The great rentier give-away

With today’s fiscal update, the Trudeau government has really shown itself to be at the forefront of global left neoliberalism. Taking nearly all his cues from his business-dominated Advisory Council on Economic Growth, the Finance Minister announced a new Canada Infrastructure Bank as the centerpiece of the fiscal update and the Liberals’ economic strategy. Don’t believe the fanfare that is bound to come from the Canadian and international press, this isn’t anything progressive. It’s a new elite consensus that might become one of our main exports, pumped via virtual pipelines across the globe.

Here’s how Dominic Barton, the managing director of McKinsey Global, one of the world’s largest business consulting firms and head of the Advisory Council, framed the impetus behind the new bank:

Barton said infrastructure aimed at improving productivity will be of huge interest to foreign investors in search of steady returns with record low or negative interest rates in many parts of the world. “Infrastructure is the new fixed income,” Barton said in a speech over dinner at the conference. The mix of public and private capital has the potential to “jolt the system.”

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How not to fund infrastructure

Recycling is supposed to be a good thing, so when the federal Liberals quietly announced that “asset recycling” would be part of their strategy for meeting their much-ballyhooed infrastructure promises, not many eyebrows were raised. They should have been. Asset recycling is an obscure code word for selling our public goods for private profit. It’s privatization by another name.

Don’t have the taxes to pay for new buses? It’s okay, you can sell your electricity utility to pay for them instead. In fact, this is precisely what the Ontario Liberal government is doing. Already 30% of the profitable Hydro One have been sold and another 30% will be sold before 2018. A public Hydro One could more directly fight climate change, lower energy costs for the poor or work with First Nations on whose lands generation often happens. A private Hydro becomes an instrument for profit first with other goals secondary.

What the Liberals have started in Ontario will soon be rolled out across Canada. Here are the problems with these schemes. (more…)

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“Investment” versus investment

Surprise! A new investigation by the Toronto Star and the CBC found that recent treaties with tax havens like the Bahamas and Panama aimed at more “transparency” have just made it easier for corporations to evade ever more taxes. And Canadian corporations have obliged this golden opportunity. “Investment” abroad has ballooned all the while the taps on actual investment at home have run dry.

Signed under Stephen Harper and left untouched under Trudeau, Tax Information Exchange Agreements (or TIEAs) allow corporations to funnel profits through notoriously low-tax jurisdictions. For example, if a corporation only has an office in, say, Panama (of Panama Papers fame), it can pay zero taxes on profits and have the option to repatriate the money back to Canada tax-free. Here’s how the Star report describes it:

“TIEAs are a well-meaning but failed idea,” said Arthur Cockfield, a professor of tax law at Queen’s University who warned the government of the TIEAs potential for abuse.

“I don’t blame the companies. It’s kind of like a Christmas present sitting under the tree. What are you going to do, not open it?”

…Many of the leading corporations on the Toronto Stock Exchange now have a presence in tax havens and use Canada’s treaties to dramatically reduce their tax bill at home. One company, Gildan, reduced its taxes by more than 90 per cent in 2015 (see sidebar).

TIEAs have had a dramatic effect on offshore investment, and Canadian money stashed in tax havens is piling up rapidly.

Compare data on foreign direct investment in six major tax havens with charts showing a few measures of investment at home. Here’s “investment” abroad growing rapidly…

tax haven fdi

…and total investment, including that done by government, at home:

capex cda

The chart above is in nominal dollars and includes all investment to make it easier to compare to the first chart. Here’s just business non-residential investment as a percentage of GDP. The uptick due to the resource boom in the early 2000s is clear; it’s instructive to imagine what things would have looked like if the resource sector had continued to expand at it’s long-term pre-boom average.

biz gross capform

And finally, take a look at corporate tax receipts:

corp tax

The contrast is striking. Corporations are piling cash into off-shore accounts while paying less in tax and barely keeping up with investment, especially outside the resource boom. Apologists would love to have a debate about the finer points of tax incidence, that is who ultimately pays a tax. They have a point; however, if it were so easy to always fully pass taxes on to consumers, why would corporations go to all the trouble of lobbying for tax breaks and making tax evasion so much easier? The answer is that it is ultimately a question of power. There is a question of how social wealth is divided up in the final accounting, but it comes down to who has the power to influence the division. Treaties with tax havens are just one instrument in the quiver.

A key and related next step would be to draw the links to the shareholder value revolution that has sought to remake corporations into ATMs for the wealthy. Rather than reinvest their profits into growth and productivity enhancements, corporations have, since roughly the early 1980s, been under increasing pressure to return a vast chunk of profits to shareholders via share buybacks and dividends. The corporate sector in the US is the poster child for the extract-what-you-can model but it turns out, for example, that a similar logic also played no small role in breaking the Eurozone financial system after the last crisis. What kind of tangible links are there between tax evasion and shareholder value for Canadian corporations?

In fact, when Mark Carney initially coined the “dead money” meme that has become an omnipresent shorthand on the left, he was not only exhorting corporations to invest. If they couldn’t, Carney said they should dish out more money to shareholders instead. Profits can pile up in bonds, shareholder pockets, cash or offshore accounts—the reality is that corporations are strategically choosing between competing allocations of assets, not stashing cash under a rug. Corporate money is never dead, and much of it is alive and well relaxing in Panama and the Bahamas. One thing is certain, it isn’t working for the rest of us.

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Beware of basic income

Wouldn’t it be great to get a cheque every month just for being you? This is the sweet, fuzzy vision the Ontario and federal Liberals, are counting on to sell their latest idea, a basic income. Just this year, the Ontario government laid the groundwork for a pilot project to test the idea. Any actual large-scale program is far off into the future, however, and that’s a good thing. We need to take a hard look at the idea, especially in Liberal clothing.

Pie-in-the-sky or slap-in-the-face?

A basic income is exactly what it sounds like: a monthly cheque provided to every person by the government with no strings attached. A recent Ontario poll suggests the idea has broad support: 41% of Ontarians support it compared with 33% who oppose. Yet when people are asked whether they think a basic income is a good idea, they are never asked what they would be prepared to lose to get it. The point isn’t that basic income is pie-in-the-sky. It’s just that it could be implemented as a slap-in-the-face.

Basic-Income-posters

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Growing the middle class or adapting the elite consensus?

Today’s federal government budget is a litmus test for the new Liberal government. They campaigned on promises of “real change” from the last regime, including a willingness to increase social spending even if it meant running deficit budgets. And, in keeping with this pledge, spending is up, and the deficit is forecast at $29.4 billion.

This is fine in the short term, but it isn’t just about how much spending will be created. The really crucial thing is what kind of spending. Since the 1990s, the Liberals across the country have been masters at implementing a slow-grinding austerity that has cut programs, given away our public services to private interests, and reduced taxes, largely for business and the rich.

More than anything else, this budget reads like new technocratic consensus. Like 1990s austerity, Canada’s Liberals are once again at the forefront of global elite policy. In an era of slowing growth and productivity, with monetary policy by central banks all but exhausted, even the OECD and IMF have called for higher deficits. The Liberals are forging the path that the global elite will try to travel to get global capitalism working again — especially for the elite. As Greg Albo remarked, with this budget the Liberals have rolled back Harper but left Chretien and Martin untouched. (more…)

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Fiscal policy for the left, or Corbyn vs Mulcair on deficits

The question of deficits dominated a lot of the economic debate in Canada during the 2015 federal election and even today. Jeremy Corbyn’s Labour Party introduced a new fiscal policy last week that, on surface, appears to mirror the NDP’s anti-deficit stance from the 2015 campaign. Looking closer, however, Labour’s policy diverges quite substantially and points to more honest and transformative economic policy for the left. (more…)

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Will Sanders’ rise be felt in Canada?

Co-written with Derrick O’Keefe and originally published at Ricochet.

Even if he’s really only offering a pragmatic form of social democracy, Sanders has created a political space in the mainstream left that’s sorely missing in Canada. His insurgent campaign for the Democratic Party nomination has put inequality and systemic injustice front and centre in the United States.

Policy proposals aside, merely having the word “socialism” back on the agenda in the United States signals a massive shift. Compare Sanders’ unabashed use of the term to recent NDP history.

Canada’s traditional social democratic party has spent recent years downplaying and scrubbing away the last vestiges of socialism from its public presentation. Under pressure from party leaders and bureaucrats, the NDP removed all but one reference to it from its constitution in 2013. The s-word is now only mentioned in passing in the party preamble.

It’s useful to take a broader view than just the recent botched campaign and the party itself. For years, the NDP’s leadership and top advisors have taken their cues from their counterparts in control of the Democratic Party — an electoral machine that has been effectively captured by a small coterie of the rich and powerful. (more…)

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Where is Quebec going after the strikes, where is Canada’s economy going after the oil crash?

I have two Canadian updates this week. The first is from Nora Loreto on what’s happening in Quebec after the fall’s anti-austerity strikes. Nora is a Quebec City-based journalist and labour activist. She gives an account not only of what happened during the strikes in Quebec, but also what to expect in their wake (see the previous podcast, from just before this strike wave, here). Second, Armine Yalnizyan, economist at the Canadian Centre for Policy Alternatives, is back with an analysis of Canada’s economy after the oil price crash.

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Elites debate boosting the economy, but for whom?

Elites and the talking heads in the media are arguing about how to respond to Canada’s soured economic outlook. Who should try to boost the economy, the federal government via fiscal stimulus or the Bank of Canada via monetary policy? But while elites argue amongst themselves, the overriding context is a transfer and concentration of economic power upwards. This, not $10 billion here or 0.25% there, is what hamstrings any policy response going to the benefit of the many.

First, some context. Yesterday’s report from the Bank of Canada describing the state of the economy did not make for happy reading. While there is no crash, no panic and no crisis, the picture isn’t particularly rosy. The kind of generalized malaise and stagnation that has affected much of the globe since the last crisis—and that our resource boom staved off—seems to be hitting home. The Bank revised downwards its projections for both growth and inflation, and has a history of being overoptimistic. (more…)

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Questions for the Canadian left

Harper is gone, but (as a friend only quarter-jokingly said) we got the second worst outcome sold as the best, so now what? That’s the 10 second version of this post. I want to throw up a few questions or, better yet, problems that I think the Canadian left will have to face together over the next few years. There are no easy answers here.

In 2015, the Liberals once again showed that they are masters at campaigning to the left. But as we now wait for them to show how equally apt they are at governing to the right, it’s clear that it won’t simply do to say “told you so!” in four years time. It is not by accident that the Liberals are Canada’s “natural governing party,” for if anything, they know how to govern. They are experts at balancing competing interests or, more accurately, giving the semblance of balancing interests all the while closely aligned with the interests of the elite, and the upper middle class.

Still, we have to recognize that things will be different and that this affects where people are and how they relate to politics. On the one hand, the Liberals do open up some space on the left by making symbolic gestures here and there; at the same time, they close off this space by drawing the limits of respectable progressive politics. They don’t fill the void left by a weak left as do the Conservatives with their exclusionary, pocketbook politics aimed at the working class. In fact, they speak to a broader cross-class progressive segment of the population in a way that can be disorienting. (more…)

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