguish by the constitutional status and relationship between Indigenous communities and the Canadian political system. The pathways portray Indigenous self-determination, in turn, as mini-municipalities, a third order of government, the public government federal option, and nation-tonation or treaty federalism between confederations; and are closely examined elsewhere (Abele and Prince 2006). Implementing self-determination will require a significant amount of institution building of three kinds: firstly, separate institutions within Indigenous communities to recognize self-government and accommodate differences; secondly, similar institutions within each of the Indigenous and Canadian systems to deal, for instance, with matters of budgeting, financial management, and other modern policy and administrative techniques; and, thirdly, shared institutions between Indigenous and Canadian governments in recognition of actual interdependencies, shared jurisdictions over resources, and the practical benefits of cooperative arrangements (Falvo 2011; Prince 2011; Abele and Prince 2008; Prince and Abele 2005; Prince and Abele 2000). Today, indigenous people as individuals and as collectivities are widely active in formal Canadian politics, although



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e­xercise of the franchise is controversial and indigenous peoples remain underrepresented in elected bodies and executive federalism. Indigenous people have formed hundreds of organizations for the purposes of political representation, economic development and service delivery. At some point in the not-too-distant future, Canadians will have to make a choice about how Indigenous self-governments are to be integrated in federalism – and about what to do about the likelihood that a political and fiscal arrangement suitable for one substantial body of Indigenous opinion may not be suitable for another. c o n s u ltat i o n s a n d c r i s e s a s i d e a s

Budgeting is a central part of the process through which the main ideas and values in Canadian political life are expressed, ranked, balanced, or frustrated and postponed. Interestingly, differences and overlaps are apparent in the array of values and ideas that are the focal point of the two academic and analytical disciplines. As shown in Chapter 3, the economics of budgeting focuses on macroeconomic policy including aspects of Keynesian policy but increasingly in conflict with the requirements of structural fundamentalism. It also tends to stress the trio of values of efficiency, stabilization, and equity. Looked at politically, budgeting has a long list of values that must be treated much more explicitly both as real and rhetorical expressions of public discourse. Regionalism and nationalism, for example, are more than subsets of efficiency and equity. The search for stability in program benefits and entitlements by client groups and, perhaps, by departmental officials is a micro phenomenon as well. To this list, the politics of budgeting adds other process-oriented, but equally substantive, criteria for budgeting such as federalist constitutional principles, legal jurisdictional independence of agencies, accountability, honesty, and the transparency of information. So, how do ideas such as “public consultations” and “fiscal crisis” affect budgetary politics, relations of power and budgeting outcomes? The Symbolic and Material Politics of Pre-Budget Consultations Process norms of budgeting call for consultation and participation with affected interests and interest groups. Such groups have widely varying power bases and other resources, and so differ in their c­ apacity

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to participate and to have an impact. Many interest groups take positions on overall fiscal policy and on particular areas of spending and taxation. They are the beneficiaries of a multitude of different tax and expenditure provisions, but their positions are arguably the least subject to sustained public scrutiny by elected political bodies. Official and less recognized steps in the pre-budget consultation process are as follows: In the fall of each year, the minister of finance presents an Economic and Fiscal Update which offers financial projections of the federal budget and forecasts for the Canadian economy that will inform the next budget-making process. The House of Commons Standing Committee on Finance, after meeting with the finance minister and departmental officials, holds public hearings on the fiscal update and projections, inviting an array of groups to make recommendations on priorities and policy choices for the next budget. A less open process that may occur around the same time involves focus groups and public opinion surveys commissioned by the Finance Department to gauge public thinking on main concerns and on what messages resonate or not with the population, thus offering ideas on how to frame issues and present information in budget documents, particularly the budget speech. Finance officials also meet with individual ministers and their senior departmental officials, in addition to meeting privately with key stakeholders from economic and social groups. In what we call shadow budgeting, a small number of think tanks and policy institutes issue alternative budgets, detailed documents offering their own analysis and perspective on what the federal budget should contain in terms of spending and tax policy decisions. And, in a type of symbolic budgeting, members of parliament carry out, over the fall and early winter, perhaps one or two public meetings in their constituencies on the upcoming budget. From such meetings, a summary of the feedback and ideas reach MPs who in turn submit them to the minister of finance, likely to their own caucus and certainly to their constituencies. This is symbolic in that the process provides MPs, those on the Standing Committee on Finance and all others, the appearance of participating in this central process of government and in facilitating the engagement of some constituents in that process. It may, for certain individuals and groups, offer a sense of personal involvement in democracy, an opportunity to voice their



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­ ispleasures and delights, their ideas and wishes. It may symbolicd ally offer reassurance that elected officials are accessible and do listen even if, in the final analysis, little of these ideas appear in the annual federal budget. In this sense, then, most pre-budget consultation processes are rituals of citizen participation acted out each year; where these processes may be substantive, they tend to be behind closed doors in meetings between organized interest groups and central agency officials. For Finance and the federal government, the formal pre-budget consultation process is partly symbolic but mainly tactical in its purpose; for government officials, pre-budget consultations are a kind of strategic budgeting. True, the process may show the government as appearing to be open and less secretive than in past times in budget making, involving parliamentarians, certain interest groups, and selected segments of the public. At the same time, though, these processes serve more substantive functions for government (Good 2007). They enable a government to present fiscal intentions shaping public expectations and perhaps allaying public worries over the deficit or unemployment or a policy issue such as homelessness or pensions. Published projections become legitimate information which no doubt serve to strengthen the capacity of Finance officials in meetings with ministers and officials from spending departments. Pre-budget meetings enable ministers and officials to “trial balloon” one or other ideas about income tax changes or program spending plans, along with testing out a discourse of ideas and arguments for framing budgetary choices. Pre-budget consultation processes, we conclude, are more about appearances than transparencies. From a democratic perspective, the various steps outlined above have not significantly opened up federal budget making (Good 2007; Clark and DeVries 2010; Martin 2010). These processes remain carefully scripted and tightly managed rituals. Modern budgetary scrutiny requires mechanisms that apply a searchlight on both public and private power, an issue we return to in Chapter 9 when discussing the need to address various democratic gaps in Canada’s public budgetary governance system. The Political Effects of Crisis Discourse In Chapter 1 we set out the crisis aspects of our two part analytical framework, specifying the definitional presence of six kinds of

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crisis and crisis-related analytical imperatives. We end this chapter by drawing further attention to one of these, the political effects of crisis discourse, before dealing in the next four chapters with all of the crisis characteristics. Talk of crises abounds in modern politics and such crisis discourses are a significant phenomenon in the art and craft of public budgeting. Over time, one will hear of a crisis in Canadian housing or homelessness, in hospitals and health care, in the natural environment, facing public or private pensions, in terms of debt loads among families, or in the shameful living conditions on First Nation reserves and in other indigenous communities. In one sense, crisis discourse in budgeting is a purposeful interpretation of cultural, economic, moral, social or political events; it is a particular meaning given to problematize a group of people or program, or set of conditions and trends. As a discursive construction, budgetary crises are political arguments looking for certain reactions and decisions. For example, we hear that access to the justice system is compromised by the lack of judges or sheriffs; that wait lists for medical procedures are excessively long; that the productivity of Canadian workers or the innovativeness of Canadian firms falls behind that of our competitors; that families requiring essential support for children with special needs are under serious stress. Claims of a crisis in budgeting are pointing out a gap, a shortfall, some social harm or economic threat if allowed to continue as it is. A discourse of crisis can be a political tool for mobilizing interests and a political opportunity for exercising governmental action (or inaction) and reinforcing political leadership (Edelman 1988). The credibility of a crisis claim is influenced by the status of the messenger and the nature of the message; as well as by the presence of other organized interests and their view of the issues and stakes involved. Crisis discourses are also noteworthy in public budgeting as a strategy to secure sizeable amounts of additional funding for an existing program, region, client group, or government department more generally (Wildavsky and Caiden 2004). Labelling a set of events as “a crisis” is a type of political categorization, a use of words to construct a political spectacle in order to raise popular awareness and media attention, and possibly then public attitudes and political opinions. On the one hand, talk of crisis by departmental executives, interest group leaders, clientele groups or members of parliament may be intended to avoid altogether or to



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minimize a major reduction in government funding, for example from a major operating review of program expenditures and operations by Treasury Board. On the other hand, to argue that budget trends in an overall measure or in a given policy domain are unsustainable, implies the need to substantially restructure practices and most likely to reduce future investments if not cut back current expenditures in that domain. However expressed, a crisis discourse in budgeting seeks to challenge incremental practices of relatively small increases or decreases to a departmental base and existing programs. The intended budgetary outcome of a crisis discourse can be a large expansion or a large reduction, which means that talk of crises can serve the agendas of different ideological beliefs and budget preferences. At any given time, competing claims of a crisis in education or in health care, for instance, are in conflict in Canadian politics and governance. From a budgeting perspective, “the impacts of each crisis inevitably reflect internal conflicts of interests and inequality of sacrifice” (Edelman 1977, 45). conclusions

This chapter has related budgeting to Canadian political and social institutions of governance, both in relation to key developments and also as context for our empirical analysis in Part Two of three budgetary domains and temporal and intergenerational budgeting and crises. Budgetary politics is much more than the expression of power by financial means. An understanding of public budgeting in this age of crises requires an appreciation of the many kinds of power and politics at work. Resource scarcity, state authority, the multiplicity of claims and needs, the inequality in power relationships, the contestability of knowledge and presence of uncertainty, and the reality of elections are foundational elements of the politics of public budgeting. We have shown that four kinds of power operate in, and are exercised by, institutions in the Canadian state, the capitalist economy, civil society, and indigenous nations. State institutions help depict a budgetary system and to distinguish one system from that of another. Put differently, public budget systems reveal their political systems. In American national politics, for example, public budgeting exhibits decentralized control, f­ ragmented

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power, legislatively centred power in Congress, and volatility in decisions and outcomes (Wildavsky and Caiden 2004). In ­Canada, public budgeting at the federal level displays relatively more centralized control, unified power, and executive domination under the norms of responsible cabinet government and robust party discipline, with general stability in budget making and approval. This is largely true in both majority and minority government situations. At the same time, public budgeting is not reducible to formal state institutions or conventions in the political system. It works through and is defined by various non-state structures and actors, including relationships and their varied interactions with state structures and actors. Public budget systems reflect features of, and claims and interests from, the market economy, civil society, and indigenous peoples of Canada. Notable shifts and continuities in power relationships have taken place in Canada over the last twenty-five years among government organizations as well as between state and civil society, the state and market economy, and federal and provincial/territorial states and indigenous governments and organizations. Within the federal government the Department of Finance continues to hold the central role over much of the budget formation process, including exercising a near monopoly within the government on the assumptions and information that underlie fiscal projections and economic plans. What has changed somewhat in recent years is that Finance officials interact more substantively with officials in both the PCO and PMO (Martin 2010; Good 2007; Goldenberg 2006). Secondly, in the Harper era, following on trends from recent Liberal prime ministers, the full cabinet and its elaborate system of cabinet committees is less involved in budgetary decision making and therefore less influential in shaping budget priorities and directions as, say, in the 1980s. This has meant that the PCO’s role has shifted from serving as the gatekeeper to cabinet committees to one of serving the relationship between the prime minister and minister of finance; and, to acting as the interpreter and promoter of the overall government agenda, as expressed in the Speech from the Throne, the governing party’s platform, and major speeches by the prime minister (Good 2007). The concentrated and intense power of the modern prime minister pervades journalistic accounts and political analyses of how Canadian government works. In understanding prime ministerial



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power as it pertains to budget making, we went beyond a purely formal and hierarchical conception of such power, to consider the prime minister as operating within a complex and multi-layered political-economic power structure of interests, issues, choices, constraints, and governance. The PM’s power is not a force dominating the entire budget process or all the details of the fiscal plan, but working through formal and informal channels at times, occasionally by “lightning bolts” (Savoie 1999), often via indirect processes (Goldenberg 2006). It is important to see how budget making functions in all of its fiscal dimensions, which includes expenditure budgeting and revenue budgeting; political management and debt management; new money and existing spending; discretionary programs and statutory programs. These multiple features reveal budgeting to be a complex field of relationships with structures of diverse obligations, expectations, discourses, and agendas. This intricate power structure invariably includes struggles, calculations, compromises, and delays. These multiple features also suggest that public budgeting has a number of power effects, some of which are decentralizing and others constraining in both the short to medium term. In this context, prime ministerial power in budgeting is complex, full of twists and turns; an accommodating power exerted vis-à-vis the cabinet, government caucus, public service, parliament, in addition to private economic interests, civic associations, and indigenous communities. Overall, these patterns of change and continuity in governance lead us to conclude that the federal state has not been “hollowed out” due to the forces of globalism and provincialism, or that the political executive in Ottawa struggles with an enfeebled policy and fiscal capacity to govern. For the most part, we interpret pre-budget consultation processes as they operate at the federal level as a form of political ceremony; a democratic ritual with muted discourses of citizen input. These pre-budget consultation processes produce at one and the same time a matrix of symbolic, shadow, and strategic budgeting which together serve to reinforce the authority and influence of the Department of Finance. This chapter completes the context-setting of Part One of Canadian Public Budgeting in the Age of Crises. We now turn in Part Two to examine Canadian budgeting in three domains: the social domain and crises of poverty and inequality; the microeconomic and industrial domain of innovation and productivity crises and issues;

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and, the energy and green domain of climate change, energy, and green industry crises. In addition, we take a closer look at temporal and intergenerational budgeting as they shape the budgetary governance system as a whole.

pa r t t w o

Changing Budgetary Domains and Crises and Varieties of Temporal Budgeting

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5 The Social Budgetary Domain Diverse Inequality, Poverty, and Retirement Pension Crises introduction

The purpose of this chapter is to examine the federal social budgetary domain, the first of our three budgetary domains. In addition, we consider how the current economic recession and deficit era played out in the social budgetary domain, and examine different types of crises within it. The first section maps and reviews each of the domain’s five elements as set out in Chapter 1 and draws out some of their main implications. The second section deals with the nature of three interrelated challenges often argued to exist in this domain, centred on the presence of diverse inequalities, continuing poverty, and renewed concern about pension programs and retirement income security. In this final section we look at the social budgetary domain in relation to the different types of crisis and crisis discourse that is central to our analytical framework. Conclusions then follow. Canadian government budgeting in the social domain involves huge entrenched redistributive and distributive spending and tax programs as well as an array of smaller programs and niche tax expenditure measures. It is the largest budgetary domain embracing Canadian society, with spending and taxing directed at individuals, families and households, age cohorts, local and ethno-racial communities, and many other categories of social groups. At the federal level, the social budgetary domain includes five interrelated policy areas: income security, health, and social programs; public safety and security; cultural programs; justice and legal programs; and, citizenship and immigration. Dozens of federal government departments, agencies and Crown corporations interact politically

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and practically with Canadians across a multitude of mandates, laws and regulations, policies and programs, services and activities. In 2012–13, overall program expenditures for this social budgetary domain represent about 60 per cent of total federal program spending. Of particular interest in the context of the Harper Conservative era is the way in which it has attempted to recast notions of the social by a particular emphasis on tougher public safety, security and justice, and related legal programs (see more below). This development raises different kinds of debate and boundary drawing between mainstream social policy and public policy scholars for whom the social welfare state is the core focus (Brooks and Milijan 2003; ­Bryden 1997) and budgetary scholars who have long taken note of the presence of public safety and law and order in the very nature of how social domain budgets are structured and decided upon in the federal cabinet. This has been revealed even in the changing names of cabinet committees that included “social development” in the Trudeau era, “human resources, social, and legal affairs” in the Mulroney era and, as shown in Chapter 4, “social affairs” in the Harper era. Under all of these names and prime ministerial eras, public safety, justice, and legal affairs were always a part of the social domain and of the politics of spending within it among ministers and departments (Prince 2000; 1999; Doern and Phidd 1992). To appreciate the complexity of policy ideas and program designs, the various time frames operating within the social domain are also worth noting from the outset. The historical age of several federal social programs is lengthy, some stretching back to the 1920s, and many from the heyday of the welfare system, spanning the 1940s into the 1970s. This historical feature has implications, noted in the policy literature, for the initial pattern and goals of a program, along with the subsequent pathway of policy development that creates a legacy of social expectations and learning for a clientele, and also feedback – negative and positive – for politicians and officials (Pierson 1994). Temporal considerations are also readily apparent in the practical elements of social programs; in determining eligibility with respect to the individual’s age, length of residency in the country or province, a person’s work history, financial contributions made over a given period, the duration of benefits, and timelines for



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filing, preparing, and presenting an appeal on a tax or expenditure decision. Different types of social policy correspond to different notions of social time. Programs based on recognition of past harms or good deeds are a form of restitution and compensation. Examples are veterans’ benefits, the Indian residential schools compensation program, the Truth and Reconciliation Commission, land claims, and modern treaties with Indigenous communities. Social insurance programs such as the Canada Pension Plan (CPP), disability benefit, and the Employment Insurance (EI) program focus on recent attachments to the labour force and recent payments of premiums. The EI program has an annual cycle of premium rate review and setting, while the CPP has a triennial review process supported by actuarial projections seventy-five years into the future. We return to some of these and other notions of temporal budgeting in Chapter 8. Law and order policy that emphasizes criminal sanctions, incarceration, and victim rights are a form of retributive justice which is a looking-back approach to justice. A number of social programs are immediate and time-limited, such as job search assistance or EI sickness benefits with a maximum duration of fifteen weeks for those who are eligible, of which about one in three recipients exhaust the benefit before retuning to work. Tax-assisted savings programs for disability, education, and retirement span designated time periods for what is deferred utilization of a benefit. Other programs in the social domain, such as Old Age Security or the CPP retirement benefit, both intended for older Canadians, can, depending on the longevity of the person, provide a monthly stream of indexed benefits for three or four decades. The social domain includes an array of well-established departments, agencies and programs that are rooted in important community values and the cultural heritage of the country. Examples include Health Canada, the Canadian Broadcasting Corporation (CBC), national museums and galleries, old age security, the Royal Canadian Mounted Police (RCMP), and veterans’ programs. As institutionalized social activities, these agencies and programs constitute stable relationships, regarded as valuable to people today. But aspects of entrenched program structure and inertia can also become an obstacle to future innovation needed to deal with changes in social conditions and different program clientele.

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d o m a i n e l e m e n t s : m a p p i n g a n d i m p l i c at i o n s

Ideas, Paradigms, and Discourse: Where Old and New Social Policy Values Intermingle Social budgeting reflects, defines, and pursues several basic community values and recurring political ideas. Perhaps more than any other budgetary domain, social policy is the cumulative embodiment of a number of goals and values of Canadians, some of which harmoniously reinforce one another, while others are in perpetual tension. At a broad level of expression, social ideas include community and diversity, citizenship (rights and responsibilities), health and human well-being, equality and equity, justice, security and stability. Traditional arguments to justify social services and transfers relate to meeting needs, providing compensation for certain losses, and offering insurance against specific risks. In recent years, the principal reasons advanced to justify social spending and interventions refer to investments in human resources, economic growth, and competitiveness. While traditional concerns such as assistance to the disadvantaged are still important, they have been overshadowed in the past twenty years by initiatives more acceptable to the requirements of a globalizing economy. The policy environment and social objectives are described increasingly in terms of ability to respond to labour market trends, human capital development, and the imperatives of international trade. This has altered the composition of many social programs as well as changed somewhat the meaning of human wellbeing and social development. A conventional portrayal of the social welfare state is that it politicizes economics and modifies the market, substituting public values and activities for private sector ones. The market, however, also modifies the welfare state. It always has. The marketization of social programs is a phrase that helps highlight this phenomenon (Prince 2001). External to the state, marketization entails: the influence of economic values on social policy; conditioning the goals and means of benefits and services; and shaping public attitudes as to which groups are deserving of support and which are undeserving and consequently the object of exclusion or stigma. Internal to the state, marketization involves the culture of capitalism moving into public sector activities. It is the injection and expansion of private sector principles into social programs, ideas,



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structures, and processes. It also includes the injection of “sound business principles” into social welfare systems and public administration more generally. While marketization of welfare is quite an old process, what is new is the intensification of designing social programs on the ethic of the economic market. Economic conditions and market values are more influential today in determining social policy developments than in earlier periods of the welfare state. With the marketization of social policy currently in vogue, we have market capitalism and market welfarism in concert. In short, state intervention does not necessarily mean there is a corresponding decline in market systems or values (Savoie 2013). While universality is a major value undergirding health care and education policy, the contributory principle of social insurance and the selectivity principle are also significant precepts in pensions, disability benefits, unemployment benefits, social housing, and welfare benefits. Universal programs live in a selective policy world and a stratified market economy and society. Of the more than 100 programs in the Canadian income security system, only a few are based on universal principles. Income support programs such as social assistance, tax expenditures, or social insurance with defined contributors and recipients, reflect and reproduce societal divisions. The meaning of universality within the income security system has changed over the past several decades as the design and impact of programs have been adjusted. In the 1940s and 1950s, when universal family allowances and old age pensions were introduced in Canada, universality involved paying an equal pre-tax dollar benefit to everyone in these designated demographic groups. The interaction between the benefit transfer and the income tax system was not taken into account by the federal government, nor were benefits indexed to compensate for inflation, which in any case was low during these years. The important design feature at the time was the absence of a means test. From the 1960s into the 1990s, family allowances and old-age benefits became taxable income, yet were also indexed. Universality shifted to mean a variable, after-tax benefit, yet with everyone keeping a substantial portion. In effect, the net benefit was now income-tested. This feature permitted defenders of universality to argue that redistribution to the poor could be achieved within universal programs by taxing back some of the benefits of higher income people. Beginning in the 1989–1991 period, a ­surtax or clawback

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was applied to family allowance and old-age benefits so that while all families with children and all seniors over age sixty-five continued to receive the benefit, some families and seniors would retain little or no benefits. In 2006, the Harper Conservative government introduced the Universal Child Care Benefits (UCCB), the first new federal universal income program in over forty years. The Harper government’s child care policy is a story of retrenchment and replacement; terminating a major intergovernmental agreement on early learning and child care, while putting in place a new universal cash program for families with pre-school children. Termination of the early learning and child care agreements was a pivotal social policy change and significant political event. The death of these agreements means the delay if not demise of expanding public child care spaces and services across the country (Prince and Teghtsoonian 2007). In contemporary discourse on the welfare state, a dominant theme has been the fiscalization of social policy. Fiscalization refers to periods when financial concerns, especially considerations of expenditure restraint and deficit reduction, dominate deliberations on setting public policy priorities and contemplating social reforms (Rice and Prince 2013). The paradigm of fiscal restraint and balancing the budget has been the organizing framework for social issues, programs, and policy processes. While social policies have always been made in a budgetary context of limited resources and competing claims, what is new is financial and monetarist values have become the central guiding standard in Canadian social policy discussions and reforms. In the past ten years or so, Canada has passed from a period of economic growth, government budget surpluses, a Liberal majority government nationally, and renewed action on investments in health and social programs; to a period of global financial crisis and economic recession with the national unemployment rate rising for the first time in fourteen years, government budget deficits projected until 2015–16, Conservative minority governments ­(2006–11) and now a Conservative majority government ­(2011–15). While federal health care funding will increase by 6 per cent for four years beyond the current 2014 funding agreement and then be reduced through indexing (Simpson 2012), it is clear that other social policies are under threat. Critical social policy reversals have already occurred, and more are likely when program budget cuts occur in the 2012–15 period. Above all, there is simply relative



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disinterest by the federal government in income security, equality and human rights, community and social services, and public health. Another significant set of ideas on social policy in Canada concerns the politics of difference. In the words of Iris Marion Young (1990, 168), “Integration into the full life of the society should not have to imply assimilation to dominant norms and abandonment of group affiliation and culture.” This statement captures a main aim of social movements advancing the claims of women, many Aboriginal peoples, seniors, persons with physical and mental disabilities, gays and lesbians, other sexual minorities, and ethno-cultural groups. Among other activities, these social movements develop and promote positive self-definitions, and endeavour to make group identities a matter for public policy. They seek the affirmation and recognition of group differences, the elimination of oppression and discrimination, mutual respect of different experiences and perspectives, and the social equality of individuals and groups. An important example of linking universal policy values with diverse needs and differential capacities is Section 15 (1) of the Charter of Rights and Freedoms, which deals with equality rights, and states that every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination. Subsection (2) adds, however, that “Subsection (1) does not preclude any law, program, or activity that has as its object the amelioration of conditions of disadvantaged individuals or groups including those that are disadvantaged because of race, national or ethnic origin, colour, religion, sex, age, or mental or physical disability.” Thus the first subsection provides for the universal application of every law, while the second subsection immediately qualifies that by validating affirmative action and equity programs, what the social policy literature has called “positive discrimination” on behalf of or by the underprivileged. As noted earlier the social domain in budgetary literature has always included values related to justice and public safety. But the Harper era has seen its transformation and emphasis as a crucial vehicle for shaping and promoting a set of moral purposes (Prince 2012). They suggest a return to night-watchman ideas and policies for the state through the authoritative and visible enforcement of norms, rules, and sanctions by legislation and regulations. In the case of law and order policymaking, it is a matter of developing a safer, law-abiding community by protecting the innocent and v­ ulnerable,

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punishing swiftly and harshly, when warranted, wrongdoers, and addressing the needs of victims. Seen socially such values and discourse see the main risks to the well-being of individuals, families, and communities as being violence, sexual exploitation, property theft, commercial fraud of various sorts, including by immigration consultants, hate-motivated crime, and fear of personal insecurity. Criminal acts, victimization, and other issues of law and public order also have economic, social, psychological, and health consequences. Longstanding policy objectives and program activities in the federal correctional and justice domain include reducing and preventing crime, incarcerating offenders, preparing offenders to return to society, and compensating victims of crime. Under the Harper Conservatives, key elements of their policy agenda include asserting a more explicit moral order through state authority; strengthening powers of the police; narrowing the discretion of judges along with a hardening of certain sentences and punishments; shortening paroles; and, expanding prisons and prison populations. One of the important effects of this agenda is the opportunity cost of fewer resources available for programs in the social investment and social security roles of the federal state. In the six Conservative budgets from 2006 to 2011, about $2.5 billion in new expenditures on law enforcement and public order were generated, and two-thirds of that new spending was done in the first two budgets. Thus, the theme of moral order and of protecting families and communities has persisted through all the budgets and throne speeches of the Harper years. Without doubt, law enforcement and security is intentionally a core priority of and redefined notion of the social as emphasized by the Conservatives. The Harper government has supported key aspects of health care spending and hence of the social welfare state, but a form of moral welfare is also noticeably crucial to their world view. Public and Private Power: Shifting Roles and Strained Relations Public power refers to the power of the state itself and the government of the day, headed by the prime minister whose power within the Cabinet has grown significantly both with respect to agenda-­ setting and to the discourse applied to characterize both the nature of the problems to be faced and the solutions and responses. The exercise of power both to change and to reinforce the status quo (often referred to as non-decisions or the mobilization of bias) is



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shared out with the ministers and departments examined in the next subsection, including, crucially, the minister of finance. Indeed, finance departments set the outer limits of social policy reform with arguments and analyses about fiscal imperatives (Rice and Prince 2013; Lewis 2003; Doern and Phidd 1992). Pressures from business interests, the money markets, and international agencies such as the IMF and OECD bolster these. Estimates on revenues, expenditures, interest rates, and deficit reduction targets set the boundaries for social policy making. Priorities on human well-being are negotiated within the constraints of the assumptions and overall goals of a government’s fiscal framework, which is largely controlled by central finance agencies. Public power in this domain certainly extends periodically or on particular issues to broader voices of the public interest, including voters and public opinion as expressed through frequent polling, parliamentary committees, royal commissions, regular consultation processes, the lobbying of non-governmental organizations, and the place of social media networks. As we noted in Chapter 4, a key aspect of social policy concerns relationships between the Canadian state and civil society, in particular the voluntary sector in the expression of values, the provision of services, and the development of programs. Governments have identified the voluntary sector as one of the prime sources in the community for providing additional social care and volunteers as untapped sources of community support. Organizations such as the Red Cross, United Way, and service clubs are essential parts of a civil society. Wider institutional definitions include informal helping, families, and kinship networks. Surveys suggest 175,000 nonprofit organizations make up the formal voluntary sector in Canada ­(Statistics Canada 2009). In 2004, nearly $68 billion in transfers from governments went to organizations in Canada’s voluntary sector. Provincial governments accounted for 71 per cent of those transfers; the federal government 26 per cent, and municipal government 4 per cent. Charitable donations from individuals to voluntary organizations totalled $8.5 billion, and the sector provided an estimated 2.4 million full-time and part-time jobs in 2004 (Friesen, Alasia, and Bollam 2010; Human Resources and Skills Development Canada 2009a). The very concept of the voluntary sector is problematic, shaped, as it always is, by governing political parties, at times with similar

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rhetoric though with contrary motives. Luc Thériault suggests that the relationship between governments and social economy organizations is mutually reliant: “the social services of provincial governments are often strongly embedded into agreements with social economy organizations. This has created a co-dependency to a large extent. While many social economy organizations are dependent upon government funding (through various departments and agencies), it is also true that the social service mission of the state can hardly be accomplished today without the contributions of social economy organizations” (Thériault 2009, 77). Conservative and Liberal federal governments over the past thirty years have been ambivalent over the legitimacy of voluntary organizations in undertaking policy critiques and public protests, and in making demands for economic betterment and social justice. Canadian tax laws continue to place strict limits on the advocacy and public education work of registered charities. In addition, governments have cut funding for policy research to groups representing literacy issues and women’s interests. Such limits restrict the democratic potential of the voluntary sector and depoliticize social life. Instead, governments and public service bureaucracies tend to view voluntary organizations as service providers and as noble sites of giving and helping, rather than also as important partners in policy making and governance and as essential sites of political advocacy and social citizenship. In terms of the international aspects of power, Canada has entered into social security agreements with over thirty countries in recent decades. An example of the internationalization of public policy programs under the federal government’s jurisdiction is explicitly linked to like policies in other welfare states. The purpose of these agreements, from the perspective of Canada, is to coordinate the operation of old age benefits and the Canada Pension Plan with comparable programs in other nations that provide pensions for retirement, old age, disability, and survivorship. The intent is that Canadians working abroad would have the same rights under the social security laws of another country as the citizens of that country, and that citizens from another country now living in Canada would not face restrictions here upon receiving payment of the other country’s pension. For many policy clients and interest groups, Canadian social policy is a politics of isolation, resignation, and marginalization. Part of this is due to fiscal constraints, the limited resources of advocacy



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groups, and the complex diversity of the community itself, which poses challenges in building alliances and speaking on issues with a strong united voice. More importantly, though, is the increasingly global context of social policy. Globalism has reinforced the central place of the Finance Department in defining the social agenda and determining policy decisions. Social advocacy groups are politically isolated because most are challengers to market globalization. For these groups, taking part in policy reviews means fighting the discourse and concrete reforms proposed by the government and business elites who strongly favour a social policy agenda motivated by free-trade globalism. Social service clients often feel disempowered and treated as passive recipients. Such experiences and sentiments translate into a politics of resignation. Social movements such as those representing labour, the poor, and women have been placed on the defensive, seeking to protect universal programs, national standards, and other valued aspects of the postwar Canadian social union (Rice and Prince 2013). Considerable time and energy have been devoted to guarding social programs against cutbacks, resources that might otherwise have been directed to developing a new agenda of progressive change. With respect to the Canadian women’s movement, authors such as Janine Brodie (2008; 1995) and Sylvia Bashevkin (2009) identify several related methods used to attack social advocates and hence, as Bashevkin argues, reveal the hidden story of Canada’s unfinished democracy. These include funding cuts to community groups and their associations, restricting or closing their access to government decision makers, and questioning the groups’ knowledge or expertise on issues such as trade policy or the deficit and the debt. Others argued that in the Harper era, the Conservatives were gender-neutral in their electoral appeals but gender-negative inside the Tory parliamentary caucus (Haussman and Rankin 2009). Other strategies involve weakening employment equity and related affirmative action measures; excluding particular groups, such as gays or visible minorities, from social policy reports and narratives; and emphasizing selective and targeted programs. However, during the depths of the financial crisis and the economic downturn hitting nations, numerous forms of collective mobilization happened in Canada and internationally. The national unemployment rate abruptly rose from just 6 per cent in 2007 and most of 2008, to 8.3 per cent in 2009, easing just slightly to 8.0 per cent for

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Table 5.1: Federal Organizations in the Social Budgetary Domain Sector and number of major organizations Example of sector organizations Income security, health and social programs (16)

Security and public safety (10)

Cultural (19)

Justice and legal (8)

Citizenship and immigration (2)

Aboriginal Affairs and Northern Development Canada Mortgage and Housing Corporation Health Canada Human Resources and Skills Development Finance Canada Veterans Affairs Canada Border Services Agency Correctional Services Canada National Parole Board RCMP CBC Canadian Heritage National Film Board of Canada Parks Canada Canadian Judicial Council Justice Canada Officer of the Director of Public Prosecutions Citizenship and Immigration Immigration and Refugee Board

Source: 2011–12 Estimates, Part I and II – The Government Expenditure Plan and Main Estimates.

2010. Political activities by civil society groups were not merely disruptive acts or even defensive responses to the crisis, though both of these forms were evident and legitimate. These expressions of public action can be understood as democratic critiques of market failures and felt impacts of economic and social dislocations. Federal Departments and Agencies: Multiplicities of the “Social” Dozens of federal departments, agencies, and Crown corporations comprise the contemporary social budgetary domain. We estimate the current configuration in the social domain to comprise 200 federal organizations, of which fifty-five are directly represented in the Main Estimates. A selective overview is presented in table 5.1. Some federal social domain organizations are large in terms of employees and dispersed across the country, such as the Canada Border Services Agency; while others are located in the national capital region. Some are growing in terms of financial and or human resources,



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such as Correctional Service Canada; while others are fairly stable, such as the National Parole Board; and, still others are declining in size. While many of these organizations are long-established, even if their names have changed over time, a small number are recent creations, such as the Public Health Agency of Canada, formed in 2004, and the Office of the Ombudsman for Victims of Crime, established in 2007. Finance Canada is a key social domain participant in Ottawa for four reasons. First, because of its near monopoly role in tax policy, including personal and corporate income and GST/HST tax expenditures on matters pertaining to education, culture, charitable giving, and other social welfare activities. Second, because of its dominant role regarding the federal transfer payments to the provinces, especially the Canada Health Transfer (CHT) and Canada Social Transfer (CST), alongside the other transfers like equalization payments to “have-not” provinces, labour market agreements, and territorial formula financing agreements with the Northwest Territories, Nunavut, and Yukon. Indeed, at present, it must grapple with the very viability of the equalization system now that Ontario qualifies as a have-not province and receives over $2 billion each year from the now faster growing provinces in Western Canada (Greenberg 2011). Third, the Office of the Superintendent of Financial Institutions (OSFI) and the Office of the Chief Actuary, both housed in Finance, perform duties vital to the Canadian pension and retirement income system. The OSFI supervises federally-regulated private pension plans. And, fourth, Finance Canada is a key social domain participant because in developing the government’s annual budget and forecasting economic prospects, Finance sets the fiscal framework within which claims for social budgets must take place, thereby largely determining the resource space and political-economic feasibility for approvals or not. Also at its centre are Human Resources and Skills Development Canada (HRSDC) and Health Canada. HRSDC has responsibility for the Government of Canada’s major income programs. These include Employment Insurance (EI) regular benefits and EI special benefits (for example, compassionate care, maternity, parental, and sickness) as well as EI-funded employment services and measures; the national elderly benefits of Old Age Security (OAS), Guaranteed Income Supplement (GIS) and Allowance; family income benefits such as the

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Universal Child Care Benefit (UCCB); plus responsibilities for labour market programs, laws, and services within federal jurisdiction. Health Canada is also a key social domain department in relation to all its mandate areas which include preserving Canada’s health care system, and health protection via its extensive regulatory roles in food, drugs, and biotechnology as well as health protection. It also has crucial roles in international and global health organizations and networks. It is not, compared to Finance and HRSDC, a big direct spending department but has major regulatory roles. For a time in the late 1970s and early 1980s, there was an overall social development minister and ministry, to support cabinet ministers and senior officials (Doern and Phidd 1992; Van Loon 1981). The intent was to ensure systematic attention to the integration of government priorities taken as a whole, policy developments emanating from departments, and expenditure management choices in light of competing policy plans and government priorities. In more recent decades, however, there has not been such a coordinating body for social budgeting at the federal level other than the abovementioned cabinet committee on social affairs and officials located in the central agencies of Treasury Board, Finance, and the Privy Council Office. Whatever organizational forms and decision processes are adopted, issues of the individual and collective responsibilities of ministers emerge. Public budgeting systems in Canada and other countries largely abandoned program-planning processes by the mid 1980s, adopting instead systems built on spending limits and restraint targets. Great stress is placed on the aggregate amounts of spending on the social policy domain of governments. Spending and Tax Characteristics: Major Spending, Large and Small Programs, Regulating Health and Public Safety, and Administrative Fairness The social budgetary domain constitutes about 60 per cent of federal program spending, of which there are three basic types in this domain: direct services to the public; transfer payments to other governments, and major transfer payments to people. The latter two types are entitlements; that is, prescribed payments or benefits legislatively mandated by parliament for particular groups of people or to other levels of government for particular purposes. Some are time-limited with a specified end date, while most are ongoing



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c­ommitments as social rights to public benefits. The core major transfer to the provinces and territories include the CHT ($26.9 billion in direct cash in 2011–12), the CST ($11.5 billion), and a set of labour market agreements (over $760 million). The main federal transfer programs to people are, first and foremost, elderly benefits (OAS, GIS and Allowance, totalling $38.1 billion in 2011–12); the EI program of regular and special benefits ($19.4 billion); and, family benefits, notably the UCCB ($2.7 billion). These spending characteristics of clients and essential policy activities anchored in legislative entitlements and intergovernmental agreements mean that, compared to other budgeting domains, there is greater rigidity and thus less flexibility and room for moving money around on an annual basis in social budgeting. In the words of Wildavsky and Caiden (2004, 124): “Entitlements increase stability and security and represent community provision for the routine hazards of life in an uncertain market economy.” The stability of this spending derives from the fact that these are statutory programs, meaning that parliament has given continuing authority to provide benefits thus requiring no new annual parliamentary approval. By the late 1980s, at least twenty such non-discretionary expenditure programs were in the social budgetary domain of the Canadian government (Doern, Maslove, and Prince 1988, 152), a key feature not much changed since. An important caveat to this discussion of entitlements, as we saw in Chapter 3, is that the federal government was able, on short notice, to change the transfers to the provinces to support health and social policies multiple times over little more than a decade. In addition to these features of income security, health, and social programs, budgetary dynamics vary somewhat across other policy areas that comprise the social domain. Spending on the public safety and security, citizenship and immigration, as well as justice and legal programs tend to be highly personnel-intensive expenditures in wages and salaries and, in corrections among other activities, capital intensive in the operation and maintenance of numerous facilities. Furthermore, social spending consists of sustained patterns of valued relations and networks of organizations reflected in transfer payments. This is readily apparent in the cultural program area of the social budgetary domain, with a strong presence of numerous relatively smaller grants and contributions to local community and national art organizations.

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Table 5.2: Illustrative social domain spending, selected departments for selected fiscal years, 1996–97 to 2010–11 ($000) Department

1996–97

2001–02

2004–05

2010–11

Human Resources and Skills Development Canada Public Safety and Emergency Preparedness Indian and Northern Affairs Finance Canada Total

24,326,356

28,155,718

28,553,961

45,100,694

52,247,200

61,844,141

302,206,616

289, 212,791

4,189,214

4,820,003

5,552,713

7,301,190

71,087,694 151,849,464

66,931,784 161,751,646

69,009,637 405,322,927

88,525,569 430,140,244

Source: Budgetary Main Estimates for above years for departments and their transfers only. Does not include other arm’s-length agencies for these departments (Treasury Board Secretariat).

Table 5.2 provides a portrait of social domain spending as revealed by an illustrative sample of four domain departments. The data cover a sample of four fiscal years, beginning with 1996–97 when budgets had been cut significantly from the previous year under the ­Chrétien Liberals’ program review, but then extending to years under the Chrétien and Martin Liberal governments and then since 2006, the Harper Conservative government. There is bound to be some surprise in the fact that the Department of Public Safety and Emergency Preparedness (the Department of the Solicitor General in the earlier years) gradually appears as the largest single departmental spender in the social domain, a growth achieved in the Chrétien era in the wake of the 9/11 security aftermath. Its continuance in the Harper era will not be as surprising, given the Conservatives’ law and order and night-watchman state agenda referred to earlier. The Department of Finance is a dominant social domain spender as well, especially because of its custody of the Canadian Health Transfer, the Canadian Social Transfer, and Fiscal Equalization which together in 2010–11 totalled almost $51 billion. Human Resources and Skills Development Canada is also among the largest trio of social domain spenders, again with significant increases in the Harper era. We will see in the discussion in Chapter 6 of the microeconomic domain that HRSDC is necessarily a larger spender there, as well, given its mix of industrial, innovation, and



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Table 5.3: Social and cultural versus justice and security spending as percentages of total social domain, selected years Social and Cultural

Justice and Security

91 91.7 91.8 92.5 91.3 91.8 96.1 96.2 95.9 96.3 94.3 94.7

8.9 8.3 8.2 7.5 8.7 8.2 3.9 3.8 4.1 3.7 5.7 5.3

2011–12 2010–11 2009–10 2008–09 2006–07 2005–06 2002–03 2001–02 2000–01 1998–99 1996–97 1993–94 Source: Budgetary Main Estimates.

human capital spending. Indian and Northern Affairs legitimately also needs to show up in both domain columns because of its dual social and economic spending. Again, its spending has grown noticeably in the Harper years, but mainly because of its northern sovereignty and energy agenda, with some social initiatives as well (Abele 2011; Falvo 2011). Aside from the departmental totals, the balance between social and cultural spending on the one hand and justice and security on the other is of interest. Figure 5.3 presents this information for selected years, beginning just before the Liberal government budget cuts of the mid-1990s, through the post-9/11 period and into the Harper era. The major programs in the social and cultural sub-­ category include those under Heritage Canada, Health Canada, HRSDC, and Citizenship, along with transfers to individuals (e.g., OAS/GIC) and other governments (e.g., the health and social transfers). The main items under justice and security are programs in Justice, Public Safety and Emergency Preparedness, RCMP, Corrections, and Border services. Table 5.3 shows that while social and cultural spending has always accounted for more than 90 per cent of the total social domain, there are some noteworthy variations over time. Security spending as a share of the total decreased following the Liberal budget cuts, then grew again quite markedly following 9/11, and that growth has continued, though modestly, during the years of the Harper government.

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Regarding taxation, the personal and corporate income and commodity tax systems are an integral part of the federal government’s social budgeting domain. Various kinds of tax expenditures – nonrefundable and refundable credits, exemptions, and deductions – target benefits to a wide spectrum of activities and groups in Canadian social life. In 1988, we observed that there were about fifty social tax expenditures in the personal and commodity tax systems (Doern, Maslove, and Prince 1988, 157). Today, there are nearly double that number of social policy-related federal tax measures; and, if we include corporate income tax as well, the number of federal social tax expenditures is around 110, the majority (seventysix measures or about 70 per cent) through the personal income tax system (Finance Canada 2011). There are a number of reasons and factors at play for the frequent use of tax measures for social policy making (Prince 2001a). To illustrate the nature and scope of social tax spending, consider the following features of personal income tax expenditures in table 5.4. Of federal corporate income tax expenditures in the social domain, most deal with charities and gifts, with others on culture, employment, and health matters. GST tax expenditures address education, health care, households and housing, Indian bands and Aboriginal self-governments, as well as registered charities and non-profit organizations. The estimated value for several social tax expenditures is substantial, running into hundreds of millions or even billions of dollars of foregone federal revenue. Others are targeted and quite modest in their benefit and overall costs to the federal treasury. With growing client populations, increasing take-up rates and periodic enrichment of various tax benefits, the amount of many social tax expenditures has grown and will continue growing. As we see further in Chapter 8, this has led to recent proposals for a now long-overdue, overall tax reform effort in the face of an increasingly complex tax system on both the social and economic realms (Hodgson, 2012). Our account of the social budgetary domain requires mention of government statutory and delegated laws and regulatory mandates. The regulatory side of the social domain is obvious, of course, in the traditional law and order functions of justice and public safety. The primary institutions concerned with law and order are the courts, police, law offices, prisons, and parole boards. Here government acts as lawmaker, umpire, and enforcer. The regulatory side of this budgetary domain involves also rulebased mandates and programs in other sectors of federal social



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Table 5.4: Federal social tax expenditures in the personal income tax system, 2010 Functional category and total number Charitable donations (4) Culture (2) Education (10)

Employment (18)

Family (8)

Health (5)

Housing (3) Income maintenance, social insurance, and retirement (24)

Investment (2)

Example measures Charitable Donations Tax Credit Deduction for artists and musicians Education Tax Credit Tuition Tax Credit Registered Education Savings Plan Canada Employment Credit Deduction of other employment expenses Working Income Tax Benefit Caregiver Credit Child Tax Credit Spouse or Common-Law Partner Credit Children’s Fitness Tax Credit Disability Tax Credit Non-taxation of business-paid health and dental benefits First-Time Home Buyers’ Tax Credit Age Credit Non-taxation of workers’ compensation benefits Pension Income Credit Registered Pension Plans RRSPs Investment tax credits Tax-Free Savings Account

Projected foregone revenue ($ millions) 2010 2,150 S 210 260 180 1,945 1,035 1,125 87 1,485 1,395 115 505 2,970 145 2,310 670 985 11,620 7,315 215 155

Source: Finance Canada (2011). S refers to small amounts of under $5 million.

policy. Examples include federal adjudicative agencies like the Registry of Specific Claims Tribunal regarding First Nations claims; the Canadian Arts and Producers Professional Relations Tribunal and the Canadian Industrial Relations Board, both linked with HRSDC; and the Patented Medicine Prices Review Board. Moreover, the regulatory side of the social domain is found in civic regulations that have direct implications for community groups: human rights, moral sexual regulations, and welfare programs and social union (Prince 1999). Social policies dealing with human rights shape the terms and conditions on which people become citizens

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of a country. Civic regulation also concerns morality and sexuality within the social policy domain. Regulating morality represents one of the ways in which the government seeks to create an environment of control over the way people think about certain issues and the way community members construct their relationships with each other. Moral regulations deal with abortion, contraception, divorce, drug use, euthanasia, family law, marriage, pornography, prostitution, reproductive technologies, and sexual orientation. Another aspect concerns the regulative practices operating in and through federal (and provincial) social programs. Community groups are particularly concerned with the way welfare regulations control the behaviour of individuals and families. All social programs are ruleinfused, having rules that control entitlement, regulate the flow of benefits, create conditions for withdrawal of support, and establish power and dependency relationships. Examples in this federal budgeting domain are the Pension Appeals Board, Review Tribunals for CPP and OAS, the Immigration and Refugee Board, the Veterans Review and Appeal Board, and the recently terminated Assisted Human Reproduction Agency. Lastly, another recent trend is the formation of ombudsmanlike offices in the social domain, with intended budgetary implications of promoting awareness and access to existing programs and addressing complaints by service applicants and users. Offices for ombudsman for victims of crime, for taxpayers, for Canadian Forces members and DND employees and their families, and for veterans have been established with these functions. Typically, they also have a role in advising ministers and in addressing systemic issues regarding programs, services, and administration by federal agencies or by third parties on behalf of a federal mandate. Not purely regulatory, these bodies rely on advisory powers and softer forms of rules of behaviour backed by the authority and legitimacy of their roles. They represent a form of “red-flag regulation” then, responding to the red-tape found in public bureaucracies (Doern 2007). Federal-provincial, Multi-level, and Spatial/place Governance While the focus of our analysis of budgetary domains is the federal government, it is certainly the case that the domain analysis in this chapter also needs to take into account federalism and hence federalprovincial relations (multilateral, bilateral, partisan), but also more



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broadly multi-level governance, including global and international levels, and various kinds of regional, spatial, and place governance. The use of the federal spending power looms large of course in the social domain. The transfer nature of most federal social spending is relevant to issues of national unity, fiscal equity, regional development, social citizenship, and the ability of the federal government to influence the level, quality, and accessibility of services provided to Canadians (Prince 1999a). The abolition of the Canada Assistance Plan (CAP) in 1996 and its replacement with a more generic and less conditional block grant, the Canada Health and Social Transfer (CHST), is a striking example of changing the policy community and its alignment with levels of government. As Pal (1997, 212) suggests, the abolition of CAP “got Ottawa out of the social service sector. Previously, the social services policy community was strongly oriented to the federal level, since Ottawa not only spent money in the field but was seen to be a leader. Now, the core responsibility shifts to the provincial level, the corresponding policy communities will fragment and focus more on local/ provincial dynamics.” In social policy and multi-level governance in Canada, mention must be given to the place of Quebec. Defending provincial legislative jurisdiction has long been a position of Quebec governments, regardless of the political party in power (Binette 2000). Protection of the autonomy of the province is a matter of principle rooted in cultural identity and constitutional law. It is also a precondition for the Quebec government for entering into intergovernmental agreements. Quebec’s vision of Canadian federalism emphasizes the ideas of respect for diversity and provincial autonomy in their jurisdictions, which includes, by virtue of the constitution, primary responsibility for health and social services (Noël 2002). As a result, Quebec has tended to be critical of the federal spending power – that is, the federal government spending in areas of provincial jurisdiction – more so than other provinces. In turn, Quebec has demanded the right to opt out with full financial compensation from Ottawa, of Canada-wide programs and strategies. Through the years, Quebec’s relation to other governments and intergovernmental agreements has included three styles: abstention or non-participation; alliances with other provinces; and asymmetric or bilateral arrangements with the federal government. At any given time, any combination of these styles can be in effect across public policy areas.

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In the field of health care policy development, Quebec did sign the 2000, 2003, and 2004 First Ministers’ health agreements along with all other provincial and territorial leaders. This active engagement represents, in a sense, acknowledgement by Quebec of a federal role in health policy, at least on funding. At the same time, the 2004 health accord explicitly included an asymmetric component between Quebec and Ottawa, a feature which the Harper government has said will feature in any new health agreement in 2013–14. Finally, numerous aspects of spatial/place governance populate the social budgetary domain. In determining eligibility for EI regular benefits, there are regional benchmarks of labour market conditions. There is federal funding to urban Aboriginal peoples through native friendship centres. There is a specific set of fiscal arrangements for the three territorial governments, distinct from those for the provinces. There are federal government initiatives on housing and on homelessness across the country. On the global scale, Canada has ratified UN conventions on the rights of children and on the rights of persons with disabilities, among others, and Canada has signed international social security agreements with over fifty countries to coordinate the interaction of Canadian and foreign income security programs for people who have lived or worked in both countries. d i v e r s e i n e q u a l i t y , p o v e rt y , a n d r e t i r e m e n t p e n s i o n crises

Most of the six types and issues of crisis analysis set out in our analytical framework emerge in the social budgetary domain. Arguably, senses of continuous crisis in some persons’ lives compared to others is the type most common, but also less easily recognized or simply caught up and identified by others as normal problems but lower on the agenda, especially the more distant federal agenda yet also provincially and locally. The notion of continuous crisis emerges because continuities in human needs and community risks characterize much of Canadian society and social policy. Inequalities are deeper; dependence on food banks greater; homelessness is wider; racism, discrimination, and stigma persist toward various groups, such as people living in poverty and individuals with mental health conditions; rates of unemployment are staggeringly high for people with physical and cognitive disabilities. Academic advocates, NGOs, families, and



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some individual politicians and civil servants fight for solutions and often use crisis discourse, but typically without a level of success that actually solves these kinds of social injustices. In addition, three other crises emerge in the evolution and current status of the social budgetary domain: the crisis of diverse inequalities, of precarious employment and poverty, and of renewed concern about pension programs and retirement income security (Myles 2010; Osberg 2008; Heisz 2007; Lewis 2003). The first two crises are of the slow-developing kind with risks and problems pointed out by experts and interests across the thirty-year period covered in this book. The pension and retirement crises tend to be shorter, and even sudden, and burst into a higher profile and presence in federal and provincial agendas, followed immediately by debates as to whether they are crises or simply normal ongoing policy problems. Diverse Inequality and Insecurity Canada has an ongoing problem of inequalities and injustices in regard to housing, educational achievement, housing, life chances, human rights, income and financial security, community inclusion, and a sense of belonging in Canadian life. Those facing the greatest challenges and social distress come from certain groups. Highly disadvantaged groups in Canadian society are Indigenous peoples, recent immigrants and refugee claimants, single mothers, and persons with mental and physical disabilities. Individuals with identities associated to one or more of these groups are over-represented among the poor. By a number of empirical measures, several aspects of social and economic inequality are worsening in Canada. While the actual number of low-income families has shifted over time, there has been a relatively consistent 15 to 20 per cent of the population whose incomes are near or below the Statistics Canada Low-Income Cutoffs lines. Economic inequalities result in health inequalities. The Health Council of Canada reports that “[t]he biggest health problem in Canada is inequality. The overall improvement in our health status masks the grim reality that health inequalities among social groups are growing – as they are in most highly developed countries. In Canada healthy life expectancy is three to four years less in low-income neighbourhoods than in high-income neighbourhoods. The infant mortality rate in low-income neighbourhoods is almost

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double that in high-income neighbourhoods” (Health Council of Canada 2006, 89). Inequalities and injustices are in the structures of market capitalism; in the rules and programs of state federalism; and in the ethnic, gender, disability, and myriad other divisions in societal pluralism. In other words, economic, political, and cultural factors shape the character and depth of disparities in society. Many inequalities in society are economic while others are clearly political and still others mainly cultural. In reality, the three dimensions overlap and interact in particular ways in multiple domains of life. The contemporary politics of Canadian social policy revolve around these institutional spheres of markets, governments, and communities, and involve the contested allocation of material resources, public policy responses, and symbolic and cultural resources. While considerable evidence across numerous countries demonstrates that equality is better for everyone’s quality of life, governments tend to adopt major egalitarian policies when they face crises of legitimacy and need to gain popular support (Wilkinson and Pickett 2010; Bryden 1997). One reason, as Macionis, Jansson, and Benoit (2009, 225) suggest, may be that “[m]ost members of our society are willing to accept a high level of income inequality, and may hold a harsh view of the poor.” Much of our politics of social policy is a politics of equality and inequality. However, it is more complex and subtle than captured by these two values. This is because it is a politics of public awareness and the interpretation of inequities and opportunities. It is about which inequalities most people regard as acceptable, and which inequalities or injustices are unacceptable or illegitimate in a liberal democracy and market society. Our politics of equality/inequality is also about the ranking, through debates and policy deliberations, of such core values as merit and achievement, basic need, equal human worth, personal accountability, and shared responsibility. In short, as bundles of multiple values and conditions, both equality and inequality are contestable ideas and concrete activities. Historically, economic growth reduced the number of people with low incomes by providing employment opportunities. However, the traditional relationship between economic growth and poverty seems to be weakening. As the global economy comes to have a greater influence on employment, people with a good education are doing better in the labour market while people with limited skills and education are finding it more difficult to find work. The d ­ ifferences



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are widening between well-paying, permanent work in the primary labour force and poor-paying, part-time jobs in the secondary labour force. The result is an increase in the number of people with jobs that do not provide a living wage. In the words of sociologists John Macionis, Mikael Jansson, and Cecelia Benoit, “Canada is highly stratified. Not only do the rich have most of the money, but they also receive the most schooling, enjoy the best health, and consume the most goods and services. Such privilege contrasts sharply with the poverty of tens and thousands of women and men who worry about paying next month’s rent or putting food on the table” (Macionis, Jansson, and Benoit 2009, 211). Others worry about finding emergency shelter or sleeping in a doorway. Changes made to the employment protection program in recent decades resulted in a major shift in the burden of risk that families face as victims of the current financial crisis. Employment insurance no longer replaces as much lost income, it does it for shorter periods of time, and it covers far less people than it covered in the 1970s and 1980s. During the latest recession in Canada, nearly half of the unemployed did not receive EI regular benefits, and of those who qualified, an estimated 500,000 exhausted their benefits before finding new employment. As a consequence, many people ended up on social assistance, the welfare program of last resort. Between October 2008 and December 2009, major increases in social assistance caseloads took place including 43 per cent in Alberta, 23 per cent in Ontario, and 20 per cent in British Columbia (Pasma 2010). Social protection measures of our age, specifically employment insurance and social assistance do not function in the way they did in previous recessions in the 1980s and 1990s. Changes to EI and to CAP gravely weakened these safety net policies intended to offset, somewhat, the risks of market turbulence for the unemployed and low-income in Canada. As now designed, EI lacks the capacity in providing security and stability to incomes for many individuals and families; and, with the loss of CAP, we have lost an automatic stabilizer, at the national level, to address the inevitable increase in poverty and welfare caseloads that accompany a recession. Precarious Employment and Poverty At the height of the 2008–11 economic crisis in Canada, 486,000 jobs were lost, most of which were full-time. In all probability, this

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meant that a million or more Canadians faced social and economic insecurity, with the loss of a prime earner in the household. A study by Chandra Pasma (2010) found that the incidence of poverty in Canada increased between 2007 and 2009 by more than 900,000 additional people. Pasma reported that economic insecurity and debt loads increased among Canadian families; that the proportion of precarious jobs (temporary, part-time, contract, few benefits and rights) expanded; that historic numbers of people of all ages turned to food banks; that welfare caseloads grew across the country; and, reflecting a longer-term trend, the gap between low-income and higher-income Canadians further widened. As well as financial firms, manufacturers and housing markets, neighbourhood groups, non-profit agencies, and other human service organizations were under tremendous strain. Many still are. What is the outlook for poverty in Canada? Among other structural factors, the evidence is clear that economic recessions create and sustain poverty. If the recessions of 1981–82 and 1990–91 are any guide, the risk of poverty for men and women will rise again. Roger Sauvé (2009, 19) reports that “[t]he poverty rate stood at 11.8 per cent in 1990. The recession [of the early 1990s] pushed this rate up to 15.7 per cent by 1996 and was at its highest level over the previous two decades. The poverty rate did not return to the 1990 level for eleven years.” Thus, we can reasonably predict that because of the current recession the incidence of poverty for working-age Canadians will increase from recent rates, producing an expansion in the number and percentage of low-income families with children. In analyzing Survey of Labour and Income Dynamics data from 1999 to 2005, Kapalis and Tourigny find that low pay is a more serious issue than non-standard employment for poverty: “Low-pay workers not only have low incomes and are more likely to live in a low-income family, but they also have lower employer benefit coverage than the typical non-standard worker.” In other words, being a low-wage worker earning less than $10 per hour is a stronger predictor than being a non-standard worker of not having dental, medical, or pension plans; benefits vital for families at any time, but especially critical during times of financial stress of unemployment, lower earnings, and growing household debt loads. This same study found that non-standard workers are three times more likely to live in a low-income family than are standard workers (13 per cent vs.



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4 per cent); self-employed workers are four times more likely to live in low-income families (Kapalis and Tourigny 2008, 21). Non-standard employment typically refers to jobs that are parttime, temporary, casual or free-lance, seasonal, contract, on-call, or contingent. Whether called the alternative, secondary, or peripheral labour force, most of these types of jobs are associated, on average, with lower weekly earnings, lower pension coverage, lower disability and health benefits, little or no job security, and relatively few opportunities for promotions in workplace organizations (Kashefi 2007). Persons in non-standard employment are also less likely to have employer-based disability insurance, medical, and sickness benefits. “Women are more likely to be non-standard workers (41 per cent) than men (30 per cent)”; and “although women account for just under half of the total workforce (48 per cent) they account for more than half of non-standard work (56 per cent)” (Kapalis and Tourigny 2008, 19). Population Aging and Retirement Pension Crises Political talk of demographic challenges posed by Canada’s aging population is a long-standing part of the crisis discourse and also involves different meanings of crisis as set out in Chapter 1. It includes the threats – actual or perceived present-day, or forecast to occur – to income security for many people. It refers as well to the sustainability and adequacy of pension programs, public or private. In one sense, the retirement pension crisis is an episodic one that appears now and again on the federal political and policy agenda, often linked to provincial and intergovernmental agendas. With the baby boom generation entering retirement, and with lingering effects of the recent recession, issues of pension plan coverage and retirement income will grow in public profile along with the other temporal budgetary domain issues examined in Chapter 8. Periodic challenges and changes to public pension systems are common across most industrial nations. As Reynaud notes: “Often described as a ‘crisis,’ the process of changes is actually inherent in the way national pension systems work, and is a product of the way they are influenced by macro economic trends, demographic and actuarial forecasts, and social developments and political conditions” (Reynaud 2000, 2). The actual language employed is often softer than crisis itself, instead referring, as in the June 2011 Speech

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from the Throne, to demographic challenges to a secure retirement and unprecedented long-term pressures on pension systems. Nonetheless, the political intentions are similar in drawing public attention to the issue and in suggesting that significant policy and budgetary choices are required. The announcement by Prime Minister Harper, in 2012, that the federal government was contemplating changes to old-age security rules to reflect both an aging population and also a smaller workforce population, phasing the changes in gradually, immediately raised the crisis versus normal-problem kinds of characterization and discourse. The government implied that there were serious fiscal imperatives for doing this but other players, including the Office of the Parliamentary Budget Officer (2012), argued that while one might want to do this for other reasons, the status quo system was still affordable and feasible. In budget 2012, the Harper government announced changes that would “gradually increase the age of eligibility for Old Age Security (OAS) and Guaranteed Income Supplement benefits from sixty-five to sixty-seven. This change will start in April 2023 with full implementation by January 2029, and will not affect anyone who is fifty-four years of age or older as of 31 March, 2012 (Canada 2012, 11). Clearly, the Conservatives were playing their intergenerational political cards with some caution. Questions forming this social policy debate include: Are Canadians saving enough for retirement? What do people of different incomes and different age groups need to save in order to enjoy what most would consider a comfortable and dignified retirement? What is the best way, through public policy measures and private measures, to enable Canadians to save, to invest, and thus prepare for retirement? Is a discourse of crisis the right way to talk about and to characterize existing programs for today’s seniors and likely prospects for tomorrow’s elderly? On the basic question of whether there is a pension crisis, three basic viewpoints are apparent in recent debates in Canada. One viewpoint is that there is no real crisis. The overall retirement income system is strong and elderly poverty rates are low. Public and private pension programs and retirement savings vehicles, such as RRSPs, therefore need only minor refinements. A second view is that there has been a temporary crisis of late, due to the economic and financial market downturns in 2007–09, and due to some “under-saving” by Canadian households. As the economy recovers and new jobs are



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created, the financial pressure on many individuals and families will ease, allowing them to save more toward their retirement, aided by recent policy innovations such as Tax-Free Savings Accounts. The third viewpoint argues that there is a systemic crisis, not just a temporary problem, as evidenced by inadequate and declining privatesector coverage; the solvency problems of some benefits plans; the high debt loads among Canadian families; and, the longer life expectancies. Other signs of strain, if not crisis, include people delaying their planned retirements and working longer; others, who had retired, returning to the labour force; and, many people expecting to carry debt such as mortgages into their retirement years. Since 2006, the Harper governments have introduced a number of measures that offer tax relief to current seniors. Regrettably, from a social policy perspective of equity, most of these tax measures provide greater benefit to better-off seniors than to low or modestincome seniors. In 2011, the Harper government did increase the Guaranteed Income Supplement for some, though not all, seniors who live in low-income circumstances (Stoney and Doern 2011). Reflecting lessons from the economic and financial crisis, the Harper government also strengthened a number of rules on federally regulated private pension plans to stabilize and modernize pension arrangements. On the wider Canadian retirement income system, the Harper government is disinclined to enlarge the role of the universal public program, the Canada Pension Plan, beyond perhaps a modest increase, preferring to create, in cooperation with the provincial and territorial governments, a new private pension scheme: a defined-contribution Pooled Registered Pension Plan targeted at employees in small and medium-sized businesses, and self-employed workers. It is questionable whether this modest agenda of reforms will markedly improve the adequacy of retirement incomes, especially among middle-class Canadians (Wolfson 2011). conclusions

The social budgetary domain involves making choices amongst a complex bundle of program areas, ideas and goals, client groups and other interests, issues, risks, and crises. We drew attention to the place of politics in time as well as to the many dimensions of time in people’s lives, social inequality trends, policy designs, and budgeting horizons. Social spending, directly through transfer payments and

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indirectly through tax measures, is an area of high visibility for the federal government containing many programs that are well-known and important to the well-being of millions of Canadians. With respect to the first domain element, namely contending ideas discourse and paradigms, we discussed traditional and newer rationales for social provision, including group differences and identity politics, along with processes of marketization and fiscalization. We further noted that the politics and programming of universality in Canadian social policy has gone through several stages: from the creation of universal benefits and services from the 1940s to the 1970s; the attacks on and defence of them in the 1970s and 1980s; and the tactic of stealth in ending universal income benefits in the late 1980s and early 1990s; to a new orthodoxy of selectivity over who should be targeted for financial assistance, and on what terms and basis. In addition, we noted that the postmodern politics of identity and difference and the new social movements pose challenges and opportunities for universal values and policies. The most recent stage in the politics of universality came with the Universal Child Care Benefit (UCCB) which the Harper Conservatives established in 2006. We have suggested that the Harper government’s framing and design of the UCCB reveals that universality is a political tool, capable of serving a number of ideological interests and partisan purposes in addition to public policy. While the UCCB is universal in coverage, it is modest in government spending commitments (financed in part by the cancellation of previous Liberal government spending plans) and is relatively simple to administer. And the UCCB offers the acknowledgement through public policy of parents caring for their children at home that social conservatives within the Conservative Party have insisted on for years. We have also drawn attention to the Harper government’s focus on public safety, law and order, and both discourse and actions centred on fostering a focused sense of moral order and authority, and hence a different definition of what it believes is social. Support for traditional aspects of the social welfare state such as universal health care are still a central part of the Harper agenda but there is little interest in the Harper government in any extensions of the social welfare state and indeed the likelihood exists of future social program cuts. With respect to the departmental and agency membership element of the domain, we have shown the organizational plurality and



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complexity of the social budgetary field within the Canadian government. More than 200 agencies, boards, commissions, Crown corporations, departments, tribunals, and other organizational entities have responsibility for aspects of federal social policy. Legislatively and expenditure wise, HRSDC is the main social organization in this budgetary domain along with Health Canada. We also point out the crucial role played by the Finance Department. Key social spending decisions are clearly not all being made by social ministers in the federal cabinet; some are made by economic ministers and by officials in and around the central agencies advising the prime minister. The spending and tax dimensions have revealed several important features. Expenditures in the social domain are allocated across three categories: transfers to people, transfers to other governments, and direct services to the public. Transfers to individuals include payments to the elderly, families, the unemployed, and veterans. These spending programs account for the single largest block of social spending and form the backbone of the Canadian income security system. Transfers to other governments constitute the second-­ largest block of expenditures in federal social policy. Direct services to the public concern programs concerned with cultural development, health care, housing, employment services, criminal justice, and related public safety activities. We have also seen that tax expenditures are a significant and growing feature of budgeting in this policy domain, with more than 100 tax measures in the federal social domain, with increasing resort to this policy instrument by the Harper Conservative governments. The ever growing number and variety of tax measures raises debates and reform ideas, proposed by civil society groups, about simplifying the tax system, reviewing the limitation of non-refundable credits and the regressive nature of certain tax breaks. The domain’s federal-provincial and spatial/place governance attributes include federal-provincial-territorial relations as a dominant, overarching set of political institutions and fiscal and program arrangements. In terms of the crisis of inequality and poverty, evidence strongly shows that reducing poverty, offering economic security, and investing in people through education and health care remain as important now as they did when much of the Canadian welfare state was envisaged in the 1940s and established in the 1960s and 1970s.

6 The Microeconomic and Industrial Budgetary Domain The Innovation, Productivity, and Industrial Crises introduction

The microeconomic and industrial budgetary domain differs markedly from the social budgetary domain examined in Chapter 5. Analysed in relation to the five domain elements, it tells in many ways a different historical and contemporary story. Unlike the social domain, with its focus on a few huge, entrenched redistributive and distributive social spending and tax programs, the microeconomic and industrial domain is much smaller in terms of total spending, with a complex and substantial assortment of small programs and tax breaks. On an annual basis it is a budgetary world where greater discretion and room for manoeuvre exists for politicians seeking to influence, at the margin, Canada’s micro economy and its varied industries. This budgetary domain also has economic and political implications regarding the issues of structural fundamentalism examined in Chapter 3, and in the kinds of related slower-moving but certainly often-debated crises related to innovation and productivity, but also regarding particular industries and often key firms within such industries, not to mention continuing issues regarding regional economic development policy. As public budgeting for the micro economy, spending and tax decisions seek to influence the dynamics of supply and demand and the overall allocative efficiency of the economy as the main factors of production – capital, labour, land, and knowledge – interact and change to produce new products, processes, and types and levels of employment, in a vastly more globalized economy (Chen and Duhamel 2011; Kay 2003).



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When defined as a domain where spending and taxation strive to affect different industries, including newly emerging ones, the domain potentially deals with the whole array of primary resource, secondary manufacturing, and tertiary service sectors of the economy. And, in turn, these are represented by a wide array of business interest groups (sectoral and multi-sectoral, Canadian and foreign, and big business and small) and by individual firms directly. The domain’s key players, inside and outside the state, argue with consistency and inconsistency about the need for minimal or no state intervention; increased intervention; predictability and certainty as well as flexibility; and, nationally consistent policies and regionally fair decisions. In the domain as a whole, strong underlying concerns exist about regional policy and the reduction of regional disparities augmented gradually by innovation and science and technology (S&T) spending and incentives. There are also operating concepts of local and regional innovation systems and clusters, including the growing role of universities and, indeed, the view by some of universities as “industries.” As well, it is a domain where trade policy ideas, both free trade and fair trade, put in place limits to spending in the form of subsidies and induce creativity in the design of fiscal measures on both the spending and tax sides of governance. d o m a i n e l e m e n t s : m a p p i n g a n d i m p l i c at i o n s

Ideas, Paradigms, and Discourse: From Industrial and Regional Policy to Free Trade and Innovation Across the thirty-year period we cover in this book, several ideas, paradigms, and policy discourses have coursed through the veins of the microeconomic and industrial budgetary domain. As they entered the budgetary domain and fought for fiscal space and recognition, some ideas certainly gained ascendancy. But few left the field entirely or permanently, leaving the domain in a crowded state of overlapping and multi-level values and aspirational politics. The ideas, paradigms, and policy discourse are reflected in formal policy statements and in theoretical concepts – some of which have become formal paradigms, in changing departmental names and mandates, and in media and sound-bite partisan discourse and ­political

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c­ ommunication strategies. We look at several of these, noting their emergence and meaning and their basic evolution and capacity for survival. These ideas include: national industrial policy; competitiveness, foreign investment, and productivity; regional economic development; science, and research and development (R&D) policy; transformative industries; innovation policy and related regional and local clusters; and free trade, fair trade, and trade promotion. National industrial policy encompasses initiatives beginning historically with MacDonald’s nineteenth century National Policy and its tariff protection for key national industrial sectors (Gwyn 2011; Harris 1985; McFetridge 1985). As these tariffs came down gradually under GATT auspices in the 1960s and 1970s they were replaced by increased subsidies for many older and newer industrial sectors, ranging from autos and textiles to changing telecommunications sectors and established natural resource sectors. Concerns about the extensive foreign, mainly American ownership of Canadian industry also emerged, although by the 1980s these had shifted in the new global economy, to preferences for regulating foreign investment in a way that attracted desirable foreign investment. Overall national industrial policy implied a focus on vertical sectors defined as industries, and firms producing and trading in similar types of defined products and services. Such targeted policies (spending and related subsidies) provoked criticism of governments that they were not very good at “picking winners” by selecting key firms to support (Blais 1986). The “picking winners” warnings have also entered the current world of R&D funding and innovation (Castle and Phillips 2011). Furthermore, there was criticism of key firms who, despite overall pro-market rhetoric, were often adept at “picking governments” for largesse and protection or just for “buying time” to supposedly and hopefully adjust to market changes, free trade, and competition (Doern 1990). Competitiveness, investment, and productivity are a trilogy of linked ideas that emerged more expressly from the 1980s onward. All of these ways of expressing industrial and microeconomic domain policy values were a product of views that favoured less sectoral interventions by the state, in order to focus on the combined horizontal framework of policies that would make markets function better in an increasingly competitive world. In short, these ideas were a part of the growing concerns about structural fundamentalism and the optimum development of Canada’s underlying factors of production.



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Competitiveness strategies and speeches were crafted and emphasized precisely because of the ever more globalized economy and competition from many competitor countries. Underlying productivity was recognized as crucial by experts, especially as defined by output per person per hour, where Canada’s record has been considerably worse than that of the US and other competitor countries over the period from 1980 to 2010 (Castle and Phillips 2011). Productivity, however, was not a concept that politicians, even in Conservative governments, felt comfortable dealing with in public discourse since to most voters it implied job cuts and job losses (Lynch 2010a). Thus, the Mulroney Conservatives instead developed a “prosperity” initiative, and the Harper Conservatives preferred the discourse of Advantage Canada policies. As a part of this trilogy, investment policy, as noted above, became one of generally seeking to attract as much investment, Canadian and foreign, as possible (Smythe 1996). More open investment regime policy was extended not only via free trade policy internationally, but also inter-­ provincially by the 1994 Agreement on Internal Trade (AIT) (Doern and MacDonald 1999). Regional economic development ideas and policies have been fostered alongside both of the first two groups of ideas above (Savoie 2006; 1997; 1986). This has sometimes emerged in a separate departmental mandate such as the Department Regional Economic Expansion (DREE), sometimes in a linked single department such as the Department of Regional and Industrial Expansion (DRIE), and currently in Industry Canada and other federal departments where six regional agencies are a part of the overall ministerial portfolio, rather than the department per se. The regional dimensions of industrial domain policy were intended overall to reduce regional disparities in employment and opportunity and to support broader notions of national unity. They were often also cast as regional capacity-building and regional infrastructure investments and that also brought “jobs to people” rather than the “people to jobs” alternative which might have focused more on inducing or, in effect, requiring people to leave regions and go to regions or provinces that were more prosperous. Not surprisingly, regional policies were criticized by right-wing think tanks and by Conservative parties as policies that simply and wrongly fostered a form of welfare dependence. But the Harper Conservatives, forged out of the western Reform Party, created two more regional

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a­ gencies: one for the high north, and the other, almost unbelievably, FEDDEV Ontario for still mainly prosperous but less economically robust southern Ontario (Bradford and Wolfe 2012; 2010). Regional policies also came to include spending on cities as yet another manifestation of political space and region or more diverse notions of “place-based” policy (Bradford 2004). These ideas found favour in infrastructure initiatives and ultimately in the highly visible spending under the fiscal stimulus actions of the 2009–11 period (Pal 2011; Bennett 2012) The Harper Conservatives, overall, drew out the need to re-emphasize rural versus urban spending including spending tied to vulnerable natural resource industry towns and regions in forestry, mining, and the fisheries, a noticeable feature of its first two Budgets in 2006 and 2007 (Doern 2007). Science and research and development policy ideas gradually became a more direct part of the domain, initially through debate on both science policy per se and on the nature of research and development (R&D) policy (Doern 1972). The science policy debate of the 1960s and 1970s led to the establishment of a small, purely advisory, Ministry of State for Science and Technology (MOSST) and to a debate that distinguished “policies for science” from “science in policy.” The former was the MOSST’s main focal point, in that policy was increasingly critical of the excessive dominance of inhouse science spending in major federal science bodies such as the National Research Council. MOSST advocated much greater industrial research, paid for and performed by Canadian industry. All the same, the “science in policy” aspect was still defended in that some key aspects of government science would always be needed to support public regulation and monitoring activities. The R&D debate was mainly caught up initially in larger paradigm views that a linear spectrum of science activity existed, consisting of basic research, R&D, and applied research (Kinder 2010). Basic or curiosity-driven research led to R&D and R&D in turn led to applied research. Key institutional roles were said to flow from this linear view with universities the home of basic research, and industry of both R&D and applied research. Canadian research spending again needed to be oriented more industrially. Some changes in research spending moved very slowly in this direction and with Canada being a decided laggard compared to other OECD countries. Nonetheless, Canada’s industry policy institutions adopted science as part of its mandate title and increased support was given to the main federal



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granting bodies for the natural sciences, social sciences and medical research (de la Mothe, 2003). Innovation policy and related regional and local clusters and transformative industry ideas gradually took on greater prominence over traditional science policy and R&D spectrum understandings (Wolfe 2009; Phillips and Castle 2012; 2010). Innovation policy and related regional and local cluster paradigms were a direct challenge. Innovation as an activity and set of new first-to-market products and processes were seen theoretically and in practice as being nonlinear in nature, involving diverse relations between basic, developmental, and applied activities, but also crucially between networks of government institutions, companies, consumer agencies, universities, hospitals, local and provincial governments, and financial capital (Conference Board of Canada 2010). Moreover, the agencies and policy fields involved extended to fields such as intellectual property and patenting in particular; and also to more specific discussions about the nature of public versus private goods and about mixes of public and private research. The notion of regional and local clusters brought out the need for new linking institutions that could foster and finance partnership arrangements and therefore leverage funding where the key principle was that, to get money, network partners had to bring money from their own and other sources (Doern and Stoney 2009; Doern and Kinder 2007). Transformative industries and technologies with larger horizontal impacts across many of the traditional sectors were also increasingly supported and emphasized in policy discourse (Phillips 2007). These included the trio of increasingly linked technologies of information technology, biotechnology, and nanotechnology that were generating new products, new production processes, and socio-economic concerns, as well (Kinder 2010; Doern and Prince 2012). Free trade, fair trade, and trade promotion ideas are the final cluster of ideas that both enter the domain and remain solidly in it. Free trade, as a policy idea and an economic theory, is anchored in the concept of comparative advantage in which it is argued that countries will produce optimum growth and wealth by specializing in areas of production in which they hold a relative advantage over other countries (Kay 2003; Harris 1985). Freer trade had already occurred, as noted earlier, in the gradual reduction of tariffs under successive GATT negotiations. However free trade per se, as

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r­ epresented by the Mulroney era Canada-US Free Trade Agreement (CUFTA) of 1988 and the later 1993 North American Free Trade Agreement (NAFTA), meant reducing tariffs to zero and also opening up investment and other service aspects of commerce. The agreements also included de facto “fair trade” notions through clauses and whole or partial exemptions, such as for the auto sector, for some aspects of energy, and for government procurement spending (Maxwell and Tomlin 2000; Doern and Tomlin 1991). The more that free trade policy became dominant, the more that explicit trade promotion activities and spending were also needed. Trade agreements also crucially reined in the use of subsidies. For the first time, rules were agreed to about what a subsidy is and disputesettlement procedures were established, including those adopted by the Uruguay Round agreement that created the World Trade Organization (WTO) (Trebilcock and Howse 2000). Public and Private Power: Growing Prime Ministerial Control and Changing Business Power The configurations of public and private power in the microeconomic and industrial budgetary domain are both general and particular, and relate to applications of authority and relationships of influence with regard to new money and the existing budgetary base and also to incremental tax and revenue changes. Public power refers to the power of the state itself and the government of the day, headed by the prime minister whose power within the Cabinet has grown significantly both with respect to agenda-setting and to the discourse applied to characterize both the nature of the problems to be faced and the solutions and responses (Aucoin 2011; 2008; Savoie 2010). The exercise of power both to change and to reinforce the status quo (often referred to as non-decisions or the mobilization of bias) is, of course, shared out with the ministers and departments examined in the next subsection including, crucially, the minister of finance and the industry minister. Public power in this domain certainly extends periodically or on particular issues to broader voices of the public interest, including voters and public opinion as expressed through frequent polling, parliamentary committees, royal commissions, regular consultation processes, and the lobbying of non-governmental organizations (NGOs) and, in an Internet world, through social networks.



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Private power in the microeconomic and industry budgetary domain manifests itself in five main ways. First, it centres fundamentally on the power of business in a capitalist economy. In a sense, this is the ability to have power without having to lobby, because the state ultimately knows that commercial firms are the main source of jobs and employment through the private accumulation of capital, and hence a strong relationship of dependence on markets exists. The second, closely-related type of power is the increasing operation of global capitalism and power, and hence the need both to attract capital and investment from other countries and to ensure that Canadian firms export more but also do not leave the Canadian market for better opportunities elsewhere. The third and fourth main ways private power is exercised centre on the roles of two types business interest groups, horizontal and sectoral. With respect to the former, the Council of Chief Executives (CCE) (formerly the Business Council on National Issues) is pivotal, along with the Canadian Manufacturers Association and the Canadian Chambers of Commerce. While the Canadian Federation of Independent Business (CFIB) is also horizontal in its coverage of sectors, it is also partly sectoral in the sense of dealing with small and medium-sized firms (SMEs) and also service sector industries. The sectoral business lobby is, of course, much more complex and consists of any number of industry associations representing sectors such as autos, aerospace, telecomm, biotechnology, steel, construction, banking and financial services, oil and gas, electricity, mining, and forestry. Private power is also exercised by individual corporations and their CEOs dealing directly, rather than only through their industry associations, with ministers and prime ministers and/or with the central agencies of the federal government, including Finance Canada. This is also the above-mentioned world in which, periodically, the charge is validly or suspiciously made that governments are “picking winners” and that key firms are “picking governments.” In an age of governance, it is crucial in this domain to draw growing attention to aspects of shared public and private power. This is manifest in public-private partnerships typically centred on joint investment in projects and product and process development, where levered money is the fiscal instrument of choice and the rule of co-governance is that, to get taxpayers’ money, firms or networks must bring money, both their own and that of other firms or other

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g­ overnments (Doern and Stoney 2009). Also growing in regulatory governance arrangements are various forms of shared public and private power, including the formal encouragement and use voluntary codes, management-based approaches to regulation, and the adoption of performance standards (Prince 2010;Webb 2004). Federal Departments and Agencies: More Than One “Industry” Department Quite a few federal departments and agencies or parts thereof make up the current microeconomic and industrial budgetary domain. At its centre are Industry Canada and its portfolio agencies. Closely linked and related domain members include Finance Canada, Fisheries and Oceans Canada, Agriculture and Agri-Food Canada, Transport Canada, Heritage Canada, some aspects of Human Resources and Skills Development Canada, and Natural Resources Canada. The six federal regional development agencies are also key domain members, namely, the Economic Development Agency of Canada for the Regions of Quebec, the Atlantic Canada Opportunities Agency, Western Economic Diversification Canada, the Federal Economic Development Agency for Canada, the Canadian Northern Development Agency, and FedDev Ontario. In this section, we take brief note of the key basic ways in which some of them relate to the core microeconomic and industrial composition of this budgetary domain (the next section discusses some of the spending and tax features of the domain). Industry Canada is certainly a key domain member. The department itself essentially sits at the heart of the micro-economic policy world, although not to the same degree that Finance Canada sits at the heart of the macroeconomic fiscal policy world discussed in Chapter 3. This is because Industry Canada is not the only “industry” department. The Industry Canada role is essentially two-fold: a supporting role for some key industrial sectors through its sector branches (such as autos and telecom); and a regulatory businessframework law role that cuts across all or most sectors in regulatory fields, such as competition policy, intellectual property, corporate law, bankruptcy, and consumer policy (Sharaput 2010; Doern 1996). Its arm’s-length agencies also include both regional agencies such as FedNor, and science and innovation bodies such as key granting bodies and, of course, most of the above mentioned business framework issues are also managed by independent bodies.



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Finance Canada is a key industry domain player, first because of its macroeconomic power overall, including its monopoly role in tax policy, which included taxes on business, and also because of its varied roles regarding the banking and financial sector as an industry (Good 2007; Hale 2001; Doern and Phidd 1992). The fact that Finance Canada is a nest of economists also means that it is never shy about expressing views about anything that touches on both the micro economy and the macro economy in an intricate, fastchanging global economy. Departments such as Human Resources and Skills Development Canada (HRSDC) and Foreign Affairs and International Trade Canada take on aspects of domain membership and impacts, HRSDC because of its mandated concern over human resources and human capital as a factor of production quite apart from other regional/spatial concerns. The trade role is also important in domain terms, both as Foreign Affairs and International Trade Canada negotiates trade agreements that affect sectors significantly (in a positive or negative manner), and also in terms of its role in trade promotion activities and in WTO and NAFTA trade dispute processes. In a similar way, departments such as Agriculture and Agri-Food Canada, Fisheries and Oceans Canada, Heritage Canada, and Transport Canada are resource or industrial sectors. Primary agriculture and also agri-food emerge as linked yet also separate industries, one natural resource-focused, and the other more secondary manufacturing-focused. Heritage Canada has a mandate anchored to culture as a sector and as a growing industry, including linked aspects of tourism. Transport Canada deals with a large industry overall, with key related and competing sub-industries and transport modes: air, rail, auto, and marine as well as airports and ports. Natural Resources Canada (NRCan) is also the federal home base for three natural resource industry sectors: energy (oil, gas, nuclear, electricity, alternative energy sub-sectors); mining and minerals; and, forestry (Canada 2000; Doern and Gattinger 2001). As we will see in Chapter 7, these sectors are also at the centre of the green budgetary domain. First and foremost, however, NRCan is a department for natural resources and hence, in the microeconomic and industrial domain, these are further sectors and also involve natural resources thought of as a key economic factor of production. It is also a department steeped in regional/spatial issues without ever being called a department of regional development.

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When one thinks of this domain (and those examined in Chapters 5 and 7) it is important to stress that there is no overall, super domain minister. The government is not generally organized on domain terms as defined in this book. At times, cabinet committees have that domain range and scope, but always with multi-­minister membership and negotiating processes, as cabinet documents are submitted and as ministers and senior officials lobby each other and also criticize each other and urge others to stick to their own turf – departmental, statutory, political, intra political party, and regional/ spatial and representational (Pal 2006; Doern and Phidd 1992). Spending and Tax Characteristics: Modest Spending, Smallish Programs, and Reducing Corporate Tax Levels in a Globalized Economy A discussion of the spending and tax characteristics of the micro economic and industrial budgetary domain requires both quantitative analysis and also qualitative and quasi-detective work, so as to understand both its economic and political features. We have already pointed out two crucial domain spending and tax characteristics. The first, as stressed from the outset, is that spending in this domain consists of a large set of smaller spending programs where, in principle, compared to most of social budgeting domain, there is greater flexibility and room to manoeuvre and to move money around on an annual basis in the politics of new money (often described as the B-budget, with the A-base budget referring to the larger 95 per cent of existing public spending). But this flexibility argument is a relative concept. Domain analysis in this chapter also involves the giant A-base of spending where there is stability, inertia, and a stout everyday defence of the status quo. The second is that this flexibility, especially regarding new money also allows for many “announceables” by ministers, a coveted political commodity in an increasingly complex and multi-media world. This kind of small-scale, distributive politics is also often a part of a more hidden process where bigger ticket packages of spending, trends, and impacts go undetected thus storing up crises, ignored or reframed. The closest domain-like data in the federal expenditure accounts is the annual picture of spending by standard objects of spending or, more accurately, functional groupings of spending. The Treasury Board data for 2010–11 showed “industry and transport” spending of 8.3 per cent of federal expenditures, “regional agencies” at



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Table 6.1: Illustrative microeconomic and industry domain spending, selected departments for selected years 1996–97 to 2010–11 ($000) Fiscal Year Department Industry Canada Human Resources and Skills Development Canada Transport Canada Agriculture and AgriFood Canada Canadian Heritage Total

1996–97

2001–02

2004–05

2010–11

966,909 24,326,356

1,205,721 28,155,718

1,477, 756 28,553,961

2,413, 508 45,100,694

1,740,956 1,989,219

934,805 1,831,592

1,647,213 2,110,846

1,867,272 2,990,142

966,864 29,990,304

952,171 33,080,007

1, 127,097 34,916,873

1,145,949 53, 517,565

Source: Budgetary Main Estimates for above years for departments only. Does not include other arm’s-length agencies for these departments (Treasury Board Secretariat)

0.4 per cent, and “resources and environment” at 4.1 per cent. By this rough measure, microeconomic and industry domain spending adds up to about 12.4 per cent of federal spending. When viewed across the last twenty years, these percentages have not changed very much; of course, none of these data capture the flexibility or stability of A-base and new B-budget money struggles, or of particular substantive debates in and across domain member departments and agencies. Table 6.1 provides an initial portrait of microeconomic and industrial domain spending as revealed by an illustrative sample of some domain departments. The data cover a sample of four periods, beginning with 1996–97 when budgets had been cut significantly from the previous year under the Chrétien Liberals’ program review, and then extending to years under the Chrétien and Martin Liberal governments and then, since 2006, the Harper Conservative government. Perhaps surprising, in some respects, is the fact that Human Resources and Skills Development Canada is, by far, the largest component of domain spending and with significant growth over the first five years of the Harper era. The other domain departments have budgets that are modest in size and in growth over the period as a whole. For example, data on S&T spending shows initial sharp cuts after Program Review in the mid-1990s, then marked growth in the

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­ eriod from 1997 to 2006 (Phillips and Castle 2010; Doern and p Stoney 2009), followed by continuing concerns of the innovation and productivity crises. Spending and investment on infrastructure has also grown significantly partly because of the cities agenda and partly as a component of the recession-era stimulus program (Pal 2011; Conference Board of Canada 2010). Looking at the tax side of the micro economic and industrial domain, there are both basic trends to note and also particular tax controversies and concerns about the overall complexity of the tax system as it affects business. In the period covered, there is little doubt that basic federal and provincial corporate tax rates have been reduced by both Liberal and Conservative governments, mainly because of globalization and the growing mobility of capital, and the need to retain and attract business investment (Lee 2012; Mintz 2011). There has also been a strong focus on creating favourable, lower tax rates for small and medium-sized enterprises (SMEs) (Hale 2001). Corporate tax revenue overall is a smaller percentage of federal revenues than in the 1960s and 1970s although at 12.6 per cent in 2010 it has always been small in relation to general income tax (59.7 per cent) and indirect and consumption tax revenue (17.1 per cent) (Doern and Stoney 2010, Appendix A). The issue of further corporate tax reductions became a significant issue in the Harper era because of its commitment to a low tax economy, including phased-in reductions to basic corporate tax rates planned for 2011 (to 16.5 per cent) and for 2012 (to 15.5 per cent). These reductions were opposed by the Ignatieff Liberals and the NDP, particularly in the context of the recession and deficit and, in their view, the need to retain more revenue to pay for other social needs and job creation (Lee 2012; Stoney and Doern 2011). These proposals and responses also generated more specific debates about the nature and effects of corporate taxes. For example, one argument advanced empirically was that both historical and more recent corporate tax cuts did not achieve their goals because they did not generate much more capital spending by corporations (Stanford 2011). Others argued that the Liberal and NDP positions in ­2010–11 were forgetting the fact that some recent studies were showing more convincingly that corporations ultimately do not pay corporate taxes, but their customers and their employees do (Mintz 2011). Still other, more technical studies were raising issues about the marginal costs of raising new public revenues (via different kinds of taxes) and



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f­inding that, in the provincial realm, the social cost of raising revenues through corporate tax rate increases is very high (Dahlby and Ferede 2011). Other, more specific corporate tax issues occur in particular business sectors or aspects of business activity. For example, in science and innovation policy, tax controversies have emerged in the previously mentioned Scientific Research and Experimental Development (SR&ED) tax credit administered by the Canada Revenue Agency. This tax credit for smaller Canadian firms engaged in R&D operated fairly smoothly from the early 1990s on and was often cited by ministers as one of the most successful and generous incentives among OECD tax systems. At present, over $4.7 billion is paid out (McKenna 2011). Gradually, two kinds of criticism emerged. One centred on the view in some industrial sectors that the definitions of what constitute “scientific research and experimental development”  – and the latter in particular  – were too narrow or simply ignored basic realities of some industrial sectors as compared to others (Doern 1995). This created pressure for a sectoral industrial policy approach rather than a one-size-fits-all framework business incentive for small Canadian firms. A related, more recent criticism is that the program, buoyed by specialized tax lawyers and consultants, has wasted money because of the potential for almost anything to be called and interpreted as SR&ED, and hence it is losing its initial intended focus (Expert Panel on Federal Support to Research and Development 2011; McKenna 2011). Other sectoral tax controversies have occurred, as we will see in Chapter 7, regarding energy and environmental taxes and tax deductions. They are certainly part of the larger tax expenditure story referred to in Chapters 3 and 5, and a part of the analysis of temporal budgeting in Chapter 8. Finally, this account of the microeconomic and industrial budgetary domain requires some mention of the previously discussed concept of regulatory budgets and of red tape reduction. This mandated spending and cost imposition is arguably greater than the sums of direct spending that show up in the nominal domain expenditure budget. All government regulations (statutory and delegated law) and all regulatory compliance mandates compel spending by businesses, consumers, and private individuals and citizens (HM Government 2008; Doern 2007). These kinds of state-mandated spending and

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cost implications are growing but are not a part of the normal fiscal budget. Nor are they explicitly aggregated by governments on an overall basis, or by department or by domain. In short, governments do not announce their overall regulatory priorities and produce a related regulatory budget, either annually or on a multi-year basis. In addition, the federal government has to spend tax money to meet the government’s own costs of running its regulatory departments and agencies. But estimates suggest that these direct government costs are only about ten to twenty per cent of the larger, private regulatory costs. Hence these larger costs remain “off-budget”. The domain examined in this chapter has a very large number of regulators and growing regulatory mandates both sectorally and horizontally (the above-mentioned business framework regulators). The linked concept of red tape reduction, especially regarding red tape that impacts on business (especially small business) has loomed large in recent years, although it was also an issue in the 1980s and 1990s (Hill 1999). The Harper government’s Red Tape Reduction Commission (2012; 2011) focused on ways in which such red tape costs could be reduced through more explicit regulatory prioritysetting by departments and agencies, and through policies such as a “one in, one out” rule, whereby any new regulation had to be coupled with the elimination of an existing regulation of equivalent impact. Federal-provincial, Multi-level, and Spatial/place Governance: Regions of Many Kinds While the focus of our analysis is the federal government, it is certainly the case that the budgetary domain in this chapter needs to take into account federal-provincial relations (multilateral, bilateral, and partisan) and more broadly multi-level relations, including global and international levels, along with various kinds of regional and place-based governance. The use of the federal spending power is germane; although, compared to the social and macroeconomic budgetary domains, the spending typically comes in much smaller program packages and also is easily caught up in the fine arts of distributive politics and pork-barrel disbursements. Various views of regional fairness also circulate as programs are announced, reannounced, and cheques flow to provinces, cities, sub-regions within provinces, and rural communities.



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The six regional development agencies immediately come to mind, both the long established ones and the newer ones referred to earlier in the chapter. These agencies function in close relationships with provincial and territorial governments (and provincial regional agencies and economic development departments) in lobbying both for funds for these federal agencies and for changing and supporting the funding base. Early on, regional agencies had quite broad mandates, but in recent years they have picked up the mantra of innovation both out of sincere belief about its importance and out of the need to follow the new money trail emanating from the top of several of the domain member ministries and departments. But after the FTA, WTO, and internal trade agreements of the late 1980s and early 1990s, regional agencies had to be careful that their grants and spending did not become subsidies that could be subject to countervailing actions under trade dispute and remedy laws, especially by US interests. Federalism issues regarding the microeconomic and industrial budgetary domain have been a complex mix that can involve bilateral federalism (between the federal government and one province), or multi-lateral federalism where several or all provinces and territories are involved. The auto industry has typically been a focus of federal-Ontario relations both in Auto Pact and later free trade debates, and then in the above-mentioned 2008–09 North American (Canada–US, federal–Ontario) bailout of the auto industry. The oil and gas industry has clearly had a strong and tense federal–­Alberta relationship ranging from the conflict-ridden 1980 National Energy Program (NEP) to more peaceful but still contentious relations in the Harper era where federal policy and spending has been cast under the rubric of Canada “as a global energy superpower,” and the booming oil sands industry as a form of “ethical oil” (see Chapter 7). There are several other energy producing provinces where the bilateral and multilateral nature of domain spending and taxation concerns are different, such as Quebec, Manitoba, British Columbia, and Labrador regarding electricity, Ontario regarding the nuclear industry, and several with only nascent efforts in the fostering and expansion of renewable energy. The forestry industry is pan-Canadian, in many respects, but the core policy and politics often centres on British Columbia as Canada’s forestry giant, whether it is about the issue of stumpage fees and US forestry industry countervail cases against Canada, or how

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to deal with support for vulnerable, one-industry hinterland towns and communities. The aerospace and related transport industries figure large in Quebec–federal relations, not only because of Canadian global giants such as Bombardier but also because, in recent decades, Quebec has typically had a more interventionist approach to industrial development compared to the federal government. Under the innovation and S&T policy and spending umbrella, federalism, regionalism, and spatial influences arguably become even more complex. For example, choices of location for, or the funding of, so-called “big science” projects such as research telescopes garner support from the winners and visible criticism from those not chosen. Later, when some S&T funding was restructured in both the Networks of Centres of Excellence (NCE) program and the Canadian Institutes of Health Research (CIHR), the notion of virtual centres became central and thus the network funding winners could be announced as being located in several places, universities, and cities (Atkinson-Grosjean 2006; Murphy 2009). Networks were also being advocated for other policy reasons having to deal with a greater focus on interdisciplinary research and the imperatives of pooling knowledge. Spatial and various related senses of place and distribution also emerged with the development of clusters (Wolfe 2009). Clusters were an expression of a theoretical paradigm that emphasized the non-linear nature of innovation as various regional/city groupings of universities, federal labs, community colleges, firms, and sources of capital interacted with each other to develop new products and processes. Various clusters of varying degrees of success were fostered or formed in Canada including biotech clusters in Montreal, Saskatoon, and Ottawa, aerospace and fashion in Toronto, to mention a few (Galvin 2012). Such approaches were also seeking to follow the example of other countries, especially the United States. Finally, it is important to draw attention to the federalist dynamics in periods of budget cuts and tax changes. Here fiscal, defence and social issues such as the closing of military bases can loom large in both political discourse and partisan calculus. Both the introduction of the Goods and Service Tax (GST) in 1991 and the Harper reductions in the GST in 2006–08 garnered regional views and underlying debates about the relative value of taxing incomes versus taxing what people and firms take out of the economy when they spend.



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t h e i n n o vat i o n , p r o d u c t i v i t y , a n d i n d u s t r i a l c r i s e s

With regard to our six analytical definitions and features of crises, two key characteristics emerge regarding the evolution and current status of the microeconomic and industrial budgetary domain. The first is the fairly regular occurrence of more frequent, short, punctuated shock-like crises in particular sectors where a range of crisis discourse and non-crisis reframing discourse and issue and problem management occurs. The second characteristic is broader, longdeveloping kinds of crises with gaps and even serious weaknesses being variously pointed out or stressed by experts and interests across the entire period covered in this book. Two examples of the latter are examined: the innovation crisis and the productivity crisis. We look initially, however, at the more punctuated industry crises. Periodic industrial crises have emerged in relation to particular cities, towns, and regions. And the tendency is stronger to use crisis discourse, often very validly, at the national, regional, or local levels. The range of examples across the past twenty to thirty years is diverse. The most extreme recent example was the 2008–09 auto bailout; more accurately, the bailout of both Chrysler and General Motors by the US, Canadian, and Ontario governments (Waddell 2010). Indeed, it is often crucial to differentiate industry sector crises from those that are focussed on key or troubled firms within those industries. In the 2008–09 auto crisis it was two key firms but, more crucially, it was both the scale of the auto sector impacts and the potential job losses that immediately got sharp and focused political and market attention. Innovation issues were also involved, regarding the failure of firms to create and market green reducedemission cars and vehicles. But these issues of innovation were minor compared to job protection in the total funding of the bailout. A quite different example of a recent and continuing industrial sector crisis centres on the nuclear reactor industry, again largely an Ontario industry. Here the “industry” debate converged on Atomic Energy of Canada Ltd (AECL), a federal Crown Corporation, regarding its CANDU nuclear reactor development, sales, and marketing (heavily subsidized by federal money) but also the more particular role of AECL’s production of radioisotopes, a crucial medical diagnostic technology industry in which Canada supplied over 60 per cent of the global market (Doern and Morrison 2009). This

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“crisis” is at least a decade long and now includes contentious views about whether the federal government should and can successfully sell AECL and, if so, to whom. In 2011, the majority Harper government announced the sale AECL’s reactor business to a Canadian firm, SNC-Lavalin Inc. for what can only be described as a fire-sale low price of $15 million (McCarthy 2011). Other sector and/or troubled firm crises have dotted the microeconomic budgetary domain landscape. During the great free trade debate of the mid and late 1980s, opponents focused on industries/ sectors that might lose out under free trade including the textile industry, the cultural industry, and the agricultural and food products industry then (and still) protected by supply management marketing boards (Doern and Tomlin 1991). Debate and discourse, however, also often fixed on a two-category world of “sunset” and “sunrise” industries when, in the real world, there were the metaphorical equivalent of mid-morning, lunchtime, and mid-­afternoon industries (and even more so, firms within these industries). Again, crisis discourse was certainly deployed, although often fairly readily countered by a discourse which simply politically labelled these as modern adjustment problems and challenges in the globalized economy (Mahon 1990; Blais 1986). In the 1990s, the telecomm industry and related Internet developments had created a sector that was moved to the new Industry Canada department from its initial heyday in the earlier Department of Communications. Ministers definitely wanted to promote and be visibly associated with this kind of sunlit industrial politics. They even got protection in this sunny realm when, in 2 ­ 007–08, Canada’s R&D star, Nortel, went bankrupt. Despite appeals for bailout support, this case showed that sunset firms could indeed disappear largely because the now much larger telecom and information industry sector was prosperous, or perhaps because governments, especially Conservative ones, could only rescue so many firms at once. Still other sectors had quite different mixes of crisis discourse combined with calls for support to take advantage of new transformative technology development (Phillips 2007). The biotechnology sector is a good illustration here (Doern and Prince 2012). When biotechnology in its early stages of product development was biofood or GM food-focused, this was not an industry that most federal ministers wanted to be openly supportive of, in the face of consumer



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arguments about so-called unnatural Frankenfoods and the need for consumer choice in what they were eating. Nonetheless, even these concerns were rarely expressed in crisis terms and rarely even made it into throne speech and budget speech agenda occasions. However, when the biotechnology product mix shifted markedly to bio-health products and also to bio-life genetic and genome-­ related research and products, the politics shifted markedly. It became a much more positively viewed industry or industries. They were bio-industries not without their own problems but they were also regionally more dispersed, had support from many consumer, health, and patient lobbies, and were associated with actual or potential cures for diseases. As transformative technologies, they are becoming elements of several other industries. The existence of an innovation crisis, the first of our two longerdeveloping crisis types, is rarely accompanied by actual crisis discourse. Far more often it has been expressed in language related to how Canada has been shown to “slip further” in global innovation rankings (Expert Panel on Federal Support to Research and Development 2011; Science Technology and Innovation Council 2011; Watson 2011). The key problems, gaps, and traps in the Canadian innovation system have been, in one sense, consistently the same for the past thirty years and more. Innovation was not the original name of this domain policy field. Initially, the debate centred on S&T policy or science policy but, from the mid-1960s on, the key gap in Canadian policy and performance was cast accurately as an absence of private sector R&D compared to other competitor countries. Virtually every science policy report and study since has hummed the same tune. This situation was eventually but only slowly improved. Yet, when expressed as S&T policy this gap is still significant and pivotal and points to things that only the private sector and individual firms can do, although often still are not doing. Innovation policy discourse joined with a more direct discussion of the extended linear features of the “D” of R&D, patenting and intellectual property more generally, as well as risk financial capital, marketing, and market access. As innovation policy discourse was used in these ways some things did change. But some of the changes were of the “one variable at a time” kind. Thus, in the late 1980s, considerable policy and exhortative effort was put into getting Canadian firms to patent, and to improving Canada’s patent system (Doern and Sharaput 1999).

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When the mid-1990s federal budget cuts occurred under the Liberals’ Program Review federal science spending was cut by ten to twenty per cent. In the pressure cooker politics of austerity, science and even innovation had few vocal or well-placed voices to protest very much. Even after budget surpluses emerged from 1997 on, it is not at all clear that much would have changed. This was because the S&T and innovation realm was seen as an elite world, not one of much interest to the average Canadian citizen or voter. Indeed, after 1997 when S&T and innovation funding grew significantly, most attributed this burst of interest less to external demand and pressure (although there was some of that, for example from key university presidents) and much more to the specific influence and power of Paul Martin as finance minister and his deputy minister Kevin Lynch, whose previous career had been mainly inside Industry Canada. They were specifically prepared to argue for and defend new funding on innovation policy grounds. Alas, as we have seen, innovation policy was also being influenced by non-linear conceptions of innovation centred on the need to develop clusters and local/regional and national innovation systems. In short, Canada needed its own Silicon Valleys. While clusters have indeed been fostered and with some success, it remains the case that it is often hard to show specific “cause and effect” impacts from such policy, precisely because the dynamics of innovation are non-linear. It is also harder in some sense to have political/ministerial announceable moments (Doern and Levesque 2001). Another way to think about this innovation dilemma is to use the example of Research in Motion (RIM) and its invention and development of the Blackberry. With hindsight, it is possible to argue that RIM-Blackberry emerged despite any single R&D or innovation policy, or any policy at all. Some attribute some of the success and its birth in the Waterloo, Ontario area to earlier 1980s Ontario decisions to establish the University of Waterloo as a new technology university. Indeed, the two leaders of RIM place great emphasis in their stated views about the role of universities in innovation as being that of producing highly qualified personnel rather than developing and protecting their own patents. Of course, for the RIMBlackBerry story to be a successful saga there had to be patented inventions, frequent stout legal defences of patents, and entrepreneurial skill of a high order, as well as ample and continuing financial capital. RIM today hires large tranches of Waterloo and other



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university engineers but, then again, two thirds of its employees come from the social sciences, management, and the humanities. At present, the innovation crisis debate is still relatively subdued and points to further unintended gaps. One of these is the availability of risk financial investment capital, often a deemed weakness of Canada’s financial system compared to the US. Advocating more risk financial capital in the midst of a global banking crisis triggered by excess irresponsible risk is not a policy message that will have legs – perhaps later is a better bet. But, ultimately, the underlying innovation gap is due as much to the continuing unwillingness of enough Canadian corporations to invest in R&D and innovation and also to be prepared to absorb the costs of possible failed innovations, compared not only to obvious competitors such as the US but also to several of the smaller Nordic countries such as Sweden. The existence of a productivity crisis is much more hidden in the microeconomic and industrial budgetary domain. Among economists and within finance ministries and central banks, it is a wellunderstood concept but it is rarely elevated to direct public debate without being subsumed or indeed buried within other policy paradigms and fields (Castle and Phillips 2011). Global policy bodies such as the OECD, IMF, and World Bank regularly publish comparative productivity rankings of countries using measures such as GDP per capita per hour worked, but also more complex measures of multi-factor productivity. OECD data show that Canada’s productivity has not improved since 2000 (OECD 2010), a story not much different than as told in the 1990s and the 1980s by bodies ranging from the Economic Council of Canada, the Royal Commission on the Economic Union and Canada’s Economic Prospects (1985), and think tanks such as the C.D. Howe Institute and the Conference Board of Canada. OECD data show that Canada’s GDP per head of $37,945 was almost $8,000 less than that of the US but was higher than the OECD country average of $33,697. The gap in GDP per hour worked compared to the US was 25 per cent. When multi-factor productivity is the benchmark used Canada’s gains were 1.6 per cent in the 1995–2000 period, but in the period from 1985 to 2009 overall, Canada’s gains were a meagre 0.3 per cent compared to 1.1 per cent for the US and 1.6 for Japan (OECD 2010). Such trends are immediately linked among experts to several related contributing causes and interactions that spill across the

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macroeconomic concerns about structural fundamentalism as discussed in Chapter 3 and the microeconomic and industrial budgetary domain per se. One trend certainly is currency exchange rates. When the Canadian dollar traded at the 85 to 95 cent range vis-à-vis the US dollar, this conferred obvious advantages to Canadian manufacturers and exporters without necessarily having to do much in investing in R&D, or upgrading production machinery and plant. In short, its lingering effect is said to introduce a kind of inertial laziness in Canadian capitalism, firms, and entrepreneurialism. Another immediate spillover is the innovation policy debate/crisis already canvassed above, namely that yes, Canada was in a good position in terms of global spending league tables vis-à-vis spending on education and S&T overall, but not on the commercialization of R&D, which was itself governed by a multi-variable non-linear set of interacting dynamics. For example, Kevin Lynch has argued that the biggest innovation gaps for Canada are shortages of venture capital and weaknesses in adopting information and communication technologies. He also points to, as have others, a kind of larger looming productivity trap, namely the presence in current and future world markets, including competitors exporting into the US market, of dynamic sophisticated players such as China, India, and East Asia in general (Lynch 2010a). Lower productivity causes have been tied to both trade policy and free trade and to Canada’s resource economy wealth, but also to its resource booms and busts. The latter dependence is a kind of trap that has meant that the Canadian economy and its microeconomic and industrial budgeting domain politics has often failed to move past resources whereas other, less well-endowed resource countries (such as Germany and Japan for example) have had no choice but to be innovative and productive. The free trade era and debate also linked the need for Canada to join and compete more fully in world markets than it had been accustomed to doing given the closeness and attraction of the rich US export market. As mentioned earlier, the productivity crisis was slow moving and subliminal since politicians were reluctant to use the discourse of productivity because of the belief that it was too easily seen by voters as meaning job losses. Hence the use of the already mentioned alternative policy umbrellas ranging from competitiveness, prosperity, and recently Advantage Canada and broadly crafted “action plans.”



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Some of this behaviour is understandable and productivity as a concept is partly countered by those who seek measures and accompanying policy breadth that include alternatives to a GNP and productivity fixation by including public data and debates centred on social indicators, quality of life measures, and sustainable development. conclusions

In key respects, the microeconomic and industrial budgetary domain is quite different from the macro-fiscal budgetary domain and the social domain examined earlier. This is true both with regard to our account of the content and evolution of the five domain elements, and of the nature of the crises it either deals with or seeks to sublimate or reframe as complex policy challenges. Regarding the first domain element – namely the range of policy ideas, paradigms, and discourse – this chapter has shown an underlying normative content that shifts and alters across time but that has stable values as well. Thus the micro domain exhibits and trades-off: national industrial policy ideas and strategies; competitiveness, foreign investment and productivity; regional economic development; science, and research and development policy; transformative industries; innovation policy and related regional and local clusters; and free trade, fair trade, and trade promotion. Public and private power is revealed through efforts to influence, change, and sustain the status quo in both the fight over new money and over the A-base of domain spending, as well as over tax changes and reductions. Public power involves ministerial decisions and preferences as well as the larger, legally-mandated capacities of the state. Private power operates in multiple ways, ranging from businesses’ inherent power in a capitalist economy through the roles of international capital and, within Canada, both horizontal and sectoral business interest groups, to the privileged access of individual firms, and the complex processes through which governments seek to “pick winners” and some firms seek to “pick governments” for support, largesse, or just to buy time to adjust to a changing global economy. With respect to the departmental and agency membership element of the domain, we have shown that Industry Canada and its agencies are at its centre. At the same time, Industry Canada is not the only “industry” department or microeconomic department. Related

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domain members include Finance Canada, Natural Resources Canada, Fisheries and Oceans Canada, Human Resources and Skills Development Canada, Agriculture and Agri-Food Canada, Heritage Canada and Transport Canada. The six federal regional development agencies are also key domain members, but it is important to appreciate that regional/spatial issues and mandates emerge out of some of the above departments that are not called regional departments by name. The spending and tax elements of the microeconomic and industrial domain encompass several important features. Compared to the social budgetary domain, the amount of spending in this domain is relatively small and tends to be composed of numerous smallish programs. Thus, there is somewhat more wiggle room for ministers to shift resources to new areas of interest or demand. The larger base of spending programs also has robust behind-the-scenes public defenders as well. Regional fairness or even perceptions of fairness also affect the domain’s ongoing allocational and distributional politics. The domain’s federal-provincial, multi-level, and spatial/place governance element is also shown to be growing in complexity and diversity. These clearly arise from the core features of constitutional federalism along with diverse aspects of bilateral, multilateral, and partisan party federalist alliances. Multi-level arrangements arise in the domain from the activities of the six federal regional agencies and their provincial and local counterparts, from the growing use of levered and partnership-based spending, as well as in innovation policy fields from the policy and institutional preference for networks and for regional/local clusters. City-focused federal policy often centred on infrastructure programs is also a key feature here. Across the past thirty years, two key characteristics emerge regarding the evolution and current status of the micro-economic and industrial budgetary domain crises. The first is the fairly regular occurrence of more frequent short, punctuated, shock-like crises in particular sectors where a range of crisis discourse and non-crisis reframing discourse and issue and problem management occurs. The second is the broader, long-developing kind of crisis with gaps and even serious weaknesses being variously pointed out or stressed by experts and interests across the entire period covered in this book. As we have seen, the industrial crises tend to be shorter and even sudden, and burst into a higher profile and presence in federal,



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provincial, and international agendas. Historically, these punctuated occurrences have included the auto sector (on more than one occasion), the nuclear industry, the textile industry, and plant closures in one industry resource and forestry towns and regions. Crises of the long-developing kinds have been examined in relation to the innovation and productivity challenges. These reveal gaps and weaknesses being variously pointed out or stressed by experts and interests across the entire period covered. The existence of an innovation crisis was rarely accompanied by actual crisis discourse but serious innovation gaps still exist. The productivity crisis has been even more subliminal and below the political radar, in part because it seems to be associated by the public with job losses and hence ministers avoid it or seek to bury it in other policy discussions that are amenable to a better political outcome.

7 The Green Budgetary Domain Energy, Climate Change, and Green Industry Crises

introduction

The green budgetary domain is our third and final budgetary domain whose five domain elements are examined in detail in this chapter, and we also consider the types and nature of crises within the green domain, building on the relevant definitional areas and issues specified in our analytical framework. Substantively, these deal with crises and crisis discourse in the linked energy, environment, and green industries areas that are centred in the green domain. The green budgetary domain deals with spending and taxation impacting on the environment and its ecosystems with ever more intricate links to environmental policy writ large, energy policy, natural resource policy, northern development and Aboriginal peoples, climate change, and efforts to foster green industries based on alternatives to the use of fossil fuels. It is similar to the micro economic and industrial domain examined in Chapter 6 in that it involves a small percentage, about four per cent of total federal spending, and consists of a large and complex array of smallish programs and tax breaks. It is also a domain where real and notional regulatory budgets loom large as debates about tax measures, cap and trade systems, and other competing types of regulation occur. While the green budgetary domain centres on departments such as Environment Canada, Natural Resources Canada, and Aboriginal and Northern Affairs Canada, it is quite literally the case that every federal department should be and is, to some extent, an “environment” department that is expected to be conscious of how its own overall mandate impacts, positively or negatively, on the environment and on sustainable development. For example, at a bare minimum, all federal departments are managers of buildings, vehicles,



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and infrastructure and hence can make good or bad decisions about energy conservation and climate change. The green domain’s evolution across the decades since 1970 when Environment Canada was established has been shaped by ideas such as pollution control, conservation, sustainable development, and the precautionary principle, as well as by economic growth, industrial competitiveness, innovation, and forms of diverse spatial policy that cut across, and occur within, traditional defined regions and jurisdictions. The structure of public and private power and interests in the green domain is both simple and complex. It is simple in that business and producer interests in the main have priorities and values that do not put environmental concerns first, though they do not totally ignore them (Munroe 2012; Kinder 2010). The configuration of public and private power is also simple in that environmental non-governmental organizations (NGOs) put environmental priorities and values first, but are aware of economic and competitive arguments, even when they are not entirely convinced about such arguments. Interactions between public and private power and interests are increasingly complex in the green domain as green industries as such emerge and as particular industrial sectors seek to deal with their particular pollution and emission implications, in particular places or locales and in different time scales of adoption, resistance, and ensuring asset and production facility investments and payback regimes. In relation to Canadian federalism, the green domain is a realm of de facto joint constitutional jurisdiction between the federal government, the provinces and three territories, and Aboriginal peoples. The inherent multi-level governance attributes of the federation extend outwards to Canada’s adherence to a growing number of environmental agreements that deal with particular pollutants and ecosystems, and also to various trade agreements. These attributes further extend downwards to major cities and local governments and to ecosystem spatial spheres and areas defined by particular air, water, and land and production plant realities. d o m a i n e l e m e n t s : m a p p i n g a n d i m p l i c at i o n s

Ideas, Paradigms, and Discourse: From End-of-pipe Cleanup and Energy Competition to Sustainable Development and Canada as Energy Superpower Ideas, paradigms, and policy discourse on energy and the envir­ onment are reflected in formal policy statements; in theoretical

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c­ oncepts, some of which become formal scientific or professional paradigms; in changing departmental names and mandates; and, in media and partisan sound-bytes and political communication strategies. We look at several of these noting both their emergence and meaning and their basic evolution and capacity for survival. These include end-of-pipe cleanup; polluter pay principles linked to concepts of externalities; the limits to growth; sustainable development and related conservation ethics and concepts of stewardship and respect for life; science-based decision making; and the precautionary principle. As in previous chapters, we stress the evolution of ideas and the fact that few if any of them ever leave the field of discourse and advocacy inside the green domain in Canada and internationally. While ideas that emerge from the environmental sphere are central, we necessarily refer to energy, resource, and northern development ideas and of course ultimately to the presence of key ideas about competitiveness and economic development previously discussed in Chapter 6. These ideas include liberalized energy markets, energy security, regional fairness and burden-sharing, and, recently, discourse characterizing Canada as an energy superpower and as a supporter and source of “ethical oil.” End-of-pipe cleanup ideas have been central to this domain from the outset of the environmental age. It focuses on cleaning up pollution emissions and effluents that have already occurred and already done harm. It has also been closely tied to polluter pay principles and economists’ concepts regarding externalities, in this case negative externalities. In terms of policy instrument use and limitations, these ideas have also been linked historically to end-of-pipe control achieved through requirements for “best practicable technology” regarding new industrial plants, but not old, existing industrial plants. In short, cleanup and polluter pay ideas are linked to further practical questions such as how fast cleanup occurs, whether payment is by the polluter alone or, indeed, if it occurs at all (Helm 2003; Doern and Conway 1995). The Limits to Growth paradigm had an early strong presence in this domain in the 1960s and 1970s as articulated by international entities such as the Club of Rome. It argued that ever growing economies and industrial production was ultimately incompatible with a clean environment as was unlimited and inadequately regulated energy use. This idea lost favour in later decades but concerns about how much growth is tolerable and sensible for the planet and for



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specified ecosystems are always present in green domain debates and advocacy and resistance strategies, not only about GHG emissions in climate change, but also in areas such as nuclear wastes and concepts such as forest sinks. Sustainable Development and Related Conservation Ethics refer to policies anchored in preventative and intergenerational ideas about environmental harm. The latter is a long-standing concept that predates the environmental era by several decades in its concerns about preserving and conserving wildlife. The former idea, articulated especially by the Bruntland Commission in the late 1980s is an idea and paradigm whose intent is to ensure in any number of areas of governance that the environment and its ecosystems are left in at least as good a state for the next generation as they were for the current generation (Boutros, Hayward, Montambault, Smallwood and Toner 2010; Lafferty and Meadowcroft 2000). Sustainability values also are often expressed in terms of environmental rights per se (Boyd 2012). Cast somewhat more loosely, such policies are often seen by governments as those which take into consideration the economic, social, and environmental effects of policies, the so-called “triple bottom line” (Toner 2009; 2000). In more specific energy policy terms, sustainable development is initially tested against the basic concept of whether Canada has made progress, either in reducing energy use on a per capita basis over the past thirty years or as evidenced by other measures of energy efficiency. Since such per capita usage has actually increased marginally or has produced only sluggish gains in some sectors but not others, there is clearly much more to do (International Energy Agency 2010; 2002). When the Kyoto Protocol and its requirements for reductions in greenhouse gas emissions are added as a core test of sustainable development, then the Canadian record is still dubious in basic energy terms and, indeed, the Harper government formally announced Canada’s withdrawal from the Kyoto Protocol obligations in 2011. In addition, sustainable development criteria have been implanted in federal policy and decision processes, in some statutory mandates, and in some reporting activities by departments (Commissioner for Environmental and Sustainable Development 2010; VanNijnatten 2002). In some related policy fields such as biotechnology, sustainable development ideas have also been expressed under concepts such as stewardship and respect for life (Doern and Prince 2012).

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Thus some changed policy processes are in place but certainly not major changes in policy outputs and outcomes (Bregha 2011; 2006; Boutras, et al. 2010). Science-based decision making is a pervasive idea in the green domain in that much of environmental policy is underpinned by a belief in the need for independent science and technology knowledge as practiced by scientists and technical experts both to identify harms and pollutants and also to develop ways of eliminating or minimizing adverse effects and also preventing pollution from occurring in the first place. Sound science also has roots as an idea in trade policy, where it was intended to ensure that environmental and health protections were based only on science and were not an avenue for new forms of anti-free trade protectionism (Braithwaite and Drahos 2000). Science-based decision making was a key part of early environmental assessments of projects and also of policy making. The nature of the science also became much more complex and interdisciplinary in nature as environmental policy and regulation was applied to ever more complex pollutants and hazards and interacting hazards (Kinder 2010). Thus differences and uncertainty emerged as governments moved from dealing with relatively simple harms such as lead or mercury to later ones such as greenhouse gases and complex habitats and ecosystems. The precautionary principle is a decision-making principle which allows policy makers, regulators, and scientists to take provisional risk-management measures when an assessment points to the likelihood of harmful health effects and there is a lack of scientific certainty (Goklany 2007; 2001; Saner 2007). The European Union has been particularly strong in formally and informally endorsing this idea in EU law in areas such as food policy, in part due to direct pressure and actions by the European Parliament (European Union 2010; Ansell and Vogel 2006). The principle has also been adopted in Canadian federal laws and policies, but Canada has been much more cautious in part because of the stronger forces and pressures that support the above mentioned idea of science-based decision making. Nonetheless, notions of precaution are always embedded in the underlying policy discourse in the green domain as new products and production processes emerge (Doern and Prince 2012). Energy ideas within the green domain emerge from the underlying reality that energy policy as a whole refers to policies aimed at influencing and shaping the supply of energy sources and fuels,



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their demand by various users of energy, and, ever more importantly, the environmental impacts of energy use (Held 2005; 2003). Energy policy thus covers energy resource domains, sources and fuels such as oil and natural gas, coal, hydro-electricity, nuclear energy, and a host of alternative or renewable sources such as biofuels, fuel cells, solar energy, wind power, and biomass, and also energy efficiency and conservation measures and activities. Energy policy also involves global, national, and regional politics, where past and current conflicts over prices and energy security influence views of what future policy should and should not be (Eberlein and Doern 2009). Energy policy has been influenced by views of the full energy life cycle. Its complex governance system seeks to influence behaviour at numerous stages of production and consumption, from R&D, exploration, and initial extraction, to processing, transportation, use in homes, public institutions, and commercial establishments, and the disposition, reduction, management, and remediation of wastes, effluents, and emissions. In the 1980s and 1990s energy policy was dominated by the liberalization of energy markets and this idea had support when energy prices were low or even declining in real terms. But the first decade of the twenty-first century has ushered in a more complex array of energy ideas and interdependencies among countries and regions (Cameron 2009; International Energy Agency 2010; Helm 2003; 2005; Jaccard 2006). Increasing tensions arise among three ideas and goals: energy security, environmental sustainability, and economic efficiency of supply. It is probably fair to say that tensions arise most between energy security, now defined to include both terrorism and earlier notions of reliability of supply, and sustainability as discussed above. Nevertheless, market liberalism, as a driver both of industry change and of policy remains crucial. In the Harper Conservative era since 2006, energy ideas have shifted to include policy discourse that describes and advocates Canada as both an energy superpower and as a clean energy superpower (Macdonald 2011; Brownsey 2007). Anchored in its core Alberta political and economic base, Harper’s Environment Minister, Peter Kent, went out of his way to agree with the newly inspired policy discourse vis-à-vis growing American concerns about the Alberta oil sands emissions by asserting that Canada was a source of “ethical

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oil” (Chase 2011; Levant 2010). This was a discourse that virtually ignored the environmental issues and stressed instead that Canada as a democratic country was a close-by and reliable source of energy for the United States, compared to Middle East and other foreign sources of oil (Milke, 2011). Public and Private Power: More Complex and Differentiated Public, Business, Science, and ngo Interests The public and private element of the green domain involves a changing array of players and interests. Regarding private power, the configuration of business interests includes sectors and firms which have been long-term traditional polluters in sectors such as oil and gas and minerals whose core instincts historically and at present have been to lobby against robust environmental regulation. But the nature of business power in the green domain has been more complex because, in part at least, business interests are more divided and differentiated (Munroe 2012; Doern 2005). At present, they include: growing industries such as the telecom and IT sector which see themselves as clean; pressure and requirements from financial, insurance, and securities industries that firms make known their environmental liabilities; the sustainable development strategies of some leading innovative firms (Toner 2009) and the growth of environmental industries; in short, firms that profit from tough new regulations and the development of new technologies which address environmental problems. While energy business interests certainly contain firms which are polluters and greenhouse gas emitters, they also include key firms known to be environmentally progressive and who see economic opportunity in new green environmental technologies as alternatives to the carbon economy (Macdonald, 2011; 2002). Globally, huge firms such as British Petroleum (BP), who symbolically changed their logo to mean “beyond petroleum” so as to hopefully pursue quite different strategies than, say, Exxon. Nonetheless, BP was the undoubted corporate villain in the huge oil spill off the Gulf of Mexico in the southern US in 2010 and so new habits are not easily learned in entrenched corporate cultures. In Canada, companies such as TransAlta have developed strategies for profiting from emission reductions and alternative technologies, and there are other examples along these lines (Munroe 2012).



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Energy industry associations further illustrate the complexity and diversity of contemporary energy interests. Key national lobbies such as the Canadian Electricity Association that used to consist of a small handful of big, mainly provincially owned utilities now also consist of many dozens of smaller firms who are entering the restructured and liberalized electricity markets (Dewees 2009). They have diverse views about the energy-environment trade-offs and linkages and how to profit from them. In a different way, core energy lobbies such as the Canadian Association of Petroleum Producers (CAPP) lobby in ways which recognize their diverse mix of small and large energy players, some of whom see themselves as being in the environmental industries sector. CAPP has crafted and lobbied for its own approaches to more incentive-based environmental policy and regulation which recently centres on carbon sequestration. The Canadian energy business lobby is also characterized by some divisions between powerful multinational oil companies (the majority US foreign owned) and the more numerous smaller oil and gas companies which tend to operate at the exploration phase of oil and gas development. Core links to the US energy industry lobby are, as a result, built-in with Canada’s energy politics, all the more so as the US government and American multinational oil firms have their eye firmly on Alberta’s oil sands as a vital part of current and future strategic energy supply. The ever growing level of Canadian natural gas exports to the US also ensures a central US market and lobbying presence in Canada’s internal energy industry politics. In recent years, China and its state and private firms have become key players in energy and resource markets as it seeks to meet insatiable fast growing demands for energy and resources to meet its booming economies. On the core environmental NGO side of the equation of private public interest-oriented power and influence, are even more numerous and varied organizations and associations (VanNijnatten and Boardman, 2002). NGOs still seek to mobilize national and global pressure and public opinion to ensure that Canada has a progressive environmental policy relating to energy and other policy fields. However, the strategies of groups such as Greenpeace, Energy Probe, Pollution Probe, The Sierra Club, The Pembina Institute, the Canadian Arctic Resources Committee, and the David Suzuki Foundation can differ enormously. Environmental advocates also function in and through advisory bodies such as the federal government’s

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National Roundtable on the Environment and the Economy (NRTEE) and in numerous local and provincial-regional settings. Compared to even a decade ago, such interests, while still maintaining overall pressure, are much more literate about, experienced with, and prepared to consider, varied ways of dealing with energy-environmental problems from direct regulation to incentives and tradeable permit systems. Canada’s Green Party is also a presence and in the 2011 federal general election saw their leader, Elizabeth May, elected to parliament. Cross-border Canada-US environmental-energy lobbying on pipelines has reached complex levels of intensity. The proposed Keystone oil pipeline to bring Alberta oil sands petroleum south to Texas encountered strong environmental opposition in Nebraska regarding its planned route through that state. This quickly became a partisan and pre-election issue in the United States in the run-up to the November 2012 elections, resulting in a decision by the Obama administration to reject the proposal, at least regarding that particular part of the pipeline route (McCarthy 2012). Somewhat in response to this decision, the Harper government began to speak more frequently about exporting Canada’s oil to China. The Harper government also took a hard political line regarding the Northern Gateway pipeline proposal hearings by the National Energy Board. The pipeline to the BC coast would allow expanded Canadian gas exports to Chinese and East Asian markets. The Harper government launched a strong criticism that labelled some Canadian environmental groups as unpatriotic regarding both their opposition and their alleged links to funding and support by US environmental groups (Vanderkliffe 2012; McCarthy and Chase 2012). The structure of interests concerning Aboriginal peoples and other groups such as consumers has also changed in the energy-environmental and hence green domain context. Treaties, land claims, and related self-governance aspirations in Canada’s north have conferred on Aboriginal peoples a mix of direct sovereign powers along with territorial governance, shared authorities, and delegated responsibilities (Abele and Prince 2008). These provisions have been accompanied by a quite different set of views about energy and resource development compared to the debate in the Berger Commission era of the 1970s. Aboriginal peoples increasingly tend to favour development provided there is local control over employment, benefits, and investment (Coates, Lackenbauer, Morrison, and Poelzer



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2008). On other aspects of energy policy, such as climate change, there are major concerns because Aboriginal peoples in the north are already experiencing adverse climate change effects yet see little action from the federal government. Paradoxically, the federal governement’s focus since 2006 has been on the economic opportunities and sovereignty issues in opening up of the Northwest Passage to shipping and commerce, because of the melting of the ice due to climate change (Abele 2011; Byers 2009). Consumer interests and citizen-consumers are also germane to the question of reconfigured private non-governmental power. A key point to note is that there are more arenas for the expression of consumer interests, precisely because markets have gained a greater hold in the energy market place. Consumer-citizens mount continuous challenges regarding the quality of consumption – in short, not just what products are made but how they are made (Webb 2004; Princen, Maniates, and Comca 2002). Moreover, the growth of business user groups as an organized class of consumers is a significant change in the profile of interest groups and lobbying in the past thirty years. Perhaps the hardest interest to pin down in the structure of power in this domain is the role of scientists inside and outside of government, and internationally. Both individual scientist advocates such as David Suzuki, and those who may be members of environmental roundtables and panels, or who have strong university-based reputations, exert considerable advocacy influence, and certainly media coverage in the identification of environmental risks and sustainable development needs. Moreover, federal scientists in both NRCan and Environment Canada, as well as in global bodies which form around particular environmental agreements such as climate change, exert a degree of influence (Kinder 2010; Doern and Kinder 2007; Doern and Reed 2000). Raw political conflict emerged in the fall of 2002, when a major coalition of business interests was formed to try and defeat or significantly delay the ratification of the Kyoto Protocol. It was countered, successfully, by a coalition of NGOs, backed by basic support in public opinion as Prime Minister Chrétien belatedly made the decision to ratify (Macdonald, 2003). However, not much happened afterwards as Canada’s GHG emissions continued to grow during the Chrétien and Martin Liberal eras; and, under the Harper regime since 2006, energy and climate change policy has been in lockstep

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with weak US commitments (MacDonald 2011; Rivers and J­ accard 2009), culminating in Canada joining the US in 2011 as a non-­ member of the Kyoto Protocol. Public power in the form of public interest lobbying certainly includes all of the above NGOs and related interests. Within the state it is mainly centred in the key federal departments and agencies examined below. But public power analysis must also look at the way in which these business and NGO interests are represented in and mediated through central Cabinet structures. For example, new Cabinet groups emerged in 2001–02 in the late Chrétien era following the announcement of the 2001 US Bush energy plan. Initially, a Cabinet reference group on energy was formed largely because the initial Bush energy plan was seen as a great economic opportunity for Canada. Central federal officials felt that the Cabinet, which had not dealt with overall energy policy for many years, needed a more concerted review and learning process to reassure itself that the overall pro-market policy of the previous fifteen years still made sense, and also to see if other issues were being dealt with under the new circumstances. Broadly speaking, this initial reference committee process satisfied key energy stakeholders that its largely pro-market policies did make sense. A second Cabinet reference committee was concurrently formed on Climate Change to review the ongoing issues already apparent in the runup to Canada’s 2002 signing of the Kyoto Protocol. This committee later converted to a standing cabinet committee within which the future trade-offs and actual Kyoto Protocol implementation decisions would be brokered and made. (Doern 2005; Brownsey 2007). In the Harper era, with the Conservatives’ anti-Kyoto stance and Canada-as-energy-superpower discourse, the Cabinet or its committees has had exceedingly little say. Energy-environmental policy has been to a considerable extent under the direct personal control of the prime minister, as have other key decisions. Earlier eras, to be sure, also exhibited this centralized power. The period from ­1980–84, following the oil crisis of 1979–80, was characterized by massive federal intervention by means of the Trudeau Liberals’ National Energy Program (NEP), a policy strongly opposed by energy interests in Alberta and Western Canada overall (Doern and Toner 1985). Then, in 1985, Mulroney-led federal energy policy was decidedly pro-­market in nature but augmented by the discourse, if the not the actions, of sustainable development, i­ncluding



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the partially-­praised Mulroney Conservatives’ 1990 Green Plan (Doern and ­Conway 1995). Canada’s internal energy power and basic politics are influenced profoundly by conflicts between major energy producer regions/ provinces (and related energy business interests whose centre of power has been in the oil and gas sector and now, in particular, the oil sands sector) and other more populous consumer regions, provinces, and interests, especially Ontario and Quebec. These clashes have been especially important when energy prices have risen suddenly and sharply as they did in 1973 and 1979 and again in recent years. Such conflicts surface in a central way over Canada’s climate change policies and the issue of burden-sharing among provinces and their main industries (MacDonald 2011; Canada West Foundation 2010). Inter-regional pressures also have arisen over nuclear energy. Canada’s CANDU reactor was developed through federal support for R&D and development although actual reactor sales and use have been confined mostly to Ontario, Canada’s main nuclear province (Mez and Doern 2009; Bratt 2006; Doern, Dorman and ­Morrison 2001). The oil and gas industry is deeply Alberta-centred with extremely strong links to the Alberta provincial government where the governing Conservative Party has dominated for decades. The oil and gas lobby group the Canadian Association of Petroleum Producers (CAPP) is based in Calgary, Alberta, as is the main federal energy regulator, the National Energy Board (NEB). This leads to the more general point that provincial governments are central to the publicprivate structure of power in the green domain, in that Canadian energy policy and regulation is very much influenced by the different energy endowments of its diverse regions and provinces. Quebec, Manitoba, and British Columbia have major hydroelectric resources (Pineau 2009). Moreover, it is of importance to note that Canada has very little inter-provincial electricity trade or east-west connecting grids. Provinces typically have greater grid and trade links with immediate sub-regional US border states. At the international level of this structure of power, it is bilateral relations with the US which are dominant (Clarkson 2009). The US has seen Canada historically as its hinterland supplier of oil and gas, all the more so now that the vast Alberta oil sands have been established as officially confirmed and recognized reserves. CanadaUS energy relations were once characterized by US protectionist

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­ olicies, but for the last three decades they have been dominated by p guaranteed policies and rules about free trade and secure trade. For its part, Canadian policy (with the brief exception of the 1980–84 NEP) has needed the energy markets, the energy capital, and often the energy regulatory approval of US agencies before major energy projects could proceed in Canada, as shown by the 2011–12 Keystone pipeline controversy mentioned above. Federal Departments and Agencies: The Battle Within At the centre of the current green budgetary domain are Environment Canada and Natural Resources Canada. Related domain members include Aboriginal Affairs and Northern Development (before 2011 known as Indian and Northern Affairs Canada, or INAC), Industry Canada, Finance Canada, Agriculture and Agri-Food Canada, Fisheries and Oceans Canada, Transport Canada, and Health Canada. Again, we take brief note of the ways in which some of these departments and agencies relate to the core composition of this budgetary domain and in the next section we discuss spending and tax features of the domain. Over the last decade, energy interests found their most sympathetic voices through Natural Resources Canada (NRCan) and environmental interests through Environment Canada (Doern and Gattinger 2003; Doern and Conway 1995). These basic alignments are understandable given the two departments’ rationales and historical mandates. But even these overall arenas of interest have to be qualified somewhat, because both departments have sustainable development mandates and both are part of a larger Cabinet and government with ministers who are concerned about both energy production and wealth creation and, to a lesser extent, about climate change (VanNijnatten and MacDonald 2003). Environment Canada reached its fortieth birthday in 2010 and its current stated mandate still captures most of its historic core features. These include: preserving and enhancing the quality of the natural environment, including water, air, soil, flora, and fauna; conserving Canada’s renewable resources; conserving and protecting Canada’s water resources; forecasting and detailed meteorological information to all of Canada; enforcing rules relating to boundary waters; and coordinating environmental policies and programs for the federal government (Environment Canada 2011). It also stresses



Energy, Climate Change, and Green Industry Crises 189

its underlying role as a science-based department. Environment Canada has enjoyed some success historically in areas such as the Great Lakes cleanup, acid rain, and ozone-layer issues via the Montreal Protocol but has been pictured as quite weak and timid in the last decade regarding GHG emissions (Kinder 2010). Indeed, the above current mandate summary by the department does not mention climate change, nor does it give play to the department’s role as a regulator, nor its links to its portfolio agency roles in areas such as environmental assessment of projects or its advocacy of strategic environmental assessment of policy and programs on a governmentwide basis (Bregha 2011). Natural Resources Canada (NRCan) emerged in 1993 mainly out of the previous Department of Energy, Mines, and Resources but with the significant addition of the forestry sector to complete the natural resource triumvirate of energy, minerals, and forestry, with fisheries and agriculture still in their own departments. NRCan’s mandate is cast at present as that of enhancing “the responsible development and use of Canada’s natural resources and the competitiveness of Canada’s natural resource products” (NRCan 2011). It also presents itself as a science-based department, not only in the above resource fields but also in earth sciences and geology overall (Doern and Kinder 2007). NRCan has also actively sought to show that its industries are not just a part of the so-called “old economy” but also of the new “innovation economy” within which some aspects of sustainable development emerge, though in a fairly subdued way (Jai Persaud, Kumar and Kumar 2007). Aboriginal and Northern Affairs Canada (ANAC) is certainly a key player in the green domain, though arguably weaker in power and clout compared to Environment Canada and NRCan. ANAC’s mandate is to support “Aboriginal people (First Nations, Inuit, and Métis) and northerners in their efforts to: improve social well-being and economic prosperity; develop healthier, more sustainable communities; and participate more fully in Canada’s political, social, and economic development to the benefit of all Canadians” (Indian and Northern Affairs Canada 2011). aNAC includes, crucially, the role of the Office of Federal Interlocutor for Métis and Non-Status Indians, but the department also draws attention to the role of the new Harper-era Canadian Northern Economic Development Agency (CanNor) and to the fact that aNAC is one of thirty-four federal departments and agencies involved in Aboriginal and n ­orthern

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­ rograms and services (Indian and Northern Affairs Canada 2010). p Northern development mandate aspects per se are also given emphasis and deal with diverse tasks North of 60 as they relate both to environmental and resource management, regarding the Yukon, Northwest Territories, and Nunavut. The Harper era has seen the articulation, with strong prime ministerial involvement, of a Northern Strategy tied to a defence of Canada’s Arctic sovereignty, climate change, and environmental protection, including the role of a new Canadian High Arctic Research Station (Byers 2009; Coates, Lackenbauer, Morrison, and Poelzer 2008). Considerable prime ministerial interest in Aboriginal issues had occurred during the brief Paul Martin Liberal era minority government but there was only limited follow-through in the precarious minority government politics and policy situation of the 2006–11 Harper era (Abele 2011). While the above three departments are pivotal, Industry Canada, Finance Canada, Agriculture and Agri-Food Canada, Fisheries and Oceans Canada, Transport Canada, and Health Canada have mandates which easily enter the green domain’s budgetary debates, skirmishes, and allocations of both new money and the base of spending. Industry Canada has a considerable interest in fostering environmental industries but also in ensuring that science and technology (S&T) in this area reinforces its innovation strategies and spending priorities. Finance Canada’s central tax and fiscal mandate, especially the former, has been a central player in tax policy as it affects energy and natural resources directly, including intense conflict over whether environmental taxes should be used in climate change and emissions reduction approaches. Other departments noted above have mandate and practical concerns about environmental resource and energy use based on policy and regulatory initiatives that emanate from their fellow departments and agencies and their ministers. Spending and Tax Characteristics: Small Budgets, Partnerships, and Green Shift Tax and Tax Grab Debates A reasonable initial sense of green domain spending can be gleaned from figure 7.1 which sets out the spending of the three main domain departments profiled above over roughly the past fifteen years starting in 1996–97 (just after Program Review started) before and extending across sample years for the later Chrétien, Martin, and



Energy, Climate Change, and Green Industry Crises 191

Table 7.1 Illustrative Green Domain Departmental Spending: Environment Canada, INAC, and NRCan: Selected Years 1996–97 to 2010–11 ($000) Fiscal Year Department Environment Canada Aboriginal and Northern Affairs Natural Resources Canada Total

1996–97

2001–02

2004–05

2010–11

629,882

568,200

730,172

795,083

4,189,214

4,820,003

5,552,713

7,301,190

522,970

580,931

881,317

4,452,723

5,342,066

5,969,134

7,164,202

12,548,996

Source: Budgetary Main Estimates for above years for departments only. Does not include other ministry arm’s-length agencies for these departments (Treasury Board Secretariat).

Harper governments. For all three departments 1996–97 showed ­ 001–02 significant cuts from the previous early 1990 figures but by 2 some modest recovery had occurred, and further improvements arose by 2004–05 as federal budgetary surpluses strengthened. By 2010–11, after five years of the Harper government, spending had increased in major ways across the three domain departments but overwhelmingly in INAC and NRCan, not in Environment Canada. These data of course do not tell us in detail where the spending reductions or increases were focused, although the Harper interest in NRCan and its energy and resource areas (and mainly western communities) are a feature, as are aspects of Harper’s strong interest in the above mentioned northern and Arctic strategy. Aspects of INAC’s budget increases also reflected serious, perpetual catch-up spending given past low priority treatment of Aboriginal peoples and the north, some specific social concerns about Aboriginal peoples’ education, housing, and its burgeoning demographic of children and young people (Falvo 2011). Overall, the budgets of the three departments and others in this domain chiefly comprise modest program budgets, including the core S&T budgets of Environment Canada and NRCan, and numerous partnership-based initiatives. As regards taxation, the domain has lived a double life. The first part of the duality is the normal underbelly of corporate taxation as it affects energy and resource producers and also provincial tax measures and support as they affect renewable and non-renewable resources, royalty payments and depletion rates. The second part of the duality is the much more

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Canadian Public Budgeting in the Age of Crises

high-profile debate over environmental or green shift taxes as an overriding option to deal with climate change and other kinds of emissions. On the first aspect above, there have of course been tax measures (rates, deductions, tax credits) which have built up gradually and summarized in a rather oblique way under the rubric of data and debates about tax expenditures (Finance Canada 2010). A more recent stimulus-like tax initiative was the 2009 Home Renovation Tax Credit that related environment/conservation measures for individuals but which was temporary in duration. A longer standing tax measure that can help in some energy-environment-green industries contexts is the previously discussed two-decade old Scientific Research and Experimental Development (SR&ED) Tax Credit. And there are any number of deductions and rate incentives for energy and resource companies that are the foundation for how they make investments and calculate profits in Canada and in comparison with other countries (McKenna 2011; Doern 1995). The idea of environmental taxes and tax shift is now a fairly old one but, in Canada, not a politically successful one. Canadian economists such as Ross McKitrick have argued for what he labelled “double dividend” environmental taxation (McKitrick 1997). The double dividend arises by putting a tax on pollution emissions (the environmental dividend) and the resulting tax revenues are used to finance tax reductions in other taxes elsewhere in the economy (producing a second efficiency and allocative dividend). Even so, such appealing ideas almost always get translated into arguments about “tax grabs” and tax burden-sharing. This happened in the 2008 run-up to the federal election where then Liberal leader Stéphane Dion advocated an environmental tax and designated it as a source of expenditure revenue federally for new social spending initiatives (Maslove 2009; Calamai 2007). This idea garnered some support but not much, and after the election the then Ignatieff-led Liberals abandoned the policy. The Harper Conservatives easily linked such environmental tax ideas to its political base in Alberta where earlier 1980 federal Liberal government NEP energy-related tax measures were cast as an unfair and offensive intervention into provincial energy matters. Nonetheless, the underlying issue of where federal green domain tax and related support measures go, or tend to cluster, has long been



Energy, Climate Change, and Green Industry Crises 193

a focus of criticism. In 2000, a report by the Commissioner of the Environment and Sustainable Development (CESD) examined what it called government support for “energy investments.” On both the tax and spending sides, it concluded that “with a few exceptions, federal government support today for energy investments, including support through the tax system, does not particularly favour the non-renewable sector over the renewable sector” (CESD 2000, 3). But the “few exceptions”, in effect some of the tax underbelly referred to above, were not discussed in much detail nor weighed in the overall scheme of things. And though this report also mentioned the regulatory aspects of federal energy policy it certainly did not critically examine it. Later studies and NGO pressures were extending the notion of the non-renewable sector to a more explicit reference to “green industries” as such, to discourse that spoke of “the green race” globally, and to “climate prosperity” and of how Canada “needs to be ready” (National Roundtable on The Environment and the Economy 2011). This links to explicit arguments that Canada not bind its energy and climate change policies lock-step with the US, which is the Harper government’s preferred approach (National Roundtable on The Environment and the Economy 2011a; MacDonald 2011; Pembina Institute 2011). Meanwhile, Canadian initiatives on green industries were mainly provincial in nature and, in comparison with other countries such as Germany and Sweden, were weak and scarcely noticeable (Rivers and Jaccard 2009; Eberlein and Doern 2009; Lipp 2007). Finally, it is important to draw attention to the green domain’s regulatory roles and related regulatory budget aspects. Over the last three decades, this is a part of budgets where regulation has indeed imposed real costs and real benefits on business and consumers. It is also a world of non-events and inactions. In other words, it is a “spending” element where proposals for, and promises regarding, strengthened regulation were often simply resisted, ignored, or adopted but then not seriously implemented with effective compliance approaches (Munroe 2012). This promise-practice gap is certainly a large part of the environment-energy climate change story where Canada’s GHG emissions soared rather than were reduced as promised in its Kyoto commitments. But it is by no means confined only to this aspect of green domain policy tensions and disputes.

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Federal-provincial, Multi-level, and Spatial/place Governance: Northern Strategies and Southern Divided Jurisdictions and Spatial Realities In federal-provincial jurisdictional terms, energy and natural resource jurisdiction resides overwhelmingly at the provincial level regarding energy and resource laws, and primary tax jurisdiction as well. When Canadian energy and resource federalism is compared to other federations, Canada tends to come in at the highly decentralized end of the comparative jurisdictional and related political power equation (Eberlein and Doern 2009). Moreover, since provincial resource and energy endowments are vastly different it also means that any resulting or possible federal-provincial arrangements or agreements (spending or regulatory) are bound to be variously bilateral, partially multilateral, or wholly multilateral in nature depending on key spatial realities such as dealing with offshore petroleum development (Clancy 2011; Sinclair 2011). The federal government, for its part, has more limited jurisdiction but constitutionally, it does have some entry points for laws, spending, and rule-making in constitutional fields such as the trade and commerce power, the generalized peace, order, and good government provision, and via some aspects of foreign and international policy, including trade and security, and varied treaty areas. In environmental realms, federal-provincial jurisdiction is a shared jurisdiction. The Canadian constitution of 1867 emerged before governments knew about environmental matters or tried to deal with them. So both levels of government entered the field from the 1970s on, initially to create environment departments and then, gradually, to establish federal and provincial environmental assessment regimes for projects, and also regulations and control practices for particular pollutants, regional, local, and national (Harrison 1996). As environmental matters increased and became more ­complex, mechanisms for federal and provincial environmental ministers to meet, discuss and coordinate policies emerged. In the context of Aboriginal Affairs and Northern Development, as we have already seen, the federal-provincial aspects are very different constitutionally. North of 60 and with respect to the three northern territorial governments, the jurisdictional play has been federal-dominated in nature but in the context of gradual efforts to devolve decision-making to the territories and to foster northern



Energy, Climate Change, and Green Industry Crises 195

­democracy. Many provinces also have spatial and policy ­concerns about the northern hinterland parts of the province and hence of an adjacent sense of “northerness.” Aboriginal government in the North has also been mainly federal in primary jurisdiction, but Aboriginal peoples also won constitutional recognition and thus had their own sphere of policy and rule-making both outside and inside treaty arrangements. All of the above features express spatial realities when combined or joint powers are exercised in either a coordinated or uncoordinated manner. And, of course, when multi-level government is extended to the international/global level, then the green domain exhibits a further complex array of cross-border features and players. For example, the Canada-US Free Trade Agreement specifically sought to foster free trade in oil and natural gas, a provision insisted upon by Alberta but also by the Americans concerned about their own security of supply from Canadian imports. Later, the NAFTA contained an environmental cooperation agreement which allowed citizens to point out situations where Canada, the US, and Mexico were, in those citizens’ view, not implementing their own environmental laws and the governments had to respond to these charges. In addition, the extent of cross-border energy interdependence has increased in several ways, including the growing application of US rules by the Federal Energy Regulatory Commission (FERC) to Canadian gas and electricity markets, the need to better manage the reliability of North American electricity grids, and the need to have Canadian climate change policies and actions, or lack of action, take into account the fact that the US was not a Kyoto signatory and thus its industries had a comparative economic advantage over Canadian firms which were being asked to comply with Canada’s Kyoto obligations. As we discussed above, not much compliance has actually occurred. On the environment side, multi-level governance is shaped by the fact that global environmental agreements are each different because they deal with different specific pollutants/emissions and hence different separate protocol provisions which Canada has signed. Such agreements and protocols range from the Great Lakes, to acid rain, the ozone layer, and extending to the most complex of them all, the Kyoto Protocol, and its later 2009–11 Copenhagen and Durban summit extensions or possible extensions.

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t h e e n e r g y , c l i m at e c h a n g e , a n d g r e e n i n d u s t ry c r i s e s

The extent to which energy or environmental crises and the discourse of crises emerge or are reinterpreted and recast in the green budgetary domain need careful analysis in relation to Chapter 1’s six crises definitions and analytical features. We find evidence in this regard of: some energy crises as short sharp shocks; climate change as a long-developing serious global challenge with episodic crisis discourse; and green industry development as mainly non-crisis innovation opportunities. Energy Crises as Short Sharp Shocks Contemporary notions of an energy crisis first emerged in the 1970s (in 1973 and 1979–80) when global oil prices doubled and then tripled and the price shock, particularly in the latter case, easily led to its characterization as a crisis of the short deep shock variety. Smaller oil price surges in 2001–02, 2008, and 2010–11 also carried some of the same discourse, with the last of these linked to the Middle East political revolutions in 2011. These surges, however, had no staying power as events that warranted crisis labels. Electricity crises of the short shock type have also occurred, especially when sudden widespread blackouts occur, as happened in 2003 in northeastern states and provinces of North America. But the latter are of a much shorter (a few days) and less pervasive nature. The first policy response to such an oil crisis in Canada was the first budget, in the fall of 1980, of the newly elected federal Trudeau Liberal Government which announced its National Energy Program (NEP). The NEP was a massive act of federal intervention premised on the Liberals’ campaign promise of fair “made in Canada” oil prices; 50 per cent Canadian ownership of the oil and gas industry; and a promise to promote energy security, including self-sufficiency in oil by 1990. The NEP was premised on absolutely bullish expectations about rising future energy prices and rising energy tax revenues for governments, both of which failed to materialize (Doern and Toner 1985; Canada 1988). With the NEP, the federal Liberals had used the crisis to throw down the gauntlet. It precipitated angry negotiations and acts of political brinkmanship which seriously threatened national unity. Nonethe-



Energy, Climate Change, and Green Industry Crises 197

less, a pricing agreement was eventually reached in ­September 1981, in part because both the federal government and Alberta believed their own forecasts of ever-increasing prices and hence thought they were sharing a very large revenue pie. The NEP also angered the newly-elected free enterprise-oriented Reagan Administration in the United States, as well as major parts of the energy industry and Canadian business community as a whole. It was, however, initially a popular policy in Ontario and Quebec, the home base of the largest portion of energy consumers and voters. Politically, the NEP left a bitter taste particularly regarding relations between central and western Canada, and Alberta in particular. It became the quintessential example, especially in western Canada, of how not to make policy. It was seen as a combative unilateral act by an unsympathetic eastern-dominated government. This lesson was a major contributing factor in later discussions in 1988 when energy free trade was secured through the Canada-United States Free Trade Agreement. From the western Canadian perspective the free trade agreement ensured that there could never again be “another NEP” (Doern and Tomlin 1991). Debates in the last decade over the Kyoto Protocol on greenhouse gas emission reductions also resonate with the view in Alberta that federal policy on Kyoto is or could be cast as “another NEP” and hence another crisis that resulted from a politically remembered crisis. So the essence of an energy crisis has been mainly on occasions of serious and sudden oil price increases but if prices are reduced and become stabilized, even if stabilized at a somewhat higher level, then the sense of crisis abates as does the discourse of crises. The 2003 electricity blackout crisis also abated as soon as normal electric power was restored. Discussions about how to prevent future crises through better electricity grid reliability were needed but also quickly moved off the front pages. Climate Change as a Long-Developing, Serious Global Challenge with Episodic Crisis Discourse It is much more problematic to speak of crisis responses or discourse when it comes to the federal government and climate change, including Kyoto Protocol and Copenhagen and Durban-centred post or “beyond” Kyoto responses by the Chrétien, Martin, and Harper era governments in total.

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The Kyoto Protocol on the United Nations Framework Convention on Climate Change (UNFCCC) was agreed to by 178 nations in December 1997. Canada did not ratify it until 2002 when the ­Chrétien Liberals undertook to reduce Canada’s greenhouse gas emissions by 6 per cent below its 1990 levels averaged over the 2008–12 period (Canada 2002; Schwanen 2000). Given weak and even non-existent actions that commitment, by 2005, amounted to a needed 26 per cent reduction Canada’s actual emissions had soared. As Daniel Schwanen emphasizes the core problem is how to achieve the reductions: Unfortunately, the Kyoto targets were set without reference to the cost of meeting them (or of their potential benefits relative to those of following alternative scenarios of emissions reductions and time frames). Considering how far Canada is from reaching its Kyoto target, and how closely the emissions of the principal GHGs (green house gasses) resulting from human activity are linked with the growth and type of economic activity the country has typically enjoyed, a serious attempt at meeting the commitment within a given timetable would likely involve significant changes in the economy and even in Canadian lifestyles. (Schwanen 2000, 1) The short-lived Martin Liberal government did little in the ­ 004–06 period; and, from 2006 on, the Harper Conservatives with 2 their Alberta power base have not found it particularly difficult to give little priority to the climate change file. Following the December 2009 Copenhagen Climate Change (post-Kyoto) conference where Prime Minister Stephen Harper kept a low profile and assigned his Environment Minister, Jim Prentice, to do most of the difficult and embarrassing talking, Canada announced what its new targets on cuts to greenhouse emissions were going to be. These reductions will be 17 per cent from 2005 levels by 2020, and replaced the older Harper government targets announced in 2007, which were to reduce emissions by 20 per cent from 2006 levels (Galloway and Vanderklippe 2010). At the 2011 Durban Climate Change Conference, Canada maintained its basic strategy and only after the conference did the Harper government announce that it was pulling out of the Kyoto Protocol. It suffered little or no adverse political impacts from this decision in the sense that it won a majority government



Energy, Climate Change, and Green Industry Crises 199

in the 2012 election, where none of the opposition parties made the environment or Kyoto an issue in the midst of the global and Canadian fiscal and banking crisis. The new Canadian emission reduction targets, now outside Kyoto, are intended to follow and fit within the Obama administration’s climate change emission reduction goals (both base year and targets) but without any guarantee that these would actually become US policy following Congressional debate and jockeying. This Harper government position had been fairly consistently presented and hence easily attracted the label of a “made in the US” climate change policy. Hence, if there was a crisis, it would be for the Canadian economy, if Canada did not harmonize its policies with those of its biggest market, the United States (Edlin and Goulder, 2007). In a real sense, Harper’s climate change minimalism ran counter to expressed Canadian public opinion which supported stronger action and targets but rarely using crisis discourse in any sustained way. The Harper Conservative view is underpinned by a desire to project Canada internationally as a global energy super power, to protect the national and regional economic engine of the Alberta oil sands, and to support its own Western Canadian political base even though it interspersed such support with periodic gentle comments that the oil sands had to be more environmentally responsible. Moreover, the Conservatives easily found political cover (and still arguably can now) by pointing out that the Chrétien and Martin Liberals’ climate change commitments to much deeper Kyoto Protocol emission reduction targets from 1990 levels had resulted in no reductions at all but rather were among the world’s worst emission increases ­(Rivers and Jaccard 2009). The 2010 Speech from the Throne (SFT) and budget speech revealed the hard tactical calculus on climate change. Climate change is the final item in the 2010 SFT and thus the Conservatives were virtually daring the Opposition parties and voters to think and vote differently than the Tories. But the SFT shifts a touch by saying that Canada aspires to be a “clean energy” superpower rather than an “energy” superpower, the language still preferred in the budget speech (Doern and Stoney 2010). In 2011, as we noted earlier, the government’s own National Roundtable on the Environment and Economy (NRTEE) again argued that Canada should proceed with a “made in Canada” climate change regulations approach rather than a de facto, made in

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the USA policy based on broadly harmonizing eventual US regulations (NRTEE 2011). If anything, Harper environmental policy as it relates to energy and climate change plays even more to an appeal to its core Alberta and western Canadian base. This was especially the case when Harper’s then newly-appointed Environment Minister, Peter Kent, as noted earlier in the chapter, went out of his way to assert explicitly that Canada was a source of “ethical oil.” In any event, as emphasized above, the Harper Conservatives won a majority government in the 2011 federal election with climate change barely registering in either partisan dispute or voter opinion (Stoney and Doern 2011). Green Industry Development as Mainly Non-Crisis Innovation Opportunities Green industry strategies and promotion through tax, spending, and regulatory policies typically relate to alternative and non-fossil fuel energy sources as discussed above. Greening can thus include wind, solar power, fuel cells, as well as hydro-electricity. Shades of greenness (or perhaps cleanness) extend to developing technologies and practices on biofuels and carbon sequestration. Such strategies can be direct and immediate, or involve phasing in steps and research and development funding. The federal government has been referring to this kind of green industry component for at least two decades and usually in the form of small initiatives. It has rarely been described in high profile ways because it is mainly a part of the softer non-regulatory incentive approach. But the Mulroney Government’s Green Plan of 1990 and later initiatives in the Chrétien, Martin, and Harper eras have sought green industry progress although, as with climate change, hardly ever in crisis language. Nor did their critics use such crisis discourse. Instead, policies and budgetary aspects were reframed. Steady progress was the stated and unstated objective, mixed with broad notions of innovation in a knowledge economy. Expectations were never raised too high rhetorically or in practice. The reasons for this can be found in the greater room for action by the provinces, but with limited progress there as well, and also by looking comparatively at successful green industry countries such as Germany. As we have seen, the provinces have direct energy jurisdiction and thus initial research shows that some provinces have promoted



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alternative energy sources and related green industries. However, as Lipp (2007) shows, the progress even here has been halting at best. Even where some seemingly aggressive wind power initiatives have been started, such as those by Ontario, the provincial government has stepped away from further support, partly for technical reasons and problems that had not yet been solved but also because of local protests at potential site locations (the classic “not in my back yard” or NIMBY problem). With regard to comparative understandings as to why Canada is a green industry laggard overall, the German federalist state comparator is of importance. Germany has seen an impressive expansion of renewable energy sources for electricity generation (Mez 2009). Germany is now the world leader in installed wind power capacity and ranks first in photovoltaics as well. This is due to effective public policy, the “positive discrimination” of alternative energy sources, under guaranteed feed-in tariff legislation that has worked as an effective incentive for investment. The federal government has the ambitious plan to raise the share of renewable sources in electricity generation to at least 20 per cent by 2020 (IEA 2007, 67–8). A host of factors that in Germany underpin a better overall green industry performance are absent or much weaker in Canada, such as the need to diversify supplies, geographical/ population density, environmental risk and awareness, advocacy, and the political strength of Green parties. Canadian underperformance is attributable to a series of political and policy factors: the lack of federal leadership and leverage opportunities (and activities) in the energy and environment field; the competitive disadvantage of environmental regulations for Canadian companies who compete on the US market; the focus of federal policy on oil, gas, or nuclear, to the detriment of alternative energy sources; and the general pro-market policy framework throughout the 1980s and 1990s, which was not conducive to government intervention in favour of renewables. In a nutshell, Canada’s favourable resource endowment is coupled with weak institutional capacity. Political fragmentation under Canadian federalism and the asymmetrical character of regional trade integration contribute to relative underperformance. Germany’s situation is the reverse of these two factors and its alternative energy and green industry profile and record is, therefore, much more robust and effective (Eberlein and Doern 2009).

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conclusions

This chapter has examined the green budgetary domain using our two-part analytical framework. The green budgetary domain shares some similarities with the microeconomic and industrial budgetary domain in that it, too, consists of a relatively small percentage of total federal spending and within that total tends to be sub-divided into an array of smallish and increasingly partnership-based programs. The green budgetary domain is also distinctive in the ways in which the role of, and resistance to, environmental taxes has occurred in the last two decades. And in an overall sense, battles over real or nominal regulatory budgets (mandated or threatened mandated spending imposed on firms and consumers) are even more crucial. Further differences quickly emerge as one considers each of the domain elements analyzed. The ideas, paradigms, and related discourse elements have been shown to be dense, complex, and multi-layered on both the energy/ resource and environmental sides and with respect to northern development and Aboriginal peoples. Energy/resource ideas are anchored around concerns for efficiency and price stability, sustainable resource use, and security of supply defined in terms of both reliability and also increasingly protection against terrorism. Major energy ideas in this domain extend to strong views about national unity and related burden-sharing, to Canada as energy superpower, and even to discourse presenting Canada as a supplier of ethical oil regarding the Alberta oil sands. Environmental ideas stretch across norms such as end-of-pipe cleanup, conservation, sustainable development, and the precautionary principle. Varied notions of green and clean thus percolate through this domain. Regarding private power as a green domain element, the configuration of business interests includes industries and firms which have been long-term traditional polluters in sectors such as oil and gas and minerals, and whose core instincts historically and at present are to lobby against robust environmental regulation. However, the nature of business power in the green domain has become more complex and nuanced; in part, at least, because business interests are more divided and differentiated. The private power realm occupied by NGOs has also become more complex. The instincts of non-­ governmental interests here are still for strong regulation although there is a greater understanding of other, more incentive-based



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approaches and cap and trade systems. Aboriginal peoples exercise more authority and influence but not a consistent one as it plays out at the interstices of environment, climate change, and northern development. Overall, it seems reasonable to conclude that oil, gas, and electricity business interests are still dominant in Canada’s green budgetary domain. The federal state’s main green domain departments are a part of this public-private power element, of course, and our look at their mandates reveals how they view the world and the crosscutting issues and expectations they are asked to address. NRCan is first a department for natural resources but it also has a sustainable development mandate. Environment Canada’s mandate is pro-environment and sustainable development but it is also under constant internal pressure both to respect commercial concerns and to mobilize them as they devise both spending and regulatory programs, and enforcement regimes. aand has complex and urgent tasks regarding Aboriginal peoples in fundamental social development ways but, in recent years, strong prime ministerial interest in an Arctic-centred northern and sovereignty-focused strategy has been the focus. The green domain spending and taxation element shows a revealing picture. On the spending side, as illustrated by the three main domain departments, the analysis has shown both initial cuts in the mid-1990s, then some gradual recovery, and in the Harper era, a burst of spending mainly regarding NRCan and aand but not Environment Canada. On the taxation side, underlying general business taxation and incentives have been maintained, while the uses of green taxes and tax shift ideas have not in the least found favour. Federalist and multi-level governance elements of the green domain are crucially different and arguably more conflictual than in the previously examined social budgetary domain and the microeconomic budgetary domain. Provincial jurisdiction is dominant in both the energy and resource fields due mainly to the provincial ownership of resources. Environmental jurisdiction is de facto jointly shared between federal and provincial governments in part because the environmental era began much later and was entered into by both levels of government. Arguably, environmental responsibilities also extend more significantly than energy into local government and new local/regional/spatial ecosystems and habitat areas. The international and global governance aspects of multi-level governance have without doubt become a more extensive part of

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the green domain, via trade agreements such as CUFTA and NAFTA, and through varied and typically pollution/emission-specific bilateral and international agreements. Our analysis of the types and nature of crises show that only the energy crisis, especially as it occurred in the 1980–83 period, was unambiguously of the short sharp shock type largely because of massive sudden increases in global oil prices. The public policy response to it, however, was seen as highly divisive and ultimately ineffective. Neither climate change policies and pressures nor pressures for green industries were cast by key interests as immediately crisis-like. Rather, for the post-crisis part they were cast as long-developing challenges and/or innovation opportunities. Indeed, in the Chrétien, Martin, and Harper eras, the responses to both were in different ways lowballed politically and recalibrated in terms of their underlying discourse in ways that supported broader economic, innovation, and business goals and interests.

8 Temporal Budgeting Varieties and Intergenerational and Demographic Crises introduction

In public budgeting, as in all other areas of life, time matters. “Money talks” and “time is money” are old maxims about wealth and power. Another is that politicians rarely look farther ahead on issues than their own next election (Lewis 2003). In this chapter, we explore some of the beliefs expressed in these statements, in part because current literature on the overall political economy and management of public budgeting does not probe these diverse temporal varieties and features of budgeting deeply or comprehensively enough. Indeed, in one sense, we invert the adages, and suggest that money is time and that politics can never escape the long run. We are interested in analyzing the ways that money talks in budgeting through the past, the present, and the multiple futures which invariably accompany governing and democracy. That time is not a self-evident and unitary resource, makes it a continual source of the politics of public budgeting. Our discussion in this chapter is structured around major varieties of temporal budgeting that range from annual versus multi-year budgets, to different conceptions of operational spending versus capital investments of distinct kinds (physical infrastructure, human, social and natural capital) and ultimately to intergenerational and demographic concepts of time and thus to diverse notions of who budgets are for and who will pay the taxes that underpin the fiscal state. The first and main part of the chapter examines some of the suggested approximate time periods and conceptions of budgetary time. This is followed by a brief analysis of two of the main temporal budgetary crises increasingly being discussed and tied to different intergenerational and

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demographic budgetary crises: the combined health care and health spending crisis; and, the education and daycare crises cast through both social and economic temporal lenses and values. The chapter draws on our account of the macroeconomic, fiscal policy, and structural fundamentalism arguments in Chapter 3 and the social, microeconomic, and green budgetary domains in Chapters 5, 6, and 7 where different notions of time have already been a part of the analytical story. It is hardly surprising that elected politicians feel pulled and pushed in different temporal directions. They are under constant pressure to spend more in the short run. Less appreciated is that many politicians have strong senses of obligation about longer-term issues and intergenerational needs or the avoidance of spending and taxing decisions that will harm longer-term economic and social development, often vaguely defined. Their senses of time are also governed by the existence of actual cycles that they know affect budgets, and how they perceive budgets. These include, as we see below, notions of electoral cycles, business cycles, political business cycles, and deficits and surpluses. Apparent, then, in any budget is time past, time at hand, and time yet to come. The actual temporal mixes and varieties are the stuff of economics and politics. Genuine arguments arise about the need to reduce the national debt to ensure that the next generation and voters not yet born are not burdened by excess spending or the self-serving spending of the dominant current generation. The Conservative Party and the earlier Reform and Canadian Alliance parties led this debate in the context of high deficits and growing debt in the 1980s, finding favour in other political parties as well with the Liberals in the 1990s being the governing party that actually reduced and eliminated the deficit. Also during this period, as shown earlier in the book, were provincial governments and leaders in provinces such as Alberta, Saskatchewan, Ontario, and Quebec. Once federal budgetary surpluses emerged again in 1998, for the first time in over two decades, the Chrétien-Martin and the Harper regimes committed to debt reduction as a part of their financial strategies. As a result, the national debt to be paid by current and future generations was reduced considerably in the last decade. Intergenerational budgetary issues also have arisen in discussions of the populous and relatively wealthy baby boomer generation now growing old and exercising grey power, but whose fiscal claims will be supported by the taxes of a less populous and more indebted



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post-boomer generation (Conference Board of Canada 2011). Some of the previous chapters’ discussion of “investment” spending also resonates in these terms as intergenerational spending and burdensharing. These include investment in child care, education, and caregiving regarding the elderly and other family and kin members. Concerns about intergenerational equity are expressed more now than thirty years ago. Time waits for no mandate. However, through policy choices and budgetary decisions, as through inertia, governments can “bend time” to better fit their political agenda and priorities. Governments in Canada do so when they decide whether to include multi-year forecasts in budget plans tabled in parliament; to extend an expenditure or tax benefit temporarily or permanently; to renew or alter a five year agreement and funding formula with the provinces/territories; or to terminate certain programs, abruptly or more gradually with advance notice. Time also raises issues about who are the budgetary guardians discussed in Chapter 4, but this time regarding the long-term future and even taxpayers and citizens not yet born. A study by the UK Office of Budgetary Responsibility (2011) produced a fiscal sustainability report that projected on some issues up to 2050. Canada has seen no similar audits or evaluations although several bodies are a part of a potentially growing array of such guardians of the longer-term fiscal world. These include the Parliamentary Budget Office, the Office of the Auditor General, the chief actuary in the Department of Finance regarding the Canada Pension Plan, Statistics Canada, and the Canadian Health Council. Some think tanks and policy institutes across the country are active and, internationally, so are the OECD, World Bank, and IMF. Indeed, a recent assessment of Canada’s overall pension system, public and private, was very laudatory regarding its longer-term efficacy and analytical and investment competence compared to other countries (Economist 2012a). The private ratings agencies that were severely criticized in the banking crisis and sovereign debt crises, yet whose role is still seen by many as important and necessary, are also active guardian players (Munchau 2011). c o n c e p t i o n s o f b u d g e ta ry t i m e

A mix of temporal cycles is a central element and dynamic function of public sector budgets. Each represents different temporal rhythms

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that influence budgetary debate and actions by fiscal authorities in Canada and in other countries. These cycles vary in the degree to which they can be precisely predicted or identified. The concept of time, we contend, is central for budgetary analysis and has not received the attention it deserves. The study of budgeting processes, decisions, and outcomes must consider the idea of time not only in the elementary sense that resource allocations occur over a period but also in recognizing that budgeting is relevant to temporal issues of policy change and continuity; intergovernmental transfer and tax collection agreements; and, public pension promises across generations. In addition, time is foundational to the conduct of social survey data collection, program evaluation, and performance measurement in cross-sectional and longitudinal dimensions. Political meanings of time are readily noticeable in discourses on wait-lists for health care of social services; on shovel-ready projects for rapid stimulus of a weak economy; on excessive delays over the approval of new drug products or resource development projects due to red tape. The idea of time, then, is essential to conceptualizing and understanding public budgeting. The dominant notion of time which underlies governmental and other public sector budgetary practices is the calendar year. A government budget is typically an annual event that covers the next fiscal year and perhaps a second and third year as well. Budget documents also include charts and tables displaying past trends in a range of economic and fiscal indicators. Mid-year corrective actions, often called mini-budgets, reinforce the belief that the annual budget is the norm in public finances and public policy. In this context, budgeting appears to be a continual procession of time marked by regular events. Behind this cycle, however, modern government budgets are complex phenomena that contain “multiple temporalities” at different levels (Scott 2011, 141). Budgets for overall government affairs, for functional policy fields like economic development, for individual cabinet portfolios, and for specific programs exhibit different paces or rates of change; and, now and then, they exhibit different directions of expansion, inaction, or contraction. Some program expenditures or tax measures have long histories with related political memories and persist far longer than do other budget items. And, practically by definition, major reform processes of the tax system or of government administration and service delivery occur



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only occasionally, perhaps once a decade or even less frequently ­(Hodgson 2012). Multiple temporalities are apparent in the diversity of eligibility periods, intended clientele groups, and the duration of benefits for programs. Federal budgets thus contain a sickness benefit time in the EI program; various old-age security times; registered retirement savings plan and registered retirement income funds time; child benefit time; student loan program time; energy retrofit program time; health transfer time between the federal and provincial/territorial governments; each with its own temporal rules and rhythms. Annual versus Multi-Year Budgets The best known concept and period of budgetary time is the annual budget, anchored as we have seen in the annual budget speech by the minister of finance and preceded by various forms and arenas of pre-budget consultation, think tank and academic analysis, and more speculative best guesses and advocacy by economic and social interests and by the media. But the annual Budget Speech as we discussed in Chapter 4 is also political theatre. It is one of the two or three main occasions available to a government when it can reveal and reinforce its main political values, priorities, and spending and tax agenda with maximum control of the event. Since governments always see themselves as being surrounded by a constant din of critics and voices, these theatrical events are highly valued. A core annual feature is the spending Estimates which are tabled, referred to parliamentary committees, partially scrutinized, and eventually approved. Spending is literally annual in the sense that every year most spending in the Estimates (A-base and new money) is approved. This is not the case on the tax side of the fiscal budget. Once approved, taxes remain in place beyond the year of their adoption until they are explicitly changed or ended. This core feature of budgets traces its origins back to the earliest development of British cabinet-parliamentary government and still underpin budgetary accountability and democracy in Canada’s adoption and adaptation of this power of the public purse system. While the annual budgetary documents contain other information that extend and describe departmental plans and priorities for a three-year period, it is annual spending that lies at the heart of the system.

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Multi-year budgeting systems also exist. For example, the British system still contains an annual budget speech but the expenditure decisions relate to a three-year budgetary period to allow for greater medium term fiscal planning and accountability. No such formal system exists in Canada, although aspects of such an approach certainly enter some internal and external public debate and scrutiny. Strictly annual budgets have not always been followed. For example, in the early 1980s, there were in reality two budgets per year (Doern 1983). This was mainly because inflation was so high and costing was so problematic that the federal government was forced to present a major changed budget half way through the fiscal year. Once inflation rates were steadied and then reduced budgets resumed their normal life as annual political-economic events and processes. Because of this experience and for other reasons as well, the federal government later began to present and publish autumn budget updates. This was mainly a reporting occasion about the state of the economy and the national finances but, as a precursor to the budget speech, it could and has been used to announce some planned changes or themes. For example, in the 2008 budget update, as per our discussion in Chapters 3 and 4, the Harper Government announced that it would end public financing of political parties, a decision which resulted in the three opposition parties threatening to defeat the minority government and to replace it with a coalition government. To head off this possibility, Prime Minister Harper prorogued parliament to discontinue that session of parliament without dissolving it, which would have triggered a general federal election at the time (Aucoin, Jarvis, and Turnbull 2011). As recent federal experience shows, annual budgets have a somewhat different texture in the context of majority versus minority government and the relative predictability of electoral periods. There are still budget speeches and the annual approval of Estimates but the inherent tactical content of budgets increases significantly in minority government, partly because the next election or the threatened next election is never that far off (federal general elections in 2000, 2004, 2006, 2008, and 2011) and partly because parliamentary committees are much more under the control of opposition party majorities. Overall, the reality of annual budget concepts and time periods is still crucial and necessary democratically. There is pressure,



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­ owever, for the greater presence of multi-year budgeting, albeit in h varied forms and with different degrees of difficulty and levels of agreement. There has also been criticism of federal annual budgetary accountability and transparency of information provision compared to other countries (Office of Parliamentary Budget Officer 2011a; 2011b). Electoral Cycles, Business Cycles, Political Business Cycles, Deficits, and Structural Fundamentalism in Budgets Electoral cycles refer of course to the scheduled holding of elections. Five years is the legal requirement in Canada but under majority government four years is the norm, although given that prime ministers can determine election timing, majority governments have held elections as early as after three years. On gaining power in 2006, Prime Minister Harper had a fixed election date law passed but then proceeded to ignore it and called an election in 2008. Electoral cycles in the US are always no more than two years off, given both presidential and congressional elections. The expectation and the reality of an election effects the content of budgets and certainly the discourse both regarding what is contained in an immediate preelection budget but also in an immediate post-election budget. Business cycles are periods where fluctuations occur in the economy as a whole, as firms invest in new technology and improved production plants and assets, or slow such investments as they pay down costs. Such cycles also involve decisions about inventories of supply and production components and also about the hiring or shedding of labour and staff. These cycles are by no means perfectly or predictably cyclical. Finance ministers often attempt to balance budgets within the cycle rather than annually. When there is slack in the economy new measures to stimulate may be announced but there are also automatic counter-cyclical or stabilization measures that kick in, such as unemployment insurance. And, as discussed in Chapter 2, when recessions or depressions occur, Keynesian forms of deeper stimulus may occur or be advocated. Other even longer business or technological cycles or waves are also part of the analysis of cycles. This is especially tied to so-called Schumpeterian kinds of change when new forms of “creative destruction” occur, anchored around new transformative technologies and firms and entire new product clusters and innovation.

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Political business cycles in effect link up electoral and business cycles and provide a broader but also a more tactical view of the political economy of budgeting. At its heart, such cycles refer to the efforts and practices of elected governments, especially to create economic growth just before and during elections, to garner voter support and electoral success. It can also suggest the way that governments might adopt more conservative economic policies after elections or between elections to demonstrate economic managerial competence. The comparative evidence or the lack of it, of the presence of such political business cycles is now at least thirty-five years old (Schultz 2009; Drazen 2000). Various particular theories of such behaviour were advocated that focussed on both opportunistic and partisan models “consistent with voters behaving rationally, both in forming expectations about future policy and in voting on the basis of those expectations” (Drazen 2000, 76). Summaries of the literature and of the empirical studies conclude that the evidence is, at best, mixed. Electoral effects on macroeconomic variables are certainly observed but there is “significant disagreement about whether there is opportunistic manipulation that can be observed in the macro data” (Drazen 2000, 76). In terms of theory, there are also criticisms of the implausibility of key assumptions, especially the assumption of seemingly irrational behaviour by the public. Nonetheless, political business cycle behaviour finds some favour in the conventional observation that voters at election time are somehow being bribed with their own money or that politicians are practicing some of the dark but quite normal arts of patronage and pork barrel politics, the fiscal slicing of pork to favour the governing party, or hoped-for gratitude by voters who might not yet be party supporters (Dutil and Park 2012; Stoney and Doern 2011; Pal 2011). Other authors also point to the need for more relevant understanding of the real “politics” of political business cycles. Schultz (1995) argues that existing models of the political business cycle “have misspecified the interests of their primary actors-the incumbent politicians. While these models assume that governments face similar incentives to manipulate the economy at each election, governments’ incentives can in fact vary from election to election depending on their political needs at the time” (Schultz 1995, 1). Wagner’s analysis of the linked financial crisis and deficits in recent German and US elections showed how issues of framing and c­ ompetency altered



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the economic vote. The 2011 Canadian election of a Harper majority government also bears out this kind of argument and evidence (Wagner 2011). Deficits can further refine the cycle and time scale as can structural fundamentalism budgets. As we have seen in Chapters 3 and 5, deficits can certainly be annual and short-term but the different temporal imperatives they impose arise when deficits are more entrenched and difficult to overcome. This was the case in the ­1980–95 period of severe federal deficits in Canada and also in the projected five to seven-year federal deficit period from 2008 to 2015 (Swimmer 1996; Stoney and Doern 2011; Crawford and Stewart 2011). Deficits link more often to the existence of structural fundamentals that last longer than one business cycle. Concepts of structural fundamentalism as discussed in Chapter 3 relate to the need to manage macroeconomic policy to meet the requirements for an optimally functioning economy. These concepts also take cognizance of longer-term health and demographic changes and demands on both the spending and taxing sides of the fiscal equation (Office of the Parliamentary Budget Officer 2010). The concept of structural budgets and time frames is also often criticized in practical terms because of the difficulty of precisely determining business cycles and hence even more complex and inexact cross-cycle periods and fiscal policies. Contingency Budgets and Surpluses Contingency as a budgetary and temporal concept is always present to some degree, the subject of different kinds of discourse as to what might be included in contingent situations and senses of time. In this section, we take note of contingency funds, budgetary surpluses, and efforts to develop a culture of continuous reallocation which would examine the A-base of the budget, so as to develop an annual sum of cuts and savings that could then be reallocated to new priorities. The federal government always has some kind of capacity for contingency funding in that if emergencies happen, it can seek supplementary estimates from parliament. During the Chrétien-Martin era, however, earmarked contingency funds became a key part of formal budgetary announcements (See Chapter 3). Such more transparent funds were presented as actions to ensure more prudent budgeting,

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estimated as a percentage of the federal budget (1 or 2 per cent) or simply on the basis of recent years practice. The Harper Conservative government’s suspicions caused it in its first five years not to establish a contingency fund but, in its 2011 budget, a contingency fund was announced, albeit without fanfare. This overall reluctance to have contingency funds was also perhaps because of the four-year full expenditure review process discussed below. Budgetary surpluses (planned or unplanned) also feature in the temporal and contingency debate and time period concepts. As we have seen, the Chrétien and Martin Liberal governments ran budgetary surpluses from 1998 to 2006 extending into the first two Harper government years. Surpluses were never announced as contingency funds but at the time, or in hindsight, they were interpreted as forms of fiscal prudence, or, borrowing from environmental discourse, a type of precautionary principle. The Conservatives in opposition during the Chrétien and Martin years instinctively argued that such surpluses were simply evidence of excessive taxation. In response to some of this political rhetoric, the Liberals eventually coupled their announced surpluses with a policy guideline under which one-third of the surplus would go to debt reduction (seen very much as good longer term economic budgeting), one-third to tax reductions, and one-third to new initiatives (Doern 2003). The Harper government in power fairly quickly gave up, willingly and unwillingly, the surpluses they had inherited. This was due to tax cuts and increased spending in both the pre-recession period from 2006 to 2008 and then during the recession deficit era from 2009 to present. Then it was the turn of the Liberals to argue that the Conservatives made the eventual huge deficits even worse for Canada because they had been cavalier about the need for surpluses in an uncertain world. Capital, Investment, and Infrastructure Budgets Public sector budgeting does not make viable accounting distinctions between capital versus operational spending the way that private companies do. Assets and related capital items are not costed or shown with annual depreciation allowances over their useful life (Auld 1985). Instead, they are typically shown as a once-only disbursement. While there clearly are difficulties in measuring public assets and in assigning depreciation and replacement capital costs,



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there can be little doubt that the basic method currently used significantly distorts not only the way deficits and surpluses are debated politically and economically, but also the way basic decisions may be viewed in government. Some decisions and kinds of spending may not be treated or analyzed as investment decisions, if they are all accounted for as if they were consumption or current expenditures. Clearly, capital budgets imply different time scales. Defence spending on army underwear and military salaries are quite different than the periodic acquisition of new jet aircraft, ships, and tanks every decade or two. Other kinds of physical/capital assets with an expected stream of benefits are easy to think of, including ports, bridges, highways, and airports (Gaudreault and Lemire 2003). These and related kinds of infrastructure funding extend further to hospitals, sporting and cultural facilities, and university research assets such as those funded in recent years by the federally-endowed Canada Foundation for Innovation (Lopreite and Murphy 2009). Large infrastructure initiatives have been commonplace in recent years both before the recent recession and of course during it as a part of the stimulus program and its veritable parade of “shovelready” projects. Infrastructure Canada was established even earlier to give emphasis to these variously defined capital and asset needs of Canadian cities and communities (Infrastructure Canada 2011). Not surprisingly, Infrastructure Canada and its ministers have been inclined to speak of their spending as “investments” rather than just spending. Federal bodies such as Statistics Canada have been examining and reporting on the state and nature of public infrastructure both with regard to its returns to the economy and contribution to production and also the age of public infrastructure and its needed replenishment and re-investment to build and increase its role as a productive asset (Conference Board of Canada 2010a; Statistics Canada 2005; Gaudreault and Lemire 2003). Conceptions of capital, the discourse of investments, and of long, asset-based time periods in budgetary politics extends well beyond physical capital, encompassing ideas of human capital, social capital, and natural or environmental capital. Each of these have entered governmental thinking to some extent, both because of the role of academic and think tank analysis and advocacy, and from within the federal government’s relevant departments and agencies. In each realm of these extended conceptions of capital, there is support for the underlying ideas but there are also definitional ambiguities and

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problems of measurement. And it is often difficult to detect whether such research and analysis is traceable in concrete spending and tax decisions or program innovation and structure. Human capital includes “the nutrition and stimuli received in the early years of life, formal education, and skills and knowledge acquired by work experience and knowledge” (Riddell 2008, 2). Investments in such capital (public and private) positively relate to future growth in Gross Domestic Product (Gu and Wong 2010) as well as to social benefits such as increased civic participation. There are, however, many choices regarding what investments to make at the margin in terms of the greatest social and economic return. Among these choices are greater investments in early childhood education. Social capital is, according to one definition, “the ways in which one’s social relationships provide access to needed information, resources, and supports” (Policy Research Initiative 2006). In the 2004–06 period, the federal government commissioned cross-­ governmental research and held consultations on this arguably even more difficult concept of capital. In its effort to use social capital as a lens for understanding the health of a community or civil society, this initiative found the concept difficult to operationalize for public policy and budgetary development – in part because of measurement problems and also differences when it was seen thematically across areas such as poverty reduction, healthy aging, community crime prevention, and the settlement of new immigrants to Canada (Policy Research Initiative 2006, 2). Natural capital is defined by one environmental NGO as “the sum of all of the resources and free services provided by nature” and thus it is normally “unaccounted for in traditional economics” (Pembina Institute 2011, 1). The climate change debate and negotiations and the advocacy of sustainable development as a policy paradigm are quintessentially about such kinds of capital and so are various overall concepts of resource stewardship. Federal environmental advisory bodies such as the National Roundtable on the Environment and Economy (NRTEE) have tied concepts of natural capital to much earlier notions of nature conservation (National Roundtable on the Environment and Economy 2003). NRTEE identified many barriers to the adoption of a natural capital concept including a failure to integrate the true costs and benefits of nature in federal decision making. Among its recommendations was the need for ­spatial



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c­oncepts such as “conservation planning for whole landscapes” (NRTEE 2003, 43). While the above notions of capital are increasingly discussed, capital financing also emerges in the increasing use of public-private partnerships (P3) in contract financing and budgeting for public sector capital assets. These projects for roads, schools, and other infrastructure involve complex and long-term contracts in which the private sector puts up some or all of the capital costs and then governments lease the facilities. Intricate notions of risk and liability if things go wrong are also a part of these long-term deals (Bordeleau 2012; Hubbard and Paquet 2007). Earmarked Funds and Liabilities Public finances always involve complex issues of trust in the funding of programs that are unambiguously long-term in nature. A significant success story in budgetary trust and innovation was the establishment in 1998 of the Canada Pension Plan (CPP) Investment Board. Created as a Crown Corporation by the Chrétien government and participating provincial governments, its mandate was to invest CPP savings in capital markets. Concerns had arisen in the mid-1990s about the sustainability of the CPP, which was taxpayerfunded on a pay-as-you-go basis. Provincial governments under the old system also had full access to CPP funds at preferential interest rates. The old system raised important issues of trust in the ability of current and future governments to maintain a viable pension system (Little 2008). The current recession has generated similar global and comparative concerns in several countries (The Economist 2011). The essence of the new system introduced by Finance Minister Paul Martin was to move from a pay-as-you-go system to one of partial funding (with higher initial taxpayer contribution rates). The CPP reserve fund invests in a portfolio of market securities to get higher returns. An independent and transparent Investment Board manages these investments (Prince 2003). Provincial governments would henceforth only get access to a portion of the reserve at market rates of interest. As a restructured accountability and investment instrument, the Canada Pension Plan Investment Board quickly produced a much more sustainable system for the national state pension plan. In 2011–12 the planned spending for the CPP is $32.6 billion against revenue from CPP contributions that year of $35.7

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billion and with an accumulated balance of $116 billion (Treasury Board 2010, 54). Like any investment fund, it has had varied rates of return on its equity investment (including losses in the current recession) but overall the CPP fund has grown much more rapidly than it would have as a pay-as-you-go system. It has established greater trust in a crucial long term issue of public finances that is, like the public debt, intergenerational (see further analysis below) in its very nature (Economist 2012a). In 2008, the Harper Conservatives adopted a similar arm’s-length approach to employment insurance funds (Canada 2008, 9). It established a Crown Corporation, the Canada Employment Insurance Financing Board, to provide a legislated basis that would ensure that EI premiums paid by Canadians are dedicated exclusively to the EI program and not to other purposes as had been done in the past. Other kinds of long-term federal financial liabilities are arguably not as reasonably conceived and accounted for. These include different types of loan and financial guarantees which underpin such programs as export development and farm credit and which also ultimately guarantee bank deposits and mortgages. Along with other budgetary items, these loan and financial guarantees are often simply but dangerously designated for accounting purposes as “off-budget” and, therefore, out of sight and out of mind. Limitations put on nuclear reactor safety liabilities are also de facto hidden and indeterminate liabilities of the federal and some provincial governments. Tax Expenditure Budgets and Tax Reform Tax expenditures are measures that “achieve policy objectives at the cost of lower tax revenue” (Finance Canada 2010, 9). Such measures can include low tax rates, exemptions, deductions, deferrals, and credits. Annual reports on tax expenditures have been published by the federal government since 1994 but they are given remarkably limited political or media attention. Moreover, as the most recent report stresses: To identify and estimate tax expenditures, it is necessary to establish a “benchmark” tax structure that applies the relevant tax rates to a broadly defined tax base – e.g. personal income, business income or consumption. Tax expenditures are then defined as deviations from this benchmark. Reasonable



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­ ifferences of opinion exist about what should be considered a d normal part of the tax system and hence about what should be considered a tax expenditure. (Ibid., 9) In temporal budgetary terms, the underlying dilemmas about tax expenditures arise from the regular annual dynamics of new tax expenditures announced each year compared to their cumulative build-up and effects on the tax system over the long term (Office of the Parliamentary Budget Officer 2011). A reading of budget speeches over the past forty years shows how easily they emerge and accumulate. New measures of this kind are typically smallish on an annual basis but become big over time in terms of lost revenues or in terms of who benefits cumulatively. They also make the tax system much more complex and lead to calls for tax simplification and broader tax reform. An initial short-term versus long-term rhythm of this kind began to emerge in the 1980s when debate about growing tax expenditures occurred. This issue centred on the growing number of deductions from taxation whose value to taxpayers increased with the wealth of such taxpayers and which, by the mid-1980s, was draining revenue from the federal purse and hence contributing to increased deficits (Maslove 1981). This reverse redistribution impact, from lower to higher-income groups also became a feature of the social budgetary domain (Rice and Prince 2000; 2013). Not much changed until the second Mulroney government period from 1988 to 1992, when two important changes on the tax side of the fiscal equation occurred. Following the lead of the conservative administrations of both Margaret Thatcher in the UK and Ronald Reagan in the US, the personal tax system was changed in a major way by reducing the number and level of marginal tax rates at different income levels (Doern 1990). This and related eliminations of some tax loopholes both simplified the personal tax system but also made it less progressive and less capable overall of redistributing income. Some increased progressivity did occur, however, due to the elimination of inflation indexing below three percent (Hale 2001). The second Mulroney change was the introduction of the Goods and Services Tax (GST). This also partly followed developments elsewhere particularly in response to the growing view among economists that it is better overall in the long term to tax what people take out of the economy when they purchase goods and services, than to

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tax what they put into the economy through their labour and entrepreneurial inventiveness (Maslove 1990). The GST was also adopted because of the need to replace a highly perverse Manufacturer’s Sales Tax, especially given the start-up of the Free Trade Agreement with the US which had no such sales tax. The GST had two main effects: one, fairly immediate and political; the other, more medium term and financial. As we noted earlier, it was initially extremely unpopular and seen as a tax grab which hurt the Tories eventually in the 1993 election. It also eventually contributed, along with other tax impacts as the economy grew, to the increased revenues and eventual budgetary surpluses in the later 1990s under the Chrétien-Martin Liberals (Hale 2001). The greater, explicit use of tax credits as opposed to tax deductions also began to be used. This enabled the distribution of income via government cheques directly to targeted groups and recipients from the tax collection agency Revenue Canada, now called the Canada Revenue Agency. Their greater use is also directly tied to the fact that, since 1977, at least 30 per cent of tax filers paid no net income tax. Under tax credits, Canadians could apply for such refundable credit payments at the revenue agency even if they did not have sufficient income to pay taxes and submit their own regular tax return. In short, they could enjoy the privacy of the tax or revenue system process rather than the more invasive processes of welfare benefit agencies and the latter’s means-test procedures. By the 1980s, the overall social welfare system had evolved into a mixture on the direct spending side of both universal and targeted programs. However the level of actual successful targeting to populations in need was less and less effective. Social groups themselves began to look at ways in which the tax system could be used to deliver targeted benefits and to lobby governments accordingly (Rice 1987; Rice and Prince 2000). Similar principles were also invoked in areas of business and industrial support on the economic side of the policy equation. As the innovation economy loomed larger in policy discourse and practice, federal policy makers in the 1990s had to devise new ways to get research and development (R&D) and science and technology (S&T) incentives into the hands of small business in Canada, through the SR&ED refundable tax credit (Doern 1995). However, as Chapter 6 on the microeconomic and industrial domain showed, twenty years later these and related R&D incentives have been roundly criticized (Expert Panel on R&D Support, 2011).



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By the 2011 election, five years of a Harper Conservative government had shown that a parade of new deductions and credits were producing what some called a tax “boutique” (Sand and ­Taylor 2011). The tax expenditure store window was now filled with an array of items for caregivers, children’s fitness, public transit, textbooks, volunteer fire fighters, and the like. None were unworthy when looked at one tax gesture at a time in a short-term context. They, and many similar Liberal Party agenda proposals in the 2011 election program, each allowed short-term, small announceable gestures to particular groups or to “families” in the aggregate (Stoney and Doern 2011). But again, cumulatively, since the last tax expenditure debate of the late 1980s and early 1990s, they were creating an ever more complex tax system that cried out for another round of tax reform to change a system that no one had deliberately designed or thought through in a comprehensive manner for the longer term. Not surprisingly, new, strong advocacy of the need for comprehensive tax reform has emerged from think tanks with reform arguments zeroing in on how the tax system “has been stripped of the basic principles of efficiency, neutrality, and transparency due to myriad changes that have been added over the past two decades without regard to how the entire tax system is functioning” ­(Hodgson 2012, 1). Generational Budgets and Demographics Generational budgets and related population demographics are fundamental temporal realities in fiscal budgets. In generational terms, they “involve redistributing resources across generations and allocating to particular generations the burden of paying the government’s bills” (Kotikoff 2002, 1873). Such budgets have several understandable but also misleading characteristics where time can mean periods of approximately twenty years for one generation and twenty for another (the preceding or the following generation). These characteristics can reveal: differences between statutory and true fiscal incidence; the arbitrary nature of fiscal labels; and its frequent zerosum nature. Demographic data regarding population changes and birth, death, and age composition obviously underpin these generational features and allow them to be partly defined and predicted. On the compelling nature and role of the “baby boom” generation born between

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1946 and 1966, demographer David Foot noted: “This is the group that has driven much of Canada’s public and private sector policy over the past twenty to thirty years and will continue to do so in the years ahead. For example, it is this group that currently is driving the booming housing market” (Foot 1990, 27). Foot went on to discuss the subsequent “baby bust” generation, born between 1966 and 1980 and the “echo generation” of the 1980s who are the children of baby boomers. Canada’s fertility rate peaked in 1960 at around four children per family, but by 1990 was 1.67 per family and falling and hence below the level of 2.1 needed to replace the parents (Foot 1990, 29). The baby boomers moved like a juggernaut through time and affected budgets for education, job creation, health care, and any number of other policy fields and budgetary domains. Today, boomers constitute the growing size of the aged and hence affect pensions, health care, and home and elderly care policies and budgets (Conference Board of Canada 2011). They are by far the richest and longest-living aged generation in Canadian history. Parts of an even later generation, often labelled as “Generation X” are much smaller in numbers (and votes) but will somehow have to pay for both the needs of their grandparents and parents and themselves and their children. Foot and others have been commenting on and predicting this kind of intergenerational equity debate as the twentyfirst century ended its first decade (Foot and Venne 2005; Foot 2007; Ragan 2010). While the temptation to see these generational-demographic changes in terms of social policy is obvious, Ragan argues convincingly that population aging over the next few decades will mean “a much greater need for enhanced productivity growth, if we are to maintain our past growth in living standards” (Ragan 2010, 72). The 2012 Drummond Report on Ontario’s public services also stressed these economic dimensions alongside the social realities of the severe cuts it proposed, as well as the need for new investments (Commission on the Reform of Ontario’s Public Services 2012, Chapter 1). There are certainly other demographic policy and budgetary implications that span economic and social spheres, including immigration policy (Bradford and Andrew 2011) and population and immigration change implications for energy use, conservation, and responses to climate change and GHG emission reductions (Rivers and ­Jaccard 2009). Debates about these changes were re-triggered early in 2012 when Statistics Canada published some of its initial data and



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f­ indings based on the 2011 census (Statistics Canada 2012). It variously showed major population shifts towards Western Canada with both economic and political impacts and also changes in Canada’s family structure, and patterns and locations of new immigrants in a fast-changing Canadian human portrait. Canadian budgeting and policy, in addition, has to take cognizance of demographic futures globally, both population growth and decline. As Eberstadt (2010) argues, “for today’s affluent Western economies, the coming demographic challenge of stagnant and aging populations combined with mounting health and pension claims on a shrinking pool of prospective workers is already generating concern, especially in Europe and Japan” (Eberstadt 2010, 54). Interestingly, and significantly for Canada, Eberstadt stresses how Canada’s biggest export market, the United States, is among western OECD countries the “demographic exception” because the American population, through births and particularly immigration, is projected to grow by 20 per cent between 2010 and 2030. Canada also has high population growth projections as well, particularly due to high rates of immigration. g r a d u a l i n t e r g e n e r at i o n a l a n d d e m o g r a p h i c c h a n g e and crisis claims, discourse, and policy reframing

In our discussion throughout the book both in the three budgetary domain chapters and in our conceptualization of six crisis types and features, it is obvious that time is a quintessential part of the analytical approach and the actual budgetary challenges. Short, sharp shocks as crises tend to be of the one-year to five-year temporal period as in the industrial crises sampled in Chapter 6. But, as Chapter 5 showed, they can also be overwhelmingly an every day, every month reality for the sense of crises in social and economic terms for some persons compared to others. We have also seen longerdeveloping temporal features in the crises examined in Chapters 6 and 7 regarding innovation and productivity and climate change. Notions of intergenerational and demographic crises and related policy reframing issues, strategies and discourse also take on many shapes, sizes, and interpretations and can affect diversely defined parts of the population, including those not yet born. They affect not only who benefits and who pays but also the roles of communities, families, charities, the private sector, and the public sector in ­meeting

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changing needs and modes of delivery. Our analysis above and in previous chapters has referred to some of these dimensions. Mostly they are of the long emerging and even predictable kind where populations create and wield new and serious kinds of political power that leads to the adoption of some fiscal measures and the continuous postponement of others depending in part on the structure and values of political parties and also which demographic groups vote and which stay away or rely on non-electoral or between-elections political strategies, advocacy, and pressure. In this section, we take note of two argued crises of the intergenerational and demographic kind: the combined health care and health spending crisis; and the education and daycare crisis cast through both social and economic lenses and values. The Combined Health Care and Health Spending Crisis The health care parts of this crisis arise from the evident aging of the population set in a bio-medical revolution where diseases seem increasingly manageable, curable, and preventable through both general and personalized medicine. The essence of Canadian universal medicare as a public system viewed as a right of citizenship or residency, free at the point of service, but now buoyed by the demands of a large aging population (aging baby boomers) is that it is generating demands for ever increasing proportions of federal funds but even more so of provincial government budgets. Thus, the crisis can be cast first as a crisis of heath care and its quality and costs. From a broader population health perspective, it immediately can be and is cast as a crisis of other key fields of public policy such as housing, income security, or education, hence the links to the second crisis profiled briefly below. If public spending or tax breaks go to health care, there is simply less and less money available for other key needs/investments. For provincial governments this may especially be the case for education of all kinds: daycare, primary, secondary, and higher education, the second-largest element in provincial budgets. Numerous studies have expressed the crisis in the above manner both recently and across the last decade (Conference Board of Canada 2011; Canadian Institute of Health Information 2010; R ­ obson 2001; Romanow 2002). Historian Michael Bliss has recently referred to the Canadian health care system as being in “critical condition”



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(Bliss 2010) and the previously mentioned Dodge and Dion (2011) study (David Dodge being the former Governor of the Bank of Canada) referred to the crisis as “chronic health care spending disease.” Meanwhile, none of the federal political party leaders in the 2011 federal election or in the run-up to it in a recession/deficit era was prepared to cast it as a crisis in either of these two kinds of linked ways (Bhatia 2011). In part, political leaders also saw health care as both a national unity issue and by extension, the needed avoidance of anything that might look like private US health care or even other kinds of countries’ health care that were mainly public systems but with some private components (Simpson 2011). On the other hand, intergenerational causes such as a growing aged population are also challenged and seen as very misleading by those who see rising health care costs as being caused by other factors and dynamics. Chappell and Hollander (2011) argue that an aging population will have a much less significant impact on health care costs because of the greater importance of technology and increased service provision to people of all ages. They advocate accordingly that cost savings can be achieved by a more integrated organization and delivery of health services and that one should not blame the elderly for such costs or cost projections. In a similar manner, others have agreed that population aging per se contributes only a small average annual increase in costs of less than one percent and the growing intensive nature of health care is more to blame, as are the failure to tackle drug costs, the fastest growing segment of health care spending (Gagnon 2012; Belluz 2012). The Education and Daycare Crises If one’s entry point for generational and demographic crises starts with the education and daycare fiscal issues, then the political and economic narrative takes on quite different kinds of values and population/voter interests and capacities to exercise power in fiscal matters. With respect to childcare policy and spending, the demographics involve both women and children but also families where increasingly both parents or single parents work. The spending arguments also relate to the value at the margin, both for society and the economy, of investing in early childhood education (Ragan 2010). When cast and debated as education at later levels of higher education (universities, community colleges, polytechnics) potential crises

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are cast both in terms of who benefits and who pays generationally and among groups. Higher education spending, for example, can be seen as being squeezed by provincial budgets, which are in turn being squeezed by the health care spending/demographic juggernaut. At the federal level, aspects of higher education spending or tax breaks are squeezed by federal preferences to fund higher education research rather than teaching (Tupper 2009; Doern and Stoney 2009). Also, woven into the above crisis story and its varied narrative discourse is the issue of tuition fees seen intergenerationally. The baby boomers went to university aided by comparatively low tuition fees paid for in some fashion by taxpayers whose sons and daughters did not or could not go to university. Low fees were also accompanied by the argument that higher education is essentially and mainly a public good (a public human capital asset). In the last decade, as the baby boomer generation ages, low tuition fees are no longer deemed to be affordable and the discourse shifts to higher education being a private good/benefit, or at least more so than in the 1970s and 1980s. On the higher education research front, higher federal spending since 1997 has been justified on rationales tied to innovation, the fostering of a knowledge economy, and even, though less frequently, to productivity and next-generation benefits but also to preventing brain drain and fostering “brain gain” in the face of global competition (Doern and Stoney 2009). conclusions

The current literature on the overall political economy and management of public budgeting does not probe the diverse temporal features of budgeting deeply or comprehensively enough. Hence the purpose of this chapter, in concert with examples from our earlier budgetary domain chapters, has been to explore various notions of temporal budgeting that range from annual versus multi-year budgets, to different conceptions of operational spending versus capital investments of distinct kinds (physical infrastructure, human, social, and natural capital) and to intergenerational and demographic concepts of time that underpin the fiscal state. Time and money are what make a budget tick. Government budgeting involves the authoritative allotment of different portions and amounts of time in relation to multiple policy purposes



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and ­myriad public activities. Given the incremental nature of much budgeting still, the annual budget is akin to a time capsule of past political fashions, old objects of expenditures, and tax commitments. Groups that the media call “losers” in yearly budgetary speeches and plans mean not only the absence of funds for their claims but also that government has no time for them. Temporal budgeting is defined by different ideas about time and periods of time that range from annual versus multi-year budgets, to different conceptions of operational spending versus capital investments, and ultimately to intergenerational and demographic concepts of time; all ultimately entailing diverse notions of who budgets are for and who will pay. Overall, a federal budget is like a timeshare: an official arrangement with different time periods agreed upon for an array of activities and clients. The chapter has shown that it is not surprising that elected politicians feel pulled and pushed in different temporal directions, given that they are under relentless pressure to spend more in the short run but also often have strong senses of obligation about long-term and generational needs or the avoidance of spending and taxing decisions that will harm longerterm economic and social development. We have suggested that politicians’ senses of time are also governed by the existence of actual cycles that they know affect budgets and how they perceive budgets. These include electoral cycles, business cycles, political business cycles, deficits, and surpluses. Our analysis shows that conceptions of capital and investments in budgetary politics has been extended well beyond physical capital and now extends, albeit precariously, to human capital, social capital, and natural capital. In each of these extended conceptions of capital, there is support for the underlying ideas but there are also definitional ambiguities and problems of measurement. And it is often difficult to detect whether such research and analysis is traceable in concrete spending and tax decisions, or program innovation and structure. Our findings further reveal temporal budgetary dilemmas regard­ ing tax expenditures and tax reform. These dilemmas arise from the regular annual dynamics of new tax expenditures announced each year compared to their cumulative build-up and effects on the tax system over the long term. They also make the tax system much more complex and lead to calls for tax simplification and broader tax reform, which may or may not be achieved even once a generation.

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Generational budgets and related population demographics are fundamental to fiscal budgets. Such budgets have several understandable yet also misleading characteristics where time can mean very different defined periods and can produce differences between statutory and true underlying kinds of fiscal impacts, socially and economically. They can also produce quite arbitrary and misleading fiscal discourse and labels and also can disguise or reveal zero-sum politics of a very important nature for current and future voters. Our analysis of two intergenerational and demographic crises, the combined health care and health spending crisis; and the education and daycare crisis, show that such crises are mainly of the slowdeveloping kind and can take on many shapes, sizes, and forms and levels of policy recognition and crisis and non-crisis policy reframing discourse. Moreover, they affect diversely defined parts of the population with vastly different kinds of short and longer-term voting and other kinds of political power.

9 Budgetary Domains, Crises, Temporal Varieties, and Democratic Reforms

introduction

The core academic focus and contribution of Canadian Public Budgeting in the Age of Crises has been three-fold in nature. First, scholars and students of public budgeting need a more complete and deeper understanding of budgetary domains and their five elements that the first part of our dual analytical framework provides. Second, they require a clearer way of thinking about and defining and analyzing budgetary crises in an age of crises, hence our framework’s second component which sets out relevant definitions and analytical features. Third, we have sought to provide greater academic and applied focus on temporal budgeting ranging from annual to intergenerational notions of budgetary and socio-economic time. Though we focused mainly on the federal government, we also examined federal-provincial and particular provincial fiscal issues and debates, both as one of the budgetary domain elements and in other illustrative ways as well. These academic conceptual focal points, analytically and empirically are important in assessing the pivotal 2008–12 budgetary, banking, and sovereign debt crisis events that have provided a necessary practical starting point. They are also crucial in taking a more embedded historical examination of Canadian budgeting and its democratic governance and how they have evolved in normal times and in crisis periods over the past thirty years of the Mulroney, Chrétien-Martin, and Harper government eras. The concept of budgetary domains compels us to look across multiple departmental clusters of government that coexist, cooperating and competing within each domain and in multiple political-­

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economic structures of power, policy, choice, inertia, and governance. As we have seen, a department can logically belong to more than one budgetary domain. More specifically, a budgetary domain has been analyzed in terms of five elements, namely: ideas, discourses and agendas; systems of public and private power; multi-­departmental/ agency governance institutions at the federal level; bundles of spending and taxation and related governing instruments with private spending impacts; and mixtures of federalism and multi-level and multi-scale governance (federal, provincial/territorial, Aboriginal, city/local, regional/spatial). The crises we have examined within and across domains are varied and include those of the short sharp shock type, the everyday month to month crises of some Canadians versus others, and longer, slower-developing crises as they each compete for political and economic attention, resources, and the arts of both analysis and the framing and reframing of political discourse plus problem solving and issue management. Public budgeting in a time of crisis of the recent and current short sharp shock variety are coupled with social turmoil for workers, families, communities, and even entire provinces or regions. Budgeting in shock crisis periods is accompanied by debates over the efficacy of existing policy objectives and policy approaches or paradigms to managing the economy, the environment, and civil society. The balance of ideological beliefs can shift, as say, from social liberalism toward fiscal conservatism and/or from active federal leadership toward robust provincialism. Substantial changes often occur as we have seen with respect to policy instrument choices and overall instrument mixes in various budgetary domains of governing. Particular programs and agencies may come under severe pressure due to fiscal austerity measures. Crises in budgetary domains such as those on productivity, innovation, poverty, inequality, climate change, and particular industries, green or otherwise are far from being watertight categories. Some are easily seen as being structural in nature and centred on getting the socio-economic fundamentals right; others, particularly in the social and green domain, may not gain such structural attention or are shifted down or out of sight in changing agendas and prioritysetting occasions of governments. We have thus anchored our analysis in the key changes in macroeconomic policy. These changes have seen the emergence of structural fundamentalism as a policy paradigm increasingly colliding



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with both traditional stabilization objectives and political expectations that governments will intervene when needed to deal with job losses and inflation. The analysis has raised questions overall about past eras, the near-term future, and about longer-term issues, including those on intergenerational budgetary democracy and governance. Budgets, as we have examined in Chapter 8 and illustrated throughout this book, are also temporal in nature and construction. They contain monthly, quarterly, annual and multi-year plans, commitments, resource flows, accounting periods and auditing reports. Public budgeting functions throughout electoral cycles (fixed by legislation across several Canadian jurisdictions) and business cycles, over the life cycles of individuals and families, and across various generations in domestic and international societies. Budgeting and policy-making are not just about what a government wants to do around immediate circumstances and the medium-term future. These processes, understood as democratic and governance regime activities, are also about how much of the recent past (for example, programs introduced by a previous government) and of the cumulative past (for example, intergovernmental agreements on postsecondary education funding) that a government wants to retain, replace, or to remove altogether. Public budgeting crucially involves annual and periodic decisions about new money. That is, new b-budget spending and new revenue measures made annually which, therefore, are the most visible and hence contentious. As we have seen, much the largest bulk of public budgeting involves existing spending and taxes, the more than 95 per cent ongoing a-base of the public purse, composed of decisions made by the current and previous governments, and sustained by democratic support, institutional inertia, and the power of the status quo. It is also an area of public policy where an expressly high-profile agenda-setting occasion, the annual budget and budget speech, attracts intense political, partisan, economic, interest group, and media attention as does the often formal run-up consultation, reporting, and political spin stages to a budget speech. Canadian Public Budgeting in the Age of Crises has developed and used the author’s analytical framework to help address five central questions. The first was what were the causes and consequences of the 2008–12 budgetary, banking, and sovereign debt crisis for Canada, seen in a global and North American context and in the context of changing macroeconomic policy? Secondly, how do these causes

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and consequences play out in each budgetary domain and why are particular budgetary domain issues and impacts important and likely to be different? Thirdly, what types of crises exist within and partly across these domains and what is Canada’s democratic, budgetary, and policy capacity to deal with them? Fourth, how do the temporal varieties of public budgeting impact on budgetary institutions and decision processes? And, finally, how does Canada’s system of public budgetary governance need to change to deal democratically with budgeting in an age of crises and in relation to diverse contending criteria of, and time frames for, taxing and spending in a democracy? k e y a r g u m e n t s a n d r e l at e d e x p l a n at i o n s o f b u d g e ta ry governance, power, and democracy

Several main arguments have been advanced. We draw out those arguments in a final concluding way as well as their links to related explanations of changes in budgetary governance and democracy and to our central questions. Canada Cannot Escape the Budgetary Crisis in an Age of Crises Our first overall argument has been that the current budgetary, banking, and sovereign debt crisis is located in a larger age of crises. Accordingly, Canadian politicians and voters badly miss the point, if they think that Canada is immune to the crisis besetting other nations, or that in any case the crisis is about to end in the next few years as, or if, the federal budget returns to balance. The twin issues of both budgetary vigilance and global sovereign debt, as well as the ongoing challenges of banking regulation and the systemic risk still in that system are not going to disappear any time soon. Nor are the varied types of budgetary crises we have identified likely to result in some kind of serene budgetary peace and tranquility for Canada at the federal and at the provincial and local levels of government and politics. The serious United States fiscal and sovereign debt crisis has huge implications for Canada not only because the US is Canada’s biggest market but also because of actual or potential contagion effects in global markets. Combinations of sovereign debt and fiscal crises in groups of EU and eurozone countries are also dangerous for Canada.



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The 2008–12 Budgetary, Banking, and Sovereign Debt Crisis For Canada, the budgetary crisis beginning in the 2008–12 period was mainly an externally-driven crisis centred in the United States and its banking and housing/mortgage collapse, and resulting bailouts and deficit surges. Canada avoided the worst of these initial impacts from its biggest market partly through past, mainly Liberal, policies that, through design or default, yielded more secure banking and housing practices. Yet Canada still needed to incur a huge $56 billion fiscal deficit and had to launch a major $62 billion stimulus program because of the massive US and global recession. The degree of adverse impacts on Canada were also initially exacerbated by federal policy in the Harper Conservative era which saw an inherited $13 billion fiscal surplus depleted by dubious short-term tax and spending measures, by a failure to even acknowledge the recession already evident in 2008 before and during the election that year, and by the practice of dysfunctional partisan politics that led it to close down parliament twice to avoid accountability for its fiscal incompetence in these early key stages. Minority government did not help in these difficult circumstances and thus, as the book shows, larger issues of failed multi-political party democracy are clearly a key part of the story. The Harper government handled the 2009–11 stimulus program quite reasonably given its recession recovery purposes and the federal-­provincial coordination needed. It also, as we have seen, did not overplay the partisan political benefits from the distribution of money and projects across the country. Not all projects were by any means ideal economically and some also required provincial and/or local government partnered funding by governments already strapped for cash. However, because the fiscal crisis was increasingly seen by voters as mainly an externally caused event, Canadians gave Harper the benefit of any doubts, with many voting to give him his long-sought majority government in the 2011 election, based mainly on Harper’s overall perceived economic management competence for the stimulus phase of the crisis. The further budgetary cuts needed to reduce the budget deficit and restore fiscal balance were also sufficiently postponed and kept oblique until after the successful 2011 majority government electoral victory.

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The Need for Budgetary Domain Concepts and Analysis These initial instances of policy and political dysfunction and then relative success reveal larger failures, dilemmas, and gaps whose origins and solutions go well beyond the current government and certainly beyond any one political party or cluster of business or social interests. It is for this reason, conceptually and empirically, that budgetary domains and their five elements, as provided in this book, are essential to understanding public budgeting in the current age. While one needs to anchor budgeting in spending and taxation decisions, the budgetary domain framework elements show that actual budgeting choices and trends can scarcely be understood unless the other four domain elements are also fully taken into account in the political economy of budgeting. Each of the domain chapters reveals ideas, discourse, and agendas that are increasingly complex. New reform ideas certainly emerge across the thirty-year period but new ideas do not necessarily replace older ones. Rather, some are layered beside or on top of them in often intricate old and new program structures. The microeconomic and industrial domain showed this regarding its mix of ideas that range from industrial policy to free trade but also from old and new forms of regional development policy and local innovation clusters. The social domain revealed an intricate competition among ideas such as lessening inequality, reducing poverty, securing fair access to education, and ensuring better care for the elderly and for disabled Canadians. Both within and across the domains examined, the structure and shifting configurations of public versus private power are diverse. Business power is prevalent and dominant throughout. Within domains public and private power takes on different forms via both business lobbies and via key corporations with lobbying power of their own. This element shows that they interact with different federal departments that have the primary but rarely the only mandate powers. The green domain includes a somewhat greater sectoral array of private power interests centred on energy and resource industries and their subsectors and regional presence. Newly forming green industries have a growing though still highly tentative foothold. With respect to multi-departmental/agency governance institutions our budgetary domain analysis shows, even with our selected



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set of case-study departments within each domain, key budgetary battles over time and over both new money and A-base spending. They also reveal cooperative approaches and also competitive and conflictual mandate boundary battles. The current spending decision process still tends to focus on single departments as ministers seek to gain new money and protect existing budgets but explanations of change or the inertia of the status quo need a multi-departmental focus within domains as well. Some of this domain behaviour shows up in Ottawa’s overall set of cabinet committees as discussed in Chapter 4, while much of it is direct department-to-department in nature. The spending and tax mix as a domain element reveals both expected and unexpected features in each domain. The analysis of the social budgetary domain certainly reveals the central reality that its spending consists of mainly a few very large programs (redistributive and distributive) seen as transfer entitlements often regarded as being difficult to change but which as we have seen in Chapter 3 can and have been changed in crisis and normal times. In contrast, the microeconomic and industrial budgetary domain contains much smaller amounts of money in total and also, within the domain, it contains numerous smaller programs that can be changed more readily on an annual or medium-term basis. The final domain element of federalism and multi-level and multiscale governance reveals different key institutional and p ­ olitical imperatives and dynamics in each budgetary domain. Again, the social budgetary domain is the one most embedded in federalist policy, politics, and in harder to fundamentally change agreements at the centre of the confederation bargain. The microeconomic and industrial budgetary domain also embraces multi-level content and contexts for the six formal regional development agencies and for embedded regional/spatial features inherently in key federal departmental mandates such as Industry Canada, Natural Resources Canada, and Transport Canada. The book has not encompassed all of the domains that compose the modern public budget. For example, we did not cover budgetary domains such as foreign and defence spending or government procurement spending, although we referred to them contextually. But the budgetary domains we do explore add up to a very large part of public budgeting whose own internal logics, values, economics, politics, and tax and spending governance is too often lost in the

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intricacy of the system overall, all the more so, in an era of soundbite politics and noisy partisanship. We argue that each budgetary domain and its constituent elements as defined, needs to be better understood on its own terms and in relation to its own crises, realities, choices, and inertia. The Types and Nature of Budgetary Crises in an Age of Crises The current budgetary crisis of governments and political communities is located in a larger age of crises. Employing the concept of “an age of crises” raises the question of what does budgeting look like in this age. At a time of multiple and simultaneous crises, how do policy ideas, governance structures and processes, and budgetary outcomes differ from more stable times? As a central element of politics, economics, and management, what is public budgeting becoming? In an age of crises, is discontinuity and transformational change the new normal in public budgeting and making policy? Has the atypical become the typical; the unusual the expected? And, how can we understand changes and, for that matter, continuities in spending patterns, taxation levels, policy mixes, and program details in this age of shocks and upheavals? The nature of crises may well be best known and analyzed as sudden, short-term unexpected and intense shocks. However, it needs to be complemented by an appreciation of crises of the everyday nature faced by some Canadians compared to others and also other crucial slower-moving or more slowly recognized crises where budgetary governance and larger political forces by design reframe or sublimate crucial policy and socio-economic problems and their possible solutions as ongoing challenges of a complex nature. This redirection or diversion is a central characteristic of the power structure and politics of Canadian public budgeting and of budgeting in other countries. In this respect, crises can be an overused form of discourse. Fiscal problems can be reframed to nudge them lower down the national agenda or simply to postpone them for another day and even another government or generation of taxpayers. Our analysis overall brings out varied crises, real or reframed, and directly addressed, coped with rhetorically, or postponed. The discussion of the macroeconomic policy shifts in Chapter 3 focused on the interplay between traditional cyclical macro crises and balanced budgets and larger overall crises with structural budgets defined in



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relation to what government revenues and expenditure would be and should be if economic output was at its potential level. These involve analysis, pressures and forces that go well beyond normal business cycles and cannot be dealt with in the same macroeconomic way. These were shown as a strong underlying shift towards ideas regarding structural fundamentalism, in short, to “getting the fundamentals right.” However, despite the long-term movement away from Keynesian stabilization approaches, governments are now still expected to assume responsibility for unemployment and inflation. Paradoxically, during the eight years of the Mulroney government era, although relatively little was done about the huge fiscal deficit, the Conservatives did launch quite successful structural reforms that helped with longer-term economic performance. These included tax reform, free trade, and some aspects of deregulation. The Chrétien Liberal government took office in 1993 and Paul Martin as minister of finance took decisive action to eliminate the federal deficit and move to fiscal surpluses, but only and mainly after quite brutal cuts in health and social transfer payments to the provinces. The Harper stimulus program was certainly seen as urgent and needed as were responses by most G20 countries. Crisis discourse by the Harper Conservatives tended to refer to what would happen if the supposed high spending and taxing Liberals (and an NDP and Bloc) “coalition” ever gained office. Indeed, coalition government was itself portrayed by Harper as a crisis in the making for democratic legitimacy and economic stability. Social budgetary domain analysis in combination with our close look at temporal budgeting, including intergenerational budgeting, brings out crises in varied forms. Crises can be seen and advocated as such by groups and populations affected by different kinds of inequality and poverty, and therefore with spending and taxation involving redistributive versus distributive measures. The social budgetary domain confronts an array of old and new risks, needs, and demands arising from changes in family structures, labour markets, population trends, public expectations, and gaps in existing policies. In Canada as well as in many other advanced capitalist democracies, these socio-economic risks encompass work-family life strains, family instability, precarious employment, low-skilled workers, long-term unemployment, the working and welfare poor, elder neglect and abuse, and people with disabilities and other conditions who are uninsured or have insufficient coverage for meeting

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basic contingencies and needs of everyday living. Sharp increases in income inequality among Canadian households over the past fifteen years or so call into question the effectiveness of market-based earnings as well as the tax-transfer system of federal and provincial governments. Persistent and widening inequalities also call into question public beliefs and political rhetoric about social citizenship and Canada as a caring community. The intergenerational and demographic crisis analysis and discourse readily include concerns about the growing aging population as a fairly rich generation of Canadians, some of whose benefits would have to be increasingly paid for by a smaller population and younger generation of Canadians. These crisis labels have taken on many kinds of political talk and target actions or inactions, including Medicare funding and management; medical technology; elder-care; access to drugs; and diverse forms of care-giving and care-receiving within families and across communities. In the microeconomic and industrial domain, three crises were highlighted regarding particular industries and regarding innovation and productivity. On the one hand, crises are often of the short sharp type when a particular industry sector slumps or faces threats, often fast-moving in a global market context but also at times more slowdeveloping in nature. The auto bailout of 2009–10 is a key recent example but so also have been global and sectoral threats to oneindustry forestry and mining towns/regions, to the gradual decline of the textile industry, and to the nuclear reactor industry where crises such as the Japan nuclear crisis of 2011 raise questions about the future viability of the Canadian nuclear industry centred mainly in Ontario and dependent on export sales for reactors. The innovation crisis including the underperformance of R&D and patenting by Canadian business has been cast more often than not as a continuing gap in performance rather than in crisis terms per se. Productivity crises have received more frequent mention with solutions advocated but there is still a strong reluctance in ministerial circles to speak of productivity because of its perceived simplistic voter and public association with job losses. As we saw in Chapter 6 the preferences are to launch “prosperity” initiatives as in the Mulroney era or “action plans” as in the Harper era. Our analysis of the green budgetary domain brought out both separate and related energy crises, climate change crises and green industry crises. Energy crisis discourse was certainly a part of the sudden, sharp tripling of



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oil prices in 1979–80 and the resultant Trudeau Liberal National Energy Program. It in turn triggered a huge and relatively sudden fiscal deficit crisis that was ultimately not dealt with for another thirteen years. Concern over climate change has had strong advocates that it was indeed a crisis but in its history in both the Chrétien-­ Martin and Harper eras the federal response was largely to deflect and postpone action without any apparent political or electoral fallout. Canada’s budgetary history over the past three decades also shows crises avoided. The dodging of the recent global, mainly American banking crisis impacts were due to the big banks’ own financial prudence regarding lending risks, and also due to Ottawa leaving the Canadian banking regulatory system alone rather than following further deregulatory practices in the United States. The global eurocentred sovereign debt crisis did not directly affect Canada in the short term but will in the context of the US debt crisis combined with continued European waves of actual or feared contagion. Of course, Canada does have debt and deficit crises of a higher order, if one takes fully into account the cumulative current status of debtridden provinces and territories, as well as the fiscal situation of many city governments. Many of the crises identified are important as problems or gaps in Canada’s budgetary system. At the same time, governments have built-in political needs to treat some as real threats and to reframe others as issues deserving lower-scale recognition on public policy agendas. In short, what governments, political parties, and various industrial interests and social groups view as budgetary crises depends greatly on where they sit, how they manage and strategize their own agendas, and whether they think they have the ideas and political support to solve budgetary problems and the array of policies entrenched in those problems. More In-Depth Understanding of the Temporal Varieties of Public Budgeting We contend that the temporal varieties of budgeting warrant deeper analysis and greater explicit democratic recognition as they affect the nature of budgeting and budgetary governance and of who wins and who loses on both the spending and tax sides in the political economy of fiscal choices. Temporal budgeting is defined by different ideas about time and periods of time. These range from annual

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versus multi-year budgets, to different conceptions of operational spending versus capital investments (physical infrastructure, human and social, and natural), and ultimately to intergenerational and demographic concepts of time. We have shown that it is not surprising that elected politicians feel pulled and pushed in different temporal directions given that they are under relentless pressure to spend more in the short run, but also often have strong senses of obligation about long-term and generational needs or the avoidance of spending and taxing decisions that will harm longer term economic and social development. Politicians’ senses of time are also governed by the existence of actual cycles that they know affect budgets and how they perceive budgets. These include electoral cycles, business cycles and political business cycles as well as less clear sequences of deficits and surpluses. Renewing and Extending the Democratic Governance of Public Budgeting Given the current fiscal, banking, and sovereign debt crisis, and in relation to other issues examined in the book, we believe strongly that there is a compelling need for greater democratic governance of public budgeting in all of its actual and potential arenas of debate and accountability. This age of crises that we describe as the simultaneous occurrence of multiple shocks and slower developing challenges and predicaments  – economic, environmental, social, and generational in nature – plays out within and across all the budgetary domains of modern government. Quintessentially political, they concern the accountability, legitimacy, openness, and workability of responsible cabinet government and parliamentary scrutiny. Canada’s system of public budgetary governance suffers from serious democratic gaps. We believe there is a need for reform that much more readily scrutinizes budgets over longer time frames including intergenerational budgeting. These democratic governance reforms should relate to core criteria of democracy including: representative cabinet-parliamentary democracy; federalist democracy; interest group pluralist democracy; civil society democracy; and, varied forms of direct democracy. In fact, many potential reforms to budgetary democracy cut across several arenas of debate. Both the domain chapters and the analysis of budgetary institutions in Chapter 4 indicate a strong historic democratic base to Canada’s budgetary institutions but, at the same time, raise issues of



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concentrations of power and gaps in involvement. Prime ministerial power has certainly grown although, at its core, macroeconomic and fiscal policy power still resides in the hands of both the prime minister and the minister of finance. At an elemental level, they each need the other’s support and considerable levels of trust. However, what has weakened in recent years is the relative role of the Cabinet, especially regarding the expenditure budget and decisions on new money. Strengthening the Cabinet’s role, mainly through cabinet committees, can also help better capture and deal with at least some of the budgetary domain issues discussed. Their role could also potentially be enhanced if the federal expenditure budget could be developed and debated as a three-year expenditure budget rather than just annually. It is possible that cabinet committees could also help craft for such medium-term periods a reasonable contingency or prudence component that should be built in to the budget to deal better with at least some larger budgetary shocks and emergencies. Parliamentary scrutiny is both essential and yet filled with contradictions and gaps. Parliamentary committees have long had direct scrutiny roles but their role and influence has been severely reduced particularly, as Chapter 4 has shown, by changes and delays in the way the Estimates are tabled and presented and also in the absence of continuous scrutiny of the litany of new tax expenditures. They also function, ever more so it seems, in highly partisan ways. Their natural interest as politicians and MPs is about short to mediumterm budgetary and policy matters. There is, we believe, considerable scope for parliament taking on roles that would extend the time frames and boundaries of what constitutes modern budgetary scrutiny. This could take many different potential forms. The establishment of the parliamentary budget officer (PBO) by the Harper government is an important new arena of parliament-centred scrutiny but it is also filled with tension between the government and the PBO, particularly in a minority government, hothouse partisan setting. Majority government may provide a better climate, although there are examples of ongoing strains between the Harper government and the PBO, such as on old age security; but regardless the PBO will need enhanced, sustained funding and scope to continue and expand its work on structural budget policy, and other budgetary challenges and emerging crises. Both parliamentary committees and other related officers of parliament, such as the auditor general of Canada, need to engage with

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interest groups, civil society, and experiments with greater direct democracy to scrutinize budgets and advocate change. Such processes and issues include challenges in intergenerational budgeting and its varied potential impacts on different budgetary policy and domain fields; more frequent scrutiny of the role and impacts of offbudget fiscal and debt liabilities; and, greater social and economic interest group scrutiny and debate about what actually constitutes public investment and related notions of capital budgeting in the public sector. While we think that budgetary democracy should be envisaged mostly in relation to strengthening cabinet-parliamentary democracy, no doubt other sources of scrutiny will continually be needed. These include the public research and analysis provided by a range of Canadian think tanks, private banking, and related budget forecasting institutions; universities; and media in all its forms, press, television, internet, and social networks. In public budgeting, as in all other areas of life, time matters. We have argued that money is time and that politics can never escape the long run. Money talks in budgeting through the frequently reinterpreted past, the competing present days and the multiple futures or, conversely, the claimed lack of alternatives which invariably accompany governing and democratic politics. These themes and truths have an even more pressing reality and also uncertainty in the current Canadian democratic and electoral context. Will the Conservatives become a more structural fundamentalist fiscal policy party, or continue in a right-of-center distributive spending posture to stay in power? The NDP’s status as the new official opposition party could force it to shift more to the center of the political spectrum, and beyond its current Quebec base, to give it an eventual chance to govern. And, can the punished Liberal Party find a way back to fiscal and policy influence, on its own or in some kind of merger with the NDP in a realignment of the centre-left as a mirror-image realignment of the centre-right achieved in the last decade by Stephen Harper? And how will the crises and budgetary domain shifts realign in any such medium to longer-term future for Canada in a potentially still volatile global political economy?

Glossary

A-BASE Spending  The budgetary commitment that would be required for the government to continue into the next fiscal year all its existing programs at the same level of operation. B-BUDGET or New Money Spending  The amount of public monies available for new expenditure initiatives, sometimes also referred to as the “policy reserve.” AUDITOR GENERAL OF CANADA  Canada’s independent officer of parliament, whose office conducts annual and periodic value-formoney audits of spending programs and activities and reports publicly on them. BAILOUTS  Periodic government spending at times of crisis where firms or industries are given emergency funding or loans to enable them hopefully to survive and eventually prosper. Bailouts have occurred globally in the banking industry and auto industry in recent years. CAPITAL BUDGET  The budget that sets out planned investment in new facilities and infrastructure such as buildings, machinery and equipment along with details on how they are financed. Public sector capital budgets are not accounted for in the same way as private sector capital budgets in that there are no provisions for depreciation costs over the life of the capital asset. CONTINGENCY BUDGET  An announced ear-marked fund for unexpected or unforeseen budget needs and costs due to changes

244 Glossary

in operational program demand, emergencies, or revenue shortfalls resulting from changing economic conditions. It is typically a very small percentage of the total budget. Contingencies can also be addressed by supplementary estimates. CONSOLIDATED REVENUE FUND  The general pool of all income of the federal government, such as tax, tariff, and license fee income and profits from Crown Corporations. All the money received by the federal government must be credited to this fund and accounted for. CPP/QPP  The Canada Pension Plan (CPP) is a national compulsory pension plan introduced in 1965 to which all working Canadians between the ages of 18 and 70 years must contribute. The Quebec Pension Plan (QPP) is a parallel and integrated program implemented in Quebec. In addition to retirement benefits, both Pension Plans offer children and survivor benefits and disability benefits. DEBT  The total amount that the government owes to its lenders. Also refers to the total debt of the federal government, the provinces, and the territorial governments. DEFICIT  The annual amount by which government expenditures exceed revenues. DISCRETIONARY SPENDING  The type of annual spending that, broadly speaking, can be more easily changed in the short run, partly because changes may not involve the need to make statutory change. EQUALIZATION  The constitutional and statutory program in Canada whereby wealthier province taxpayers transfer funds to those in less well-off provinces so as to enable the latter to provide equivalent levels of public services without unduly heavy taxation. ESTIMATES  The Estimates is the name given to the annual expenditures tabled each year by the federal government with or after the annual budget. Supplementary estimates may also be tabled during the year to meet unforeseen spending needs. The Estimates are scrutinized by the relevant subject matter parliamentary committees.

Glossary 245

EXTERNALITIES  The costs or benefits resulting from a program, or project that accrues to third parties. FEDERAL SPENDING POWER  The power of parliament to make pay­ments to people or institutions or governments for purposes on which parliament does not necessarily have power to legislate. Under the authority of the spending power of parliament, several federal-provincial programs have been funded by the federal government. Essentially, the spending power of the federal government has been used to institute conditional grant programs. FINANCIAL ADMINISTRATION ACT  Federal legislation that establishes the rules and regulations for the handling of public funds. It sets out the procedures for the collection and expenditure of monies and the kind of reporting system to be used. G20  The organization, meetings, and stated joint policies of the twenty leading economies of the world, through their first ministers, finance and trade ministers, and officials. It came into being because of the growth of Asian and other economies, and assumed a much greater and more visible role during the global recession, banking, and sovereign debt crisis since 2008. It is increasingly seen by many as a de facto or eventual replacement for the G7 or G8 in global governance. GNP AND GDP  Gross National Product (GNP) includes the value of goods and services produced by Canadians, whether earned inside or outside Canada. Gross Domestic Product (GDP), on the other hand, shows the value of production of goods and services in the economy whether of Canadians or of non-residents. It does not include returns from Canadian investment abroad. HUMAN CAPITAL INVESTMENT  Refers to public and private investments that enhance human skills and productivity as economic and social contributors. It includes nutrition and stimuli in life’s early years, formal education, work experience skills and knowledge, and also benefits due to increased civil participation. IMF  The International Monetary Fund is an agency created by a group of nations in 1944 to maintain and enforce a world m ­ onetary

246 Glossary

system which facilitates the expansion of international trade and investment in order to help raise world living standards. LAISSEZ-FAIRE  An economic doctrine, political perspective, and rhetorical slogan which asserts that the best way to achieve strong economic growth and a high standard of living is to limit strictly all government intervention in the economy to maintaining the value of the currency and to protecting private property. The doctrine is derived from the writings of Adam Smith. LEVERED MONEY  Spending where those seeking public funds will only receive such funding if they bring other money (public or private) as well to the total funding of a given project or program. MARGINAL BENEFIT  The extra satisfaction or benefit that results from the production of an extra unit of a particular good or service. MARGINAL COST  The extra cost incurred in producing an additional unit of output. The concept is central to the determination of the optimal prices and quantities of goods and services. NATIONAL ACCOUNTS  A comprehensive system of statistics developed by Statistics Canada which gives an overall view of changes taking place in the economy and provides a broad basis for the formulation of economic policy. The statistics include measure­ments of the size and distribution of national income, how the income is spent, the balance of international payments, the size of various industries, and their contributions to GDP and financial flow accounts. NATURAL CAPITAL  The sum of all of the resources and free services provided by nature that is not normally accounted for in traditional economic GDP or GNP-centred ways. OPPORTUNITY COST  The benefits forgone when resources are devoted to one course of action instead of another. PARLIAMENTARY POWER OF THE PURSE  The fundamental principle that all spending must have the (usually prior) approval of an elected parliament.

Glossary 247

PORK-BARREL BUDGETING  Typically a highly negative way of characterizing spending because it is not aimed at the broad public interest but rather at narrow, specific, or partisan interests, including spending initiatives calibrated to favour the governing party’s core voter base or hoped-for swing voters in a coming election. PUBLIC GOOD  A good or service that is available to all, once produced; excluding some individuals from consuming the good is either impossible or exceptionally expensive. Markets cannot provide public goods; therefore they are usually financed by governments. QUANTITATIVE EASING  The modern practice of central banks creating new money at the stroke of a computer key that in effect increases the credit in its own bank account. It can then use this new money to buy assets such as government or corporate bonds or equities and thus put additional demand in the economy and help pull it out of a recession. R&D  Research and Development is scientific, engineering, and design activities that result in new or improved products and production processes. Such spending is considered a significant indicator of a country’s capacity for innovation and economic growth. REGULATORY BUDGET  The notional concept which argues that regulations impose state-mandated private sector costs for business and individuals that need to be more explicitly seen and aggregated as a part of public sector budgets and budgeting, including through the setting of regulatory agendas analogous to tax and spending budgets. RESOURCE RENTS  The surplus value that is generated from the sale of the resource beyond the normal profit needs of the industry and the wages paid to workers in the industry. SHADOW BUDGET  The term to describe the efforts by opposition parties, think tanks, and other organizations to advocate and publicize alternative budgets to what they think the government’s budget will be and, more commonly, what a government’s budgetary plan ought to be.

248 Glossary

SHOVEL-READY PROJECTS  The term frequently used by governments to describe projects that can be quickly mobilized and funded to generate construction-related jobs and growth and also produce needed infrastructure and community facilities. SOCIAL CAPITAL  The total resources of a society, including its agricultural land, its buildings and machinery, its public facilities, and the skills and talents of its people. It also refers to investments in a person’s social relationships and related access to needed information, resources, and supports. It is cast as a lens for understanding the health of a community or civil society, in relation to such as issues as poverty reduction, healthy aging, community crime prevention, and the settlement of new immigrants to Canada. SOVEREIGN DEBT  The total debt owed to borrowers by a nation state. SPENDERS AND GUARDIANS  The analytical framework devised initially by Dr. Aaron Wildavsky to describe and assess the relationships between the two sets of players involved in government budgeting, namely: departments and agencies that spend and advocate spending; and authorities such as Finance and Treasury ministries whose job is to control spending and guard the integrity of the public purse. STATUTORY PROGRAMS  Are types of spending approved under separate statutes or agreements and which, broadly speaking, are more difficult (though not impossible) to change in a quick, annual discretionary way. These are often said to be a characteristic of major social domain programs but they exist in other policy domains as well. STIMULUS  Designed short-term programs of increased spending and/or reduced taxation established by governments to respond to recessions caused by insufficient demand in the economy. Such policies are attributed to the theories of Keynes. STRUCTURAL FUNDAMENTALISM  Refers to the need to manage macroeconomic policy to meet the requirements for an optimally functioning economy and also takes cognizance of longer term

Glossary 249

health and demographic changes and demands on both the spending and taxing sides of the fiscal equation. SUB-PRIME MORTAGE  Mortgages sold mainly in the United States which charged various “teaser” interest rates to higher-risk households with weak credit ratings or no credit history. The mortgages allowed a very large number of lower income, often minority households in the inner cities and working class neighborhoods to participate in home ownership. Such mortgages grew massively in the mid-2000s. They also were bound up in a process of securitization where mortgage assets were repackaged and sold but often scarcely understood by financial service agencies, resulting in a particularly averse effect in the overall banking crisis and recession beginning in 2008 and beyond. SURPLUS  The annual amount by which government revenues exceed expenditures. May refer to an actual surplus or to a forecast or estimated surplus. SYMBOLIC BUDGETING  Refers to when Members of Parliament carry out public meetings in their constituencies on the upcoming budget. From such meetings, a summary of the feedback and ideas reach MPs who in turn submit them to the minister of finance, likely to their own caucus and certainly to their constituencies. This is symbolic in that the process provides MPs, those on the Standing Committee on Finance and all others, the appearance of participating in this central process of government and in facilitating the engagement of some constituents in that process. SYSTEMIC RISK  The risks of failure and harm across entire systems of economic institutions as opposed to particular risks caused by individual firms or constituent members, or particular products and processes. TAX COLLECTION AGREEMENTS  An agreement under which the federal government collects personal and corporate income taxes on behalf of the provinces. TAX EXPENDITURES  Revenue that the government gives up through special provisions in its corporate, personal income, and retail tax

250 Glossary

laws to provide an incentive for a particular action or to provide relief for a particular sector of society. Sometimes these are referred to as tax breaks. TAX REFORM  Refers to periodic, often once in a generation, reform whereby entire tax systems are reformed in major way to meet major new economic and social realities and conditions and to ensure and re-establish principles of efficiency, neutrality, simplicity, and transparency that have been weakened by myriad annual tax changes made without these larger principles in mind. TEMPORAL BUDGETING  The diverse varieties of lengths of time that relate to budgeting. These range from annual versus multi-year budgets, to different conceptions of operational spending versus capital investments of distinct kinds (physical infrastructure, human, social, and natural capital) and ultimately to intergenerational and demographic concepts of time and thus to diverse notions of who budgets are for and who will pay the taxes that underpin the fiscal state. TOO BIG TO FAIL  The idea centred mainly in banking policy which identifies a particular financial institution as being one that cannot be allowed by the state to fail via bankruptcy for fear that it will, through contagion, lead to other bank failures. The state intervenes through bailout funding.

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Index

A-base budget, 4, 231 Abele, Frances, 107–8, 135, 184–5, 190 Aboriginal and Northern Affairs Canada, 134, 176, 189, 191, 194 Aboriginal peoples, 81, 99, 125, 140, 176–7, 184–5, 191, 195, 202–3. See also indigenous peoples Accountability Act, 56 Age of Crises, 11, 232 aging population, 31, 145–6, ­223–5, 238 Agriculture and Agri-Food Canada, 159 Alberta: on free trade, 195; Harper political base, 192, 198, 200; and Kyoto, 197; NEP, 186, 197; oil and gas industry, 187; oil sands, 199, 202 annual versus multi-year budgets, 209–211 Aucoin, Peter, 12, 26–7, 80, 93, 95, 156, 210 Auditor General of Canada, 92 austerity budget-cutting, 58–9. See also restraint

bailouts, 45, 57 Bank of Canada, 63 banking crisis, 5, 8, 44–7, 233–4 Berger Commission, 184 Bloc Québécois, 5, 54, 56, 61, 91 B-budget, 4, 231 British Columbia: forestry giant, 165; hydroelectric producer, 165, 187; welfare caseloads, 143 Budget Speech, 4, 59, 109–11, 209 budgetary consultations: as contested idea, 109; pre-budget, 4, 101–2, 109–11, 115, 209, 231; public, 85, 216; as regular process, 127, 156 budgetary crises, 6, 7, 13, 19, 230, 232, 236–7 budgetary cycles (electoral, political business cycle), 211–12 budgetary deficits, 65, 77–8, 81, 206, 213 budgetary domains, 6, 19, 36–9, 96, 229–30, 234–5 budgetary politics and power, 4, 88–90 budgetary surpluses, 206, 213–14

278

Index

budgetary time (conceptions of), 207–20. See also temporal budgeting business interest groups, 157 Cabinet and budgeting, 93–4, 186 Canada Health Transfer (CHT), 99, 131, 139 Canada Pension Plan, 121, 128, 147, 207, 217 Canada Revenue Agency, 101 Canada Social Transfer (CST), 99, 131, 139 Canadian Association of Petroleum Producers (CAPP), 183 Canadian budgetary institutions, 85–6 Canadian Electricity Association (CEA), 183 Canadian recession and deficits, 51–4 capital, investment and infrastructure budgets, 214–17 capitalism, 103–4 Charter of Rights and Freedoms, 125 civic regulation, 137–8 civil society institutions, 100–2 climate change policy, 198–9 clusters and cluster policy, 170 Commissioner of Environment and Sustainable Development (CESD), 193 contingency fund or budget, 79, 213–14 corporate taxes, 162–3 Chrétien Liberal government, 66, 77–80, 185–6 crises, 8–9, 30–2, 39–40, 111–12, 140–6, 167–9, 196–200, 223–6

crisis discourse, 112, 223–4 debt-rating agencies, 50 democracy, 5, 11, 31, 38, 96, 110, 205, 209; arenas of, 13, 240; multi-party, 12, 233; northern strategy, 194–5; unfinished, 129 democratic governance of public budgeting, 13, 240–1 earmarked funds, 217–18 Economic and Fiscal Update report, 110 Edelman, Murray, 8, 32–3 Environment Canada, 176, 188–9, 191 environmental non-governmental organizations, 183 environmental taxes, 192 Estimates Blue Book, 92, 209 European Union (EU) and Eurozone, 5, 49–50 fair trade, 155 federal spending power, 98 federalism: bilateral, 165; Canadian, 29, 38, 98; executive, 109; fiscal, 15, 91; green domain, 177, 201; multi-lateral, 165; multiscale governance, 39; and social policy, 139 Finance Canada (Department of Finance), 25, 114, 131, 132, 134, 159, 190 fiscal consolidation, 50–1 fiscal federalism, 97–9 Fisheries and Oceans Canada, 159 Flaherty, James, 59, 86 Foreign Affairs and International Trade Canada, 159



Index 279

G20, 5, 47 generational budgets, 221–3 Good, David A., 4, 25, 92, 95, 97, 106, 111, 114, 159 Goods and Services Tax (GST), 73, 75, 82, 220 governance, 26, 138–9, 157, 194–5 green budgetary domain, 176–7 green budgetary domain ideas and discourses, 177–82 green industry strategies, 200–1 Hale, Geoffrey, 75, 95, 159, 162, 219–20 Harper Conservative government, 4, 11, 66, 181, 184, 186, 190, 210, 221, 233, 237 Harper Stimulus Program, 54–8, 68, 81–3, 233 Health Canada, 131 health care, 39, 132, 149; crisis of, 31, 112–13, 206, 224–5; cuts in spending, 58, 68, 76; federalprovincial relations, 80–1, 149; Harper on, 99, 124, 126; Quebec, 140; tax expenditures on, 136; universality, 123, 148, 224; wait lists, 10, 208 Heritage Canada, 159, 161 homelessness, 111–12, 140 housing: Aboriginal, 81, 99, 191; crisis in, 112, 144, 224; demographics of, 222; federal housing: initiatives on, 140, 149; inequalities, 141; social, 123; stimulus measure, 54; tax expenditures for, 136; US mortgage collapse, 11, 70, 233 Howlett, Michael, 9, 28

Human Resources and Skills Development Canada, 131, 134, 159 indigenous peoples, 90, 100, ­107–9, 114 industrial policy, 152 Industry Canada, 158, 190 inequality: crisis of, 149, 230; diverse, 140, 237; economic, 141; as health problem, 141; income, 31, 142, 238; of interests, 87; politics of, 142; in power relations, 113; of sacrifice, 113; social domain, 37, 147, 234 indexing, 63, 124, 219 inflation, 12, 20, 22–3, 63–4, 123, 210, 219, 231, 237 innovation policy, 155, 166 International Monetary Fund (IMF), 48–9, 51, 77, 127, 171, 201 Keynes, J.M., Keynesianism and stabilization approaches, 12, 20–2, 63 Krugman, Paul, 21, 44–5, 48, 58, 62, 70 Kyoto Protocol, 197–198 lending, 87; American practices, 52; Canadian practices, 51, 61; interbank, 48; mortgage, 45; risks, 239 liabilities: debt, 242; environmental, 182; financial, 218; safety, 218 Liberal Party, 4, 56, 59 loans, 33, 67, 70, 90, 104 Lynch, Kevin, 153, 170, 172

280

Index

macroeconomic policy, 62–4, 66, 72–81 Manitoba, 165, 187 Martin Liberal government, 77–8, 80–1, 198 Martin, Paul, 77–8, 80–1 mass media and budgeting, 105–6 medical power, 106 metagovernance, 27–8 microeconomic and industrial policy domain, 150–1; ideas and discourses, 151–6 monetarist theory and neo-­ liberalism, 22–3 Mulroney Conservative government, 74–7, 200, 219–20, 237 National Energy Board (NEB), 187 National Energy Program (NEP), 165, 196 National Roundtable on the Environment and Economy, 193, 199 Natural Resources Canada (NRCan), 159, 176, 189 networks, 27 New Democratic Party (NDP), 5, 54, 61, 162, 237, 242 New Political Governance (NPG), 26–7 New Public Management (NPM), 26–7 Old Age Security (OAS), 131 Ontario: and auto industry crisis, 57, 165, 167; Conservatives seats in, 56; Drummond report on, 222; energy policy, 165, 187, 197, 201, 238; as equalization

recipient, 131; innovation, 170; regional development agency for, 154, 158; welfare caseloads, 143 Organization for Economic Cooperation and Development (OECD), 16, 47, 50–3, 73–4, 104, 163 Pal, Leslie A., 9, 28–9, 56–7, 82, 139, 154, 160, 162, 212 Parliament and Budgeting, 91–2, 241–2 Parliamentary Budget Office, 92 Phillips, Susan D., 101 poverty, 140–3; continuing, 40, 119; crisis of 115, 149, 230, 237; elderly rates of, 146; incidence of 144; social capital, 216; social domain, 37, 234 precautionary principle, 177–8, 180, 202, 214 Prime ministerial power, 95–7 Prime Minister’s Office, 86 principal-agent theory, 24–5, 90 private/public power structure, 37–8, 89, 96, 156–8, 173, 177, 182, 202–3, 230, 234 Privy Council Office (PCO), 132 productivity, 152–3, 167, 171–2 Program Review, 161, 167, 190 Public Safety and Emergency ­Preparedness Canada, 134–5 quantitative easing (by central banks), 46 Quebec, 83; and energy policy, 187, 197; and federal budgeting relations, 139–40; and industry, 165–6; Inuit in, 107; NDP presence in, 5, 242; Quebec Pension



Index 281

Plan, 244; regional development agency for, 158. See also Bloc Québécois recession, 53–4, 82 regional development policy and agencies, 153, 165 regulation and red tape 28–30, 136, 138, 163–4 regulatory budget, 163–4, 193 Research in Motion (RIM), 170 resource rents, 247 restraint: budgetary, 25; discourse, 97; fiscal, 124; spending, 65, 68; targets, 132 risk assessment, management, and communication, 33–4 Saskatchewan, 83, 206 Savoie, Donald, 25, 27, 86, 93, 95, 97, 106, 115, 153, 156 science policy, 154 Scientific Research and Experimental Development (SR&ED) tax credit, 163 shadow budgeting, 105, 110 social budgetary domain, 119–21 social budgetary domain ideas and discourses, 122–5 social economy, 90, 100–1, 128 sovereign debt crisis, 5, 47–9 Speech from the Throne (SFT), 55, 105, 199 spenders and guardians, 24 Standing Committee on Finance, 110 strategic budgeting, 111, 115 structural fundamentalism, 7, 12, 15, 22, 39, 40, 59, 63, 83–4, 109, 150, 152, 172, 206, 213, 230, 237

sustainable development (SD), 173, 176–9, 182, 185–6, 188–9, ­202–3, 216 symbolic budgeting, 110 systemic risk, 33, 34, 47, 232 tax expenditures and tax reform, 137, 218–19 taxation: budgeting choices, 4, 88; capitalist interests on, 103; constitutional powers of, 90, 98; deferred, 104; direct, 98; element of budgetary domains, 6, 27, 37–8, 151, 165, 176, 191, 219; environmental, 192, 203; interest groups, 110; Keynesian policy, 20; neo-liberalism, 23, 71; political party competition over, 91; social domain, 136–7; as a structural fundamental, 84; surpluses as excessive taxation, 35, 54, 214; value-added, 75 temporal budgeting, 10, 13, 205–9, 239–40 think tanks, 105, 110, 153, 171, 207, 221, 242 trade policy and free trade, 155–6 Transport Canada, 159, 161 Treasury Board, 113, 132 Trudeau Liberal Government, 196 Turnbull, Lori, 12, 26–7, 93, 95, 210 US fiscal and sovereign debt crisis, 11, 68–72, 232 US macroeconomic policy, 68–71 US sub-prime mortgage crisis, 44–6

282

VanNijnatten, Debora, 179, 183, 188 voluntary sector, 101–2, 127–8

Index

Wildavsky, Aaron, 24, 133 World Trade Organization (WTO), 104