Harper finally takes some risks but the PM could be looking for trouble—especially on pensions

This article was published by Maclean’s on February 6th 2012.  To see this article and other related articles on Maclean’s website, please click here.

Among Stephen Harper’s defining political traits, his standout skill has long been a knack for presenting himself as a pragmatist who would never overreach. In opposition, Harper succeeded in softening the image of his restored Conservative party to squelch fears he might be cooking up a sweeping right-wing overhaul of the federal government. He won the 2006 election with a platform of narrowly defined policies, like trimming the GST and paying parents a monthly $100-per-kid bonus. As a minority Prime Minister, he had to draft policies unthreatening enough to attract sufficient opposition votes to pass. But now, as he begins his first full calendar year with a House majority, Harper’s customary caution has evaporated. “In the months to come,” he declared in Davos, Switzerland, last week, “our government will undertake major transformations to position Canada for growth over the next generation.”

Major transformations? Plural? And this from a Prime Minister who, only days earlier, had sounded much his old self, pleading for a “practical, incremental” approach, rather than bold measures, for First Nations. It was a different Harper at the World Economic Forum, touting decisive fixes on daunting issues. He zeroed in on at least four big files, though offering frustratingly few details. On pensions, he vowed to make underfunded parts of the system sustainable “for the next generation.” On immigration, he promised “significant reform” to match newcomers to labour force needs. On exports, he pledged both to finalize new trade deals and to end regulatory delays on oil and mining ventures. On industry, he committed his government to finally tackling the perennial problem of lagging Canadian business innovation.

This ambitious agenda was scarcely hinted at in the Prime Minister’s re-election platform just last spring. Looking over his Davos list, it’s not hard to see why Conservative strategists might have deemed some of these ideas too risky for the campaign trail. Sure enough, soon after Harper’s speech, the formidable Canadian Association of Retired Persons served notice of its intention to fight any future curtailing of the Old Age Security or Guaranteed Income Supplement programs, even though the Tories stressed the coming cuts won’t affect seniors already collecting benefits. Harper’s plan to streamline environmental assessments for pipelines and other resource megaprojects is also bound to meet with angry opposition, and shifting the emphasis on immigration to workers with more in-demand skills also risks raising concerns among some of the Tories’ hard-won ethnic community supporters.

So the Prime Minister has bought himself some trouble. But he may also have made a down payment on a more lasting legacy than any steps he took during his minority period would have won him. Among policies launched before last spring’s election, arguably only his bundle of crime bills (still awaiting final passage by the Senate as Parliament resumes sitting this week) and the massive deficit-spending spree unleashed in 2009 (a detour he was forced to take by the global recession) had potential history-making heft. By contrast, Harper’s Davos manifesto woke up experts in a half-dozen fields to the prospect of an unexpected stretch of watershed Conservative activism.

Scaling back retirement entitlements is the most instantly controversial element. The OAS is almost certainly his main target. Most seniors collect it, although part or all is taxed back from those with higher incomes. One possible cost-saving reform: raising the eligibility age above the present 65. Unlike the Canada Pension Plan, which is financed by paycheque deductions, OAS is funded from general tax revenues. The number of seniors qualifying under today’s rules is expected to swell to 9.3 million from 4.7 million over the next two decades. Benefits are on track to balloon to more than $100 billion a year from about $40 billion. Keith Ambachtsheer, director of the University of Toronto’s Rotman International Centre for Pension Management, said benefits for retired baby boomers will have to be covered by higher taxes on the shrinking pool of younger workers. “Is that fair?” Ambachscheer asks. “Is it their fault that they are fewer in numbers than the outsized boomer generation?”

Demographic pressure is also driving immigration reform. Fewer born-in-Canada workers entering the job market means immigrants will have to do more of the economy’s heavy lifting. But in what sorts of occupations? Federal immigration formulas have favoured applicants with post-secondary degrees. Too many end up as variations on the stereotypical cab-driving Ph.D. Immigration Minister Jason Kenney has signalled a shift to seeking new Canadians with practical trade skills. “The bottom line really is productivity,” says York University sociology professor Alan Simmons, author of Immigration and Canada: Global and Transnational Perspectives. “If that means we have to bring people in at other levels—welders, farmers, whatever—that’s better for the longer-term economy.”

Harper’s bid to reform pensions and immigration is the first clear public sign that his government is taking demographic change seriously. Yet the issue has hardly crept up on him. His first Tory election platform, back in 2004, asked, “Will we have enough skilled workers to support an aging population?” Since then, much of the action—until now–has been behind closed doors. By late 2010, well before last spring’s election, top federal bureaucrats were reportedly working urgently on the problem. Early last fall, Finance Minister Jim Flaherty gathered senior business leaders and public servants in Wakefield, Que., for a private summit on how to adapt as a greying population strained health and pension systems. The Conservatives have been far more open in avidly supporting the resource projects that Harper has vowed to free from “delay for the sake of delay.”

The prime example is the lengthy review now confronting Enbridge’s $5.5-billion Northern Gateway pipeline, meant to pump Alberta oil to the port in Kitimat, B.C., to slake China’s energy thirst. However, some experts doubt the rules Harper gripes about actually scare off companies when the pay-off is potentially so huge. “Does one really believe,” asks Bram Noble, professor at the University of Saskatchewan’s School of Environment and Sustainability, “that environmental assessment regulations are so onerous that they will deter investors in the energy sector—a non-renewable resource base with an increasing global demand?”

Even more controversial than shortening environmental reviews would be any move by Ottawa to restrict the chances for First Nations groups—like those opposing the Northern Gateway—to intervene when their traditional territories are in play.

The issues surrounding trade deals seem less explosive. Still, Harper can’t assume smooth sailing on them either. The Canada-European Union free trade agreement he expects to conclude this year would require provinces and municipalities to stop favouring local firms and let EU companies compete. Plenty of possibilities for friction there. The Prime Minister’s plans to complete a free trade pact with India next year, and for Canada to join the Trans-Pacific Partnership, could also put the interests of sheltered sectors in danger. And even as trade barriers tumble, Canadian industries with lacklustre productivity will struggle to break into new markets. Harper rather dryly voiced his dissatisfaction with the way heavy federal spending on research has not translated into private sector innovation. “We believe,” he said, “that Canada’s less-than-optimal results for those investments is a significant problem for our country.”

His solution is to move on some of the proposals from a report delivered last fall by a task force, headed by software executive Tom Jenkins, on the innovation deficit. Jeremy Leonard, research director at the Montreal-based Institute for Research on Public Policy, says Ottawa’s priority should be to set up easier ways for companies seeking a competitive edge to connect with university researchers. It makes sense. Yet the long-standing failure of Canadian firms to keep up with R & D levels in other countries remains something of a mystery. Don Drummond, an influential economist and former senior federal official, recently published a paper called “Confessions of a Serial Productivity Researcher.” In it, Drummond argues that since taxes have been cut to internationally competitive levels, and other core policies adjusted to be good for growth, the persistence of a “terrible productivity record” must have something to do with the country’s “business culture.”

Harper will be hard pressed to deliver a clear policy win over such a nebulous problem. In fact, any of the goals he set at Davos are complex enough to confound even the most determined politician. His proven forte for limited measures—imposing a minimum penalty for a certain crime, or offering a tax break to specified group, or phasing out a subsidy to political parties—won’t do the trick. Boutique policies will not make a dent in files as sprawling as exports and innovation, immigration and pensions. This master of the politics of managing expectations has, for the first time as Prime Minister, set them daringly high.

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