Title: Could elections delay economic recovery?

Sub-title: Government officials have warned that forcing Canadians to vote now could hurt the economy.

 

In recent weeks, the airwaves have been clogged by election talk. Liberal party leader Michael Ignatieff has threatened to try to bring down Stephen Harper’s Conservative minority government. If Harper cannot get the backing of either Bloc Québécois leader Gilles Duceppe or the New Democratic Party’s leader Jack Layton, Canadians could be heading to the polls for a third time in three years.

 

Wait, say the Conservatives. Canada is in a precarious position. The country is only now showing signs of emerging from the economic turmoil of the past two years. If elections are held now, that recovery could be threatened their argument goes.

 

“It would irresponsible to interrupt our important work on the economy with an unnecessary election,” Transport minister John Baird told reporters late last month, comments echoed by Finance Minister Jim Flaherty and other government officials this week. But are they correct?

 

Wannabe Captains fighting for the rudder

At fist glance, Baird’s argument makes sense. Elections are by nature divisive. With hundreds of thousands of Canadians out of work, now is hardly the best time to be quibbling.  Furthermore Canada’s economy is like a big ship. You can’t turn it around overnight. And doing so, while potential captains are fighting for the rudder is much harder.

 

According to Baird, an election call would result in thousands of infrastructure projects being delayed. This too seems like common sense. Bureaucrats tend to buckle down once elections are called, fearful of stepping out too far, lest a new administration reverse its decisions.

 

That said Baird’s argument has several weaknesses. For one, it was Baird’s own government that in 2008 forced Canada into early elections, at a time when the country was in its worst recession since the Great Depression. Surely if an election were possible then, one could easily be staged now too.  

More important though, Canada’s economy is far too big a beast to be influenced to any significant degree over the short term. For example among the biggest traditional economic boosts are rate cuts by the Bank of Canada. However monetary policy experts have long noted that central bank cuts take at least nine months to filter down throughout the system.

 

Infrastructure programs, such as those that Baird was referring to have a similar weakness: they take ages to implement. The building of roads, military hardware (such as aircraft or ships), or a green power wind farms takes years to get under way. Designs have to be drawn up, permits need to be obtained and complex bidding processes need to be implemented to line up the numerous subcontractors that these projects require. Virtually none of those steps would be impacted by any election call.

 

Elections real damage: foolish short-term promises

That said, elections could well result in harm to the economy but not for the reasons the Conservatives give. In fact there are substantial indicators that when politicians do start talking about the economy, it does more harm than good. Elections for one are notorious for forcing politicians to pander to voters, by making promises (such as tax cuts and spending increases) that none of them would have made in normal times.

 

For example in the midst of the 2006-2007 electoral campaign, Harper promised to lower the Goods and Services Tax gradually from seven percent to five percent over the coming years. Harper made this promise despite the fact that Conservative doctrine has long argued that one of the biggest impediments to economic growth is high marginal taxes on personal and business income….not consumption taxes.

 

The Liberals aren’t that much better. For example during the 1990s former Prime Minister Jean Chrétien made a similar promise (to abolish the GST completely) should he be elected, a promise he quickly forgot about when he reached office.

 

However the biggest blow to the federal Conservatives’ charges that an untimely election would hamper infrastructure programs comes from the history books.

 

During his close to 20 years in office, former Quebec premier Maurice Duplessis picked up a lot of tricks for holding on to power. One of those ruses was to plan road building budgets so that they were low during his governments’ first years in office, but would rise steadily, with activity peaking just around election time. The result was that Quebec voters would see tangibly the good that Duplessis’s regime was doing for them just as they headed for the polls.

 

Maybe the Conservatives real beef is with themselves: that they timed their infrastructure outlays so poorly that Canadians will head to the polls having little or no clue about those programs that are in the works.

 

 

Peter Diekmeyer is Bankrate.ca’s economics columnist.

 

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