EXCLUSIVE: Into the party line of 2020’s Conservative leadership race

Come August, Peter MacKay and Erin O’Toole are expected to be at the top of Conservatives' ballots.

MacKay was a prominent cabinet minister in both terms of the Harper administration. O’Toole was a military retiree elected in a 2012 by-election, entering cabinet only in the administration's final year.

The two front runners have released platforms that deviate little from the project of Canada’s previous and existing Conservative administrations. In the wake of COVID-19, they are calling for tax cuts, slashing the debt, cutting regulations, expanding free trade, and growing the oil and gas sector.  

Tax Cuts

Disdain for “big government” is the bedrock of the platforms of O'Toole and MacKay. In the words of O'Toole, it is only once the government is “out of the way” can a Conservative administration “unleash the private sector.”

To do so, MacKay promises a “comprehensive review of our tax system” that would make us “competitive with the United States.” He envisions a reduction in the Capital Gains tax—the tax on money accrued through investment and real estate.

Although spicing his proposals with condemnations of the wealthy, O’Toole similarly suggests cutting taxes “for all businesses” so as to “reduce, flatten, and considerably simplify taxes.”

“The trouble with tax cuts is a company can use them for anything,” says Robert Chernomas, an economist at the University of Manitoba. “When the government spends, the money then gets directly injected into the economy. There’s no money that’s going to stock buybacks or invested in China or Mexico.”

When MacKay was in cabinet, his administration saw the lowering of the corporate income tax from 22.1 percent in 2007 to 15 percent by 2012. By 2013, the world’s leading financial institutions determined that business tax rates in Canada were some of the lowest in the world.

Yet, as taxes fell, private investment in the Canadian economy fell equally as rapidly. Meanwhile, corporate tax reserves (referred to by the Bank of Canada as “dead money”) increased substantially. Finance Canada estimated that strategic public investment could have resulted in five times the number of jobs—and economic stimulus—as the equivalent given in tax cuts.

Still, O’Toole and MacKay highlight that lower taxes will help small and medium sized businesses, an assurance to the sector that they pack in with other policy proposals.

Chernomas says that while tax cuts for smaller businesses are an option, money may be better invested by opening government contracts through infrastructure investment, by ensuring consumers have money to spend, and by publicly funding health services otherwise provided by employers through benefits.

Slashing Debt

But an emphasis on government spending is out of step with the philosophy of the MacKay and O’Toole project. Both stress a need to “return to balanced budgets,” after the epidemic. O’Toole even suggests a “Pay-as-You-Go rule” that would require a government to find one dollar in savings for each new dollar spent.

Projections for Canada’s debt-to-GDP ratio after COVID-19 hover around 50 percent. This is considerably smaller than past deficits that went as high as 109 percent in 1946.

“What did we do in 1946?” asks Chernomas by way of providing a model. “Did we start cutting taxes to bring those deficits down? The answer is that the government did the opposite. We began to spend in Canada. And what happened to our big debt? The economy grew much faster than our debt and it gradually disappeared.”

MacKay and O’Toole both point to a more recent history in the way of a counter-example on dealing with deficits: Harper’s handling of the 2008-2009 financial crisis.

The debt-reduction strategy pursued by Harper (focused on reducing spending) saw 25,000 public sector positions liquidated between 2011 and 2015. The public was assured that these were “backroom” positions.

Staff at Veterans Affairs were cut by 24 percent (mainly in those departments handling health, rehabilitation, and pensions,) the Canadian Food Inspection Agency was set to lose 1,407 full-time positions between 2012 and 2016 (leading to a reduction in food inspections), and the staff of Environment Canada was cut by 21 percent with 338 people forced to leave the climate-change division alone.

O’Toole’s only and brief experience in cabinet was as Minister of Veterans Affairs, repairing relationships with Afghanistan veterans who had launched a class action after an overhaul of their benefits.

Cutting Red Tape

Following the philosophy of small government, the Conservative front runners adamantly push a “red tape” reduction program. MacKay attributes the failure of several industrial sectors, namely Canada’s tech and manufacturing industry, to abundant “red tape.” O’Toole wants to task a minister with tabling at least one “Red Tape Reduction Act” every year.

Neither are clear on precise policies that would be associated with reducing regulations.

Nonetheless, the Harper government had a similar strategy of red tape reduction. The Canadian Environmental Assessment Agency (CEAA) had its budget cut by 43 percent in 2012. The committee set up to review the CEAA issued a report that lifted language “verbatim” from the recommendations of industry lobbyists.

Today’s $260 billion cost to clean up the oil sands is largely believed to be the consequence of a “flawed system” of industrial oversight.

The 2013 Lac-Megantic rail disaster which killed 47 people is cited as another notable consequence of the weak regulatory structure maintained under the Conservatives. It had meant fewer inspections, increasing rail shipments, and deferred maintenance for crumbling infrastructure.

Expanding Free Trade

Along with reducing red-tape, O’Toole and MacKay plan on increasing free trade. They diverge somewhat on specifics.

O’Toole looks to make big corporations compete by exposing Canadian companies like our “airline and wireless services to foreign competition.” O’Toole plans to “aggressively pursue” export markets, particularly through trade agreements with Latin America, India, Australia, New Zealand, and the UK.

MacKay wants unfair trade practices to be squashed, an end to outsourcing to “places like China,” and trade missions to regain “lost” export markets.  

Following the Comprehensive Economic and Trade Agreement (CETA) with the EU (negotiated by the Harper administration, signed by the Liberals,) Canadian exports to the region remained essentially flat. However, imports from countries in the EU increased by over a third, leading Canada’s trade deficit with the EU to double in two years from $1.5 billion to $3.43 billion.

Canada cannot compete domestically with the EU’s sophisticated manufacturing sector. With CETA in place, Bombardier famously lost a billion dollar contract in Canada to Germany’s Siemens.

The Trans-Pacific Partnership, one of the largest trade deals in world history, saw Canada sign on to an agreement with Pacific Rim countries like Japan, New Zealand, and Australia. This was championed by the government of O’Toole and MacKay as decreasing tariffs on key Canadian exports.

96.8 percent of Canada’s exports already faced no trade barriers in the region. By signing on with manufacturing giants like Japan, Canada lowered its tariffs for countries it imports from twice as much as it exports to.

Canada's high imports of manufactured products are attributed by some for accounting for the loss of roughly 500,000 manufacturing jobs in Canada between 2001 and 2014.

Through Harper’s Americas Strategy, free trade agreements were signed throughout Latin America, increasing Canadian trade by 33 percent between 2006 and 2012. The Canadian mining industry now accounts for 41 percent of mining in the region (although returns for Canadians are extremely minimal from these operations).

These agreements created Investor-State Dispute Settlement (ISDS) mechanisms that allow multinationals to sue signatories to a trade deal in a private tribunal.

The ISDS mechanism was cancelled in NAFTA after Canada became the most-sued country under the treaty. Nonetheless, Canadian companies remain highly litigious in Latin America where the ISDS continues to exist, with governments currently facing billions in fines for having diminished corporations’ profitability—typically in ecologically sensitive agricultural communities whose livelihoods are threatened by mining.

Shelving Emissions Targets

Outside of their plans for oil and gas, both MacKay and O’Toole have few substantial proposals for lowering carbon emissions.

MacKay proposes investments in carbon sequestration, conservation efforts, and “clean” technologies. O’Toole offers the same, while further proposing to build nuclear energy and to retrofit buildings for extreme weather.

Neither outline an exact strategy for Canada to meet its international commitments.

Despite a small population, Canada is frequently ranked as the tenth largest emitter of greenhouse gas in the world. It is the third largest in per capita terms. Of major polluters, it is one of the wealthiest and most industrialized.

Under the Paris Climate Accord, Canada pledged to keep temperature increases under 2C by getting emissions 30 percent below 2005 levels (conservative estimates now suggest that this target would only keep temperatures below 3C). MacKay is forthright: “these targets are aspirational,” those who claim that Canada will be a net-zero emitter in the coming decades “make empty and meaningless pledges.”

Both candidates suggest dismantling current environmental legislation like Bill C-48, C-69 (governing environmental assessments), and Trudeau’s carbon pricing regime. MacKay sums up the common sentiment underlying their approach: “There is perhaps no single more important initiative that Canada could undertake to reduce global greenhouse gas emissions than to export our liquefied natural gas.”

China is the focus of this export strategy.

Ian Hussey, research manager at the Parkland Institute, considers the expectation that Canada would fill Chinese oil and gas demand, to be based largely on misconceptions of Canada’s export capacity and international demand.

“China has access to many other sources of oil. There are direct pipelines from Russia into China,” said Hussey. “China also imports oil from North Africa and the Middle East. These are cheaper on a cost and transportation basis.”

Despite being able to send shipments to Asia, virtually no oil is being shipped to markets other than the West Coast of the US from Vancouver ports.

As for whether Canadian oil will be key in transitioning to a low-carbon future: “It’s just a scientific fact that Alberta oil is among the most GHG intensive in the world,” notes Hussey.

Alberta bitumen is the fourth most carbon-intensive oil on earth, releasing 70 percent more GHG emissions than the average crude oil produced elsewhere.

Unconventional gas, on the other hand, the majority of Canada’s remaining gas supply, leaks substantial amounts of methane in its extraction and combustion. If exported to China, Canadian LNG would mean at least 18.5 percent more emissions in the next two decades compared to the alternatives China is currently employing in their transition from old low-efficiency coal power plants.

With oil and gas heavy in GHG emissions, existing pipelines and rail capacity are sufficient, according to analysts, to meet forecast production under Alberta’s emissions caps.

Pushing Oil and Gas

However, both O’Toole and MacKay see potential for economic growth and satisfying domestic demand through expanding infrastructure projects. Mentions of Indigenous communities are virtually confined to the partnerships they offer through these projects.

O’Toole ambitiously suggests that he will “propose” a strategy in North America to end imports of oil from outside the continent. He plans to grow the transportation of natural gas by pipeline, to scrap the Northern drilling ban, while supporting an act to expedite “nationally strategic” pipelines. MacKay draws out these policies in more general strokes while offering tax cuts for exploration projects and an end to imports of foreign oil.

“The reality is, in Canada, the oil industry is run by private businesses, it’s not run by the government,” says Hussey. “It’s a company's decision whether they want to buy foreign oil or to use Alberta bitumen.”

Hussey added that there is uncertainty in how demand for oil will rebound after COVID-19. He notes that most reputable analysts, save the International Energy Agency, believe the price per barrel will not soar back to previous heights.

Investing in infrastructure for oil and gas entails multi-billion dollar projects and is often seen as “locking-in” energy consumption. This helps dissuade investments in renewable energy and an economy compatible with shifts in energy use.

Hussey’s own research notes that the job opportunities in the oil and gas sector have fallen with innovation. Though production has grown in the past decade, increasing labor productivity suggests the thousands of jobs lost between 2014 and 2016 will not be coming back.

Moreover, more than half of those currently employed are in temporary construction projects.

Canada’s share of the profits from the sector has also fallen. The effective royalty rate in Alberta fell from 19.5 percent in 2000 to 5.1 percent in 2017, meaning a loss of billions. Corporate taxes paid by the sector are half what they were in 2006 and were less than $4 billion in 2015. Recent tax cuts announced in Alberta will further reduce these revenues.

Nonetheless, the industry still receives significant subsidies from the federal government. In 2018 alone it received at least $3.3 billion in government funding. The number is likely much higher with limited public information. O’Toole initially proposed ending subsidies but removed this from his platform.

In advocating for increased public spending, Chernomas suggests that government money is better placed phasing into a “labour intensive Green economy.” Some of Canada’s most detailed research into the matter suggests substantial investments are required in constructing transit lines, retrofitting buildings, research, green manufacturing and waste management.

Canada’s renewable energy sector currently accounts for roughly 300,000 jobs and is growing at a rate faster than the economy.

These approaches claim to reduce the heavy price tag associated with cleaning up orphan wells, oil spills, toxic tailings ponds, and dealing with the economic impacts of climate change.