Part I

Part II

Part III

Part IV

The chart, and numbers, say it all.

Harper and his Conservative government cronies have been piling on the debt for virtually all of fiscal year 2008/09, and, only after the fall election has come and gone, Harper and Flaherty now tell us its going to get much worse.

Cumulative financial source (surplus) and requirement (debt)

Figures are from the monthly Fiscal Monitor, published by the Ministry of Finance: All Months 2008 | November 2008 (PDF)

Even as Stephen Harper and Jimmy Flaherty were pounding the election trail telling us that Canada would not experience a recession, and would not entertain the notion of fiscal deficits, Stephen Harper's government was piling on the debt in Canada. That was back in October. In November it got even worse.

There is no other way to put this - the big lie they told allowed them to hang on to power.

During the election, Harper knew that his government was piling on the debt already. On the hustings both he and Flaherty promised that Canada would not entertain deficit spending, but even as he made that promise Canada was already funding its spending via debt. The government was, and clearly still is, spending more than it takes in.

While politicians may try to hind behind cute word games like "budgetary surplus", real Canadians know that if they spend more than they take in, they go deeper in debt, whether one had a budget for the spending or not.

As the financial source/(requirement) chart above shows, throughout this fiscal year the Harper government's financial performance has dramatically underperformed every single government this decade, and has done so for virtually the entire fiscal year. Even during the 911 and SARS crises Canada's finances handled the stormy weather with ease. Under Harper's watch, the bilge is filling, the pumps aren't working, and the boat threatens to sink into the sea.

Our position in this election is we're not going to run deficits Stephen Harper, October 7 2008

During the recent federal election I posted a detailed analysis of federal government finances comparing this fiscal year to all years prior this decade. In addition to discovering that the federal government already had been running an operational deficit of between 13 and 23 billion dollars, and that such a deficit was virtually unheard of during this decade, I also observed Harper and Flaherty dancing around the issue as the election ground on:

Stephen Harper has repeatedly claimed his management is one of prudence, that his government is running a surplus, and on Tuesday he specifically said his government would not run a deficit (Reuters, Oct. 7 2008), after having danced around that issue of late (Calgary Herald, Oct. 6 2008).

Now the election is over, the hidden agenda, or hidden deficit, has come out of its cave:

• Harper mulls running deficit to stimulate economy, as G20 summit ends (Sheldon Alberts, Canwest News, November 15 2008)
• Expect deficit, Tories warn (The Gazette, Canwest News, November 19 2008)
• Flaherty to Stay as Canada Finance Minister, Hints at Deficit (Bloomberg, October 29, 2008)

Today Parliament's independent Budget Officer cites certain Conservative government policies as fundamental causes underlying the impending federal deficit Harper and Flaherty now say is inevitable, even though just a few short weeks ago during the election they claimed would never, ever, happen.

• Tories blamed for coming deficits: GST cut, spending driving Canada into red, Budget officer Kevin Page warns (David Akin, Canwest News, November 20 2008)
• Ottawa's '09 deficit may hit $14B (Les Whittington, The Star)
• Policies, not crisis seen causing Canada deficit (Louise Egan, Reuters, November 20, 2008)

We could be looking at a bugetary deficit of as much as 14 billion dollars. Kevin Page, Parliamentary Budget Officer, November 20, 2008

The report straight from the horse's mouth: Economic and Fiscal Assessment (Parliamentary Budget Office, Ottawa, Canada, November 20, 2008 - www.parl.gc.ca/pbo-dpb)

As the Harper government has been known to "disappear" documents, and parliamentary officers, it doesn't like, I've attached the above noted assessment to this post for future research purposes.

That Wall Street has gone down because of this is justice. They built a castle to rip people off. Not once in all these years have I come across a person inside a big Wall Street firm who was having a crisis of conscience. Steve Eisman

On a day when the Toronto Stock Exchange TSX Index hits a four year low, and the U.S. market's S&p 500 index hits a five year low, might I recommend this fascinating and approachable (if occasionally technical) article as one of the best insider stories on the root causes of the meltdown that I've come across to date - from Condé Nast's Portfolio.com:

The End, by Michael Lewis, November 11 2008

The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility. The rebellion by American youth against the money culture never happened. Why bother to overturn your parents’ world when you can buy it, slice it up into tranches, and sell off the pieces?

At some point, I gave up waiting for the end. There was no scandal or reversal, I assumed, that could sink the system.

Then came Meredith Whitney with news.

FFF - Flaherty's Fiscal Fumbles - destined to become a regular feature. Today's instalment: Flaherty's moves have only enabled more corporate tax avoidance.

Recently a $13 billion dollar deal concluded, allowing Teck to buy the remaining shares of Fording Canadian Coal Trust. Despite all the talk of the on-going credit crunch, the overly generous moves by the Bank of Canada and Flaherty's Ministry of Finance have made it possible for banks to work with Teck to obtain the necessary financing and conclude the deal.

No new jobs will be created through this transaction. There is no net benefit to Canada.

Yet Canadian taxpayers are footing a big chunk of the bill, by providing a taxpayer-backed credit backstop, and through being shafted as Teck avoids paying a $4 billion dollar tax bill as a result of this transaction.

While this exercise in tax avoidance plays out under our very noses, lets think back to the last time tax avoidance was a subject in vogue in Conservative politics in Canada.

On October 31st, 2006 Jim Flaherty, then and now the Conservative Minister of Finance, announced that Income Trusts would in the future be subjected to new taxation. The move was particularly controversial as the Conservatives had campaigned only months earlier in part on a promise to leave the income trust sector alone.

The aftermath, dubbed the Halloween Massacre, saw the income trust market plummeting on the news, erasing billions in market value in the weeks to follow. Small and large investors alike, including many of Canada's pension plans, were significantly impacted by the on-going turmoil. Now more than two years later, many still feel betrayed.

Stephen Harper and Jim Flaherty's volte-face on trusts was defended as a sign their government was serious about fairness in taxation. Flaherty said trust conversion was "a growing trend to corporate tax avoidance". From a CBC News article:

By some estimates, the federal and provincial governments stand to lose as much as $1 billion annually in tax revenue to trusts. There are now more than 250 income trusts in Canada.

Trust conversions are increasing in popularity because trusts do not pay corporate tax. Instead, they pay out most of their income in distributions to unitholders, who then pay tax on those distributions.

Flaherty said that situation could not be allowed to continue. "This trend has caused me growing concern," he said. "It's not right and it's not fair."

Bringing both pieces of the puzzle together:

• In October 2006 Conservative Finance Minister Jim Flaherty closed what he called a "loophole" that companies could exploit to avoid paying their fair share of taxes, a loss to taxpayers controversially estimated at the time at $1 billion a year.
• In fall 2008 that same finance minister, backed by Stephen Harper appointed Mark Carney, governor of the Bank of Canada, enabled Teck Cominco to avoid paying $4 billion in corporate taxes.

Flaherty's Fiscal Fumble has cost Canadian taxpayers at least $4 billion in avoided corporate taxes plus we are even footing part of the bill which makes this deal possible in the first place.

The deal smells so bad that even those in financial circles are fuming about it.

Stephen "No Recession" Harper and Jim "No Deficit" Flaherty post a whopping 1.7 billion deficit in August. What will September record?

Source - The Fiscal Monitor, August 2008:

There was a budgetary deficit of $1.7 billion in August 2008, compared to a deficit of $0.1 billion in August 2007. Budgetary revenues were up $0.1 billion, or 0.5 per cent, from August 2007, as higher personal income tax and other revenues were largely offset by lower corporate income tax, goods and services tax (GST) and sales and excise tax revenues. Program expenses increased by $1.5 billion, or 10.1 per cent, compared to August 2007, reflecting higher transfer payments and operating expenses of departments and agencies. Public debt charges increased by $0.2 billion compared to August 2007.

This builds on what I noted during the election as Canada's growing cash flow deficit. Only post-election has the subject of debt, deficit, and recession gained traction in the popular media.

In my previous article on the issue I had made the distinction between budgetary surplus and deficit, and operational surplus or deficit. Semantics allows Harper's Conservative government to claim Canada is still enjoying a surplus even while Canada has been taking on new debt at a furious pace this year.

As of August - operational surplus or (debt)

From April to the end of August the Conservative government has racked up $17.6 billion in new debt and reduced Canada's cash balance by $2 billion, leaving about $9 billion left in the kitty. Interest charges on this new debt (less loans to crown corporations) so far total around $60 million. The fiscal year is far from over.

Plainly put, the government is already living beyond its means. Canada has taken on much more debt (and the interest charges this implies) this year than is normal for the year to date period, and cash balances are lower. Were the economy still expanding robustly, we could afford less concern, yet this is not the case.

In August 2007 Canada, and the world, was not on the brink of economic recession. This year we are. Last year Canada had huge surpluses throughout the entire year, while this year the cash flow picture has been negative all year to date, a situation not seen since 2002/2003. There is every expectation this fiscal year will be the worst Canada has faced in decades. Previous governments have retained sufficient reserves to deal with economic turmoil, but the Harper government is not so prepared.

It will be tempting for the opposition to merely claim the Harper government are bad managers. Don't make that mistake. Focussing on the amount of red ink alone will cause many to miss the more important point which is the Harper government, in the final analysis, doesn't care if it runs some red ink. Why? Harper's primary mission is to keep shovelling out tax cuts and transfers to provinces in order to reach its final objective: a permanent weakening of the power of the federal government.

Surpluses and deficits are ephemeral. Whatever fleeting angst one feels on review of the latest federal government balance sheet will not compare to the pain we shall experience in the future thanks to a weakened Canada and its dismantled federal government, one Harper wishes to design using the 1867 era as his pattern.

Was Canada better off in 1867 than it is today?