ECONOMIC POLICY IN CANADA'S ELECTION CAMPAIGN

UNCLAS SECTION 01 OF 02 OTTAWA 000153

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INFO USDOC WASHDC
DEPT-OF TREASURY WASHDC
ALL CANADIAN POSTS COLLECTIVE

DEPT FOR WHA, WHA/CAN AND INR (SALCEDO)

USDOC FOR 4310/MAC/ONA

TREASURY FOR IMI

DEPT PASS USTR FOR MELLE AND CHANDLER

E.O. 12958: N/A
TAGS: ECON SOCI EFIN PGOV CA ECON CA NDP
SUBJECT: ECONOMIC POLICY IN CANADA'S ELECTION CAMPAIGN

REF: 04 OTTAWA 1371 (2004 CAMPAIGN)


SUMMARY/INTRODUCTION
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1. While the governing Liberal Party has highlighted its own
strong economic record, and while both they and the leading
Conservative Party have made various spending promises,
economic policies have been less significant in this
campaign than other issues such as crime and political
corruption. Business groups give roughly equal grades to
the two major parties' economic platforms.


2. The Conservatives have promised to cut taxes,
specifically the GST (the federal value-added-type sales
tax),and would downplay the Kyoto Accord in favor of a
"made in Canada" climate change policy, but otherwise, there
is little reason to expect sharp changes in specific
economic policies under a new government. Of greater
importance is the Conservatives' commitment to respect
provincial jurisdiction, which could imply significant
adjustment of the federal government's role in Canadian
economic life. This meshes with the agendas, not just of
the Bloc Quebecois, but also of most provincial governments.
END SUMMARY


NDP FOCUS ON HEALTH CARE
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3. Of the four parties in Parliament, only the social-
democratic New Democratic Party (NDP) has put a sustained
spotlight on one economic issue in this campaign. The NDP,
which has its core support in public sector unions, has
consistently attacked what it calls "privatization" in
Canada's single-payer health care system. Health care was
an important issue in the 2004 campaign (reftel),with all
parties vowing somehow to "strengthen" the system, but in
the current race, the other parties have not ventured much
beyond their previous stances.


LIBERAL ECONOMIC RECORD UNCHALLENGED
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4. The Conservative Party's traditional economic policy
mantras from the Mulroney era (1984-93) -- trade
liberalization, tax reform, and balanced budgets -- were
effectively adopted by the Liberals after they took office
in 1993. (While the Mulroney team had succeeded with the
first two goals, and backed the central bank's successful
struggle with inflation, they never gained control of the
fiscal deficit). Losing these campaign planks contributed
to the Conservatives' internal crises over the past decade.
Even now, while they criticize many of the Liberals'
policies and priorities, the Conservatives (and the smaller
parties) generally do not attack the Liberal macroeconomic
record.


SIMILAR GRADES FROM BUSINESS GROUPS
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5. Major business groups and most observers rate the two
major parties' economic platforms similarly in the current
race. The Canadian Chamber of Commerce's campaign scorecard
(see www.chamber.ca ) rates both parties "poor" on
international trade but "good" on workforce strategies; it
credits the Liberals with being somewhat better on fiscal
policy and innovation, and the Conservatives somewhat better
on energy/environment and health care.


CONSERVATIVES WOULD RETREAT FROM KYOTO ACCORD
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6. One key point of difference is that the Conservatives
admit that the Kyoto Accord is unworkable, and also argue
that it intrudes on provincial jurisdiction. Instead, they
would begin consultations with provincial governments to
develop a new plan for reducing Canada's greenhouse gas
emissions. The Conservatives say that an international
replacement for Kyoto should include the United States,
China and India.

DECENTRALIZING THEME HAS WIDE IMPLICATIONS
--------------


7. The Conservative Party's call on the GOC to focus on its
own constitutional responsibilities and respect provincial
jurisdiction is long-standing and would have implications in
many areas, from natural resources to health care. While
this may be the theme which would most affect Canadian
economic policy under a Conservative government, it has not
been highlighted in the current campaign.


A MINORITY GOVERNMENT COULD SPELL BUDGET TROUBLE
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8. Because a minority government is a likely outcome from
this election, and such governments usually look for
Parliamentary support among members from the smaller parties
(both of which are left-leaning),the next government will
probably face strong upward pressure on spending. Combined
with a heritage of large spending and transfer commitments
made by the GOC over the past two years (such as on health
care),and the possibility of a macroeconomic slowdown in
North America, this poses a real risk that Canada's years of
federal fiscal surpluses may be drawing to a close.


9. This risk might further increase under the Conservatives
if they act on their promises to cut taxes. Indeed, the
Conservatives have also made a range of spending promises
during the campaign, prompting the Liberals to call their
fiscal plan (though it is approved by major economists)
incompetent and under-funded by C$22 billion.


WILKINS