Monday, March 19, 2007

It's time to address the other deficits

The March 14, 2007 Globe and Mail had an excellent op-ed piece by Eddie Goldenberg, one of the architects of CIHR, CFI and the Canada Research Chairs. He reminds us all about the importance of research and education as a national priority for a knowledge based economy:

"A decade ago, no one would have believed it would be possible to eliminate the federal deficit, balance the budget, reduce taxes by $100-billion, pay down tens of billions of dollars of the national debt, put the Canada Pension Plan on a sustainable footing and invest more than $12-billion in the promotion of research and excellence in Canadian universities, as well as billions more in health care and a new national child benefit. Yet what seemed impossible then is taken almost for granted today. The federal budgets that provided for all of this didn't just happen. First, they took focus and rigorous priority setting. Government, like business, can be successful only when it sets its mind to doing a few big things right rather than expending its energies and resources on trying to accomplish a lot of little things. Second, they took political courage from the very top to drive the agenda and not be diverted. Next week, the Minister of Finance will deliver his budget. With considerably higher revenues than he had anticipated even a few months ago, he has two options. One is to announce a series of politically popular short-term measures -- more tax and debt reduction, increased unconditional grants to the provinces and a number of actions targeted at specific elements of the electorate. His other option is to take the bold steps necessary to address the challenges Canada faces over the next decade. If he does so, what may seem impossible today may be taken for granted 10 years from now. There are three deficits that the government must address today if Canada is to be competitive in the future and continuing to aspire to higher living standards. First, there is the environmental deficit. Canadians are ready and are expecting governments to act on the environment in ways that might very well have been unacceptable to them even a few short years ago. There will be considerable costs to the taxpayer because action on the environment will require significant amounts of public investment. Second is the public infrastructure deficit. There is a crying need for major investment in roads, water and sewage, public transit, etc. Canada needs to do a few big things well -- for its big cities, for its ports and for its border infrastructure, where bottlenecks impede the transport of goods. Our trade and our standard of living depend on it. Even with a much greater use of public-private partnerships, which in many cases are the way to go and which leverage considerable resources from the private sector, eliminating Canada's strategic infrastructure deficit will still require an investment of tens of billions of dollars of public money over the next decade. Third is the knowledge deficit and the need to encourage excellence. Canada will not move ahead in a very competitive global knowledge-based economy without a real commitment by the federal government to continue investing massively in research and excellence in our institutions of higher learning. There is no getting around the fact that addressing these three deficits will require the investment of a lot of public money over the next 10 years. For that reason, the challenge for the federal and provincial governments is to summon the political courage to set priorities so they can invest enough, not just for Canada to stand still, but to be leading edge and world class. The time to do so is now, when the fiscal situation allows for it. Last year, the federal government reduced the GST by one per cent -- $5-billion a year. Few people noticed that tax reduction and changed their spending habits accordingly. Yet, the Prime Minister is promising another 1 per cent reduction in the GST in coming years, which means an additional $5-billion a year out of the federal coffers. Since 1997, the federal government has paid down $80-billion in debt. Now, the federal government is planning additional debt repayment of at least another $30-billion over the next 10 years. On its own, it is good economics. But debt paydown and tax reductions are not the only priorities when the country has other pressing needs. Instead of more personal tax cuts in the order of at least a billion dollars, and $5-billion more a year in GST cuts, and $3-billion more a year in debt repayment that the minister is apparently planning, the government should simply maintain a balanced budget, and decide to invest those $9-billion a year over the next decade -- a total of $90-billion over 10 years -- in the environment, in physical infrastructure, and in making the best Canadian colleges and universities the place to be in the world for the best students and the best researchers. Instead of more unconditional transfers to provinces, where the federal government merely collects taxes and sends blank cheques to the provinces, the government of Canada should sit down with the provinces. Together, they should look to where the country needs to be in 10 years time, and agree together to focus new federal transfers in areas where the provinces -- with political courage, determination and political will -- would invest the transfers in a strategic way. With the same kind of political courage shown 10 years ago to eliminate the fiscal deficit, it may be possible 10 years from now that the elimination of environmental, infrastructure, and knowledge deficits will be taken for granted, even if it seems almost impossible today. Eddie Goldenberg, a former chief of staff to Jean Chr├ętien, was involved in the preparation of 10 federal budgets. He is the author of The Way It Works: Inside Ottawa."