May 11, 2006
Canada Vs. US/ PM vs. President
HIS brusque and bossy manner means that Stephen Harper may never win the affection of Canadians. But after three months as prime minister, the Conservative leader is winning respect as a politician who gets things done. The past few days brought two examples of that. On April 27th, Mr Harper announced a surprise settlement of a protracted trade war with the United States over softwood lumber. Five days later, his finance minister, Jim Flaherty, presented a budget which won applause for lowering taxes without sacrificing fiscal discipline.
To some Canadians, the lumber deal looked like surrender. In 2002, for the fourth time since 1982, the United States levied countervailing duties on exports of wood from Canada, its partner in the North American Free Trade Agreement (NAFTA). The American government has mainly failed to persuade NAFTA (and other) panels of its case that Canada subsidises lumber. It seemed that the battle would be fought to the last lawyer.
But Mr Harper is eager to improve relations with George Bush's government. After a week of talks, both sides agreed a draft deal which in essence returns to the previous regime of managed trade. The Americans will drop the sanctions, and return $4 billion of the $5 billion they have collected in duties. Canada accepted that its share of the American market be capped at 34%. It agreed to impose export taxes and limit shipments if prices in the United States fall much below their current—unusually high—levels.
The previous Liberal government had held out for better terms. But Mr Harper won the grudging acceptance of battle-weary sawmill managers, and the provincial politicians who administer the forests. Some are quietly relieved that the time-consuming and costly dispute may soon be over. The biggest losers are Americans, who will pay more for their houses.The Conservatives' first budget strikes the same pragmatic note. It contains 29 different tax breaks. These include a campaign promise to shave one percentage point from the sales tax, and a tax credit on public-transport tickets aimed at encouraging commuters to leave their cars at home. Perhaps most importantly, the gap between corporate taxes in Canada and the United States will narrow.
Unlike their Republican neighbours to the south, Canada's Tories are determined to maintain their predecessors' record of balanced budgets, stretching back eight years. They promise to rein in government spending, which showed signs of running away under the Liberals. Last year's entire C$8 billion ($7 billion) surplus will go towards paying down the national debt. From now on, C$3 billion will be set aside each year for debt reduction. That would reduce the ratio of public debt to GDP, already the lowest of any of the G7 large industrial economies, to 25% by 2014.
Mr Flaherty could afford this combination of largesse and virtue because Canada is among the chief beneficiaries of the current boom in commodity prices. Corporate profits are at record levels, and the unemployment rate is at a 30-year low. The finance department estimates that income-tax collections will climb by almost a fifth in the three years to 2008.