Canada

THE HEAT IS ON

Paul Martin is resisting backbench pressure to put money into job creation

E. KAYE FULTON October 7 1996
Canada

THE HEAT IS ON

Paul Martin is resisting backbench pressure to put money into job creation

E. KAYE FULTON October 7 1996

THE HEAT IS ON

Canada

SPECIAL REPORT

Paul Martin is resisting backbench pressure to put money into job creation

E. KAYE FULTON

MARY JANIGAN

Like a grim snapshot from the Great Depression, the sharp flare of fires blazing in garbage cans illuminated thousands of job-seekers huddled against the bone-chilling, pre-dawn cold. It was Jan. 9, 1995, and automotive giant General Motors of Canada Ltd. had called for applicants for lucrative assembly-line work at its plant in Oshawa, Ont. Liberal MP Dan McTeague, who expected to see mostly local con« stituents vie for a rumored 500 £ jobs, watched in astonishment f as 25,000 people, some from as | far away as Saskatchewan, shufg fled in lines that curled around E the massive convention hall “

where applicants were received. Twenty months later, not one has been hired. GM has actually laid off 1,100 employees, although 1995 corporate profits hit $1.4 billion. And McTeague remains as bitter as many of the job-seekers. “It was the biggest, cruellest joke,” he fumes. “That day captures the frustration of the 1990s, when hope was great but opportunities were limited. I still get a lot of people saying to me, ‘Remember, you were there, Mr. McTeague, giving out coffee. But I still don’t have a job—what’s the problem here?’ ” Answers to that question are hard to come by. True, Liberal MPs are able to recite the government’s cheery mantra that nearly 600,000 new jobs have been created since it took office in late 1993. But as soon as those Liberal MPs leave Parliament Hill, they are confronted by angry constituents who are among the 1.4 million Canadians currently looking for work. Most MPs have accepted, often with pained resignation, Finance Minister Paul Martin’s dogged quest to curb the deficit. But with an election year ahead, and with the government now expected to generate as much as $4 billion in unanticipated revenues during the current fiscal year, distressed MPs are pleading with Martin to use the windfall to create more jobs—instead of making further reductions in the $24.3-billion deficit. At the same time, some prominent economists have assailed Ottawa for tight monetary policy that, they say, has kept unemployment unacceptably high (page 20). There are almost as many competing ideas for job creation—in-

eluding a personal income tax cut—as there are squabbling Liberal MPs. But despite that sense of urgency, the finance minister is standing firm. “It’s not only the MPs who say spend the surplus [rev-

enues],” Martin told Maclean’s last week. “The very same people who, when we set the deficit targets said, "You’re not going hard enough,’ now say, "You’re beating your targets, you should spend the money.’ I said three years ago what I was going to do. I’m not going to change now. And if all the weak sisters in the God damn world, half of whom are on Bay Street, change their minds every time the weather changes, they can basically go fly a kite.”

Instead, Martin is counting on the combination of reduced deficits, low inflation and low interest rates to goad the private sector into more job creation. Additional government-initiated measures will be kept to a minimum. Maclean’s has learned that the government will reduce Employment Insurance premiums, which discourage employers from hiring new workers, by only five cents per $100 of income on Jan. 1,1997. The government could have cut further—the El fund will generate an estimated $5-billion surplus this year. Martin has also set aside $1 billion in federal funds over a three-year period for a new infrastructure program in partnership with the provinces and the municipalities. This week, at a meeting in Ottawa, he will try to persuade his reluctant provincial counter-

parts to contribute their share. Ottawa will also introduce minor tax breaks, such as an increase in the Working Income Supplement for needy families, on the assumption that such measures will entice consumers to spend more— which in turn may create more jobs.

As well, the federal government will direct more funds to programs in the three areas where it believes that there is great potential for job growth: youth, high technology and export development. And senior Liberals such as Martin and Industry Minister John Manley want to allow foreign banks to compete with Canada’s tight-fisted charter banks in the provision of more services, such as loans to small business, when the Bank Act is renewed next year. “The point is to really focus the attention of the banking community on what the needs of the Canadian economy are,” Manley told Maclean’s. “The best vehicle for that is robust competition.”

But such measures will fall far short of what many MPs are demanding. When the unemployment rate bounced up to 10 per cent last summer, many backbenchers panicked— and demanded further government action. Now, although unemployment has dropped slightly to a seasonally adjusted 9.4 per cent, they still have the jitters. Some MPs, such as Toronto’s Maria Minna, are exerting pressure on Martin to institute a much larger infrastructure program that will target high technology and day care programs. Others, such as Sarnia MP Roger Gallaway, want significant cuts in El premiums. McTeague, for his part, wants the Bank of Canada to ease up on its war on inflation—and move towards even lower interest rates. “The caucus recognizes that there is only so much that we can do,” he says. “But it shows the limited face of government in what used to be a crisis.”

To soothe their backbench MPs, Prime Minister Jean Chrétien and Martin have deluged them with charts, pep talks and reassuring predictions. Two months ago, each Liberal MP received a glossy inch-thick folder, entitled “An Agenda for Growth ... A Jobs Strategy.” That detailed kit outlined the economic situation in each province and the accomplishments of 14 federal agencies—and it painted an optimistic picture. MPs were given selected economic success stories from each province, sample reports to mail to their constituents, a ready-made article for community newspapers with blank spaces for MPs to insert regional data, and a video that captured the highlights of Ottawa’s economic record. The $150,000 package was prepared with taxpayers’ money. “The Liberals are just playing politics with this promise of jobs, jobs, jobs,” complained Reform party MP Jim Silye. ‘What they are more worried about is training their own MPs on what to say.”

In fact, there was evidence last week that some liberal insiders were honing their economic arguments in preparation for an election as early as next spring. According to their scenario, Ottawa would present its budget in early February, avoid any unsettling measures such as unexpected tax changes—and then move swifdy to the polls. The Liberals believe that their party alone has positioned itself successfully as the protector of jobs—with the exception of the New Democratic Party and the Conservative party—both of them nearly moribund in the House of Commons. But if the Liberals wait until the fall to call an election, some strategists maintain that the party may be taking a gamble if Martin’s frequent predictions about more rapid job growth in 1997 do not stand up. “Right now,” observed Liberal pollster Michael Marzolini, president of Insight Canada Research, “between three and four out of 10 Canadians say that jobs is the most important issue. I am sure that once an election starts, it will rise to 50 per cent or more. I do not think that the government can be sanguine about this.”

Even with their kits and their carefully culled statistics,

the Liberals have good reason to be wary of the jobs issue—no matter when an election is called. On the surface, the picture is rosy: internal party polls indicate that 57 per cent of Canadians applaud Ottawa’s job creation record. But only 46 per cent believe that the Liberals have kept their election promises. In the 1993 election, the Liberals repeatedly hammered the Conservative government for its dismal job creation record.

Three years later, the Liberals are worried that the voters, who already harbor doubts about their credibility, may turn on them if job creation becomes the central campaign issue. “When I tell people that the economy has created 600,000 jobs, they don’t believe it,” says Liberal caucus chairman Joe Fontana. “They look among their friends, and one out of five people is either out of a job or underemployed.”

What the public sees, perhaps, is the all-too-human face of the whole employment picture. True, the Organization for Economic Co-operation and Development says that in 1996 and 1997 Canada will probably have the highest employment growth of all major industrial nations, including the United States and Japan. But the pace of job creation has barely kept up with the growth of the population. Even if the Liberals do reach their unofficial target of one million jobs, it would barely make a dent in the unemployment rate. In fact, the job market has never bounced back to its confident, recordsetting highs of 1989. Then, 62.6 per cent of the working age population had a job. Today, only 58.7 per cent are employed. Worse, hundreds of thousands of Canadians have simply dropped out.

Although unemployment is unlikely to drop significantly over the next few years, the Liberals are unwilling to make big cuts in their so-called payroll taxes—Employment Insurance and Canada Pension Plan premiums—in the hope of encouraging more job creation.

The government’s measures fall far short of what many MPs want

Every time an employer hires an employee, both must pay those premiums. The contributions rise to a set ceiling as the salary of the employee rises. And those payroll deductions—coupled with income tax—are massive. Last year, the OECD added together two significant numbers: an average Canadian industrial salary and the amount that an employer paid in payroll taxes on that salary in 1992.

Incredibly, the OECD concluded that federal and provincial governments gobbled up almost half of that total in income taxes and payroll taxes. It is cheaper to pay overtime to existing workers than to create new jobs. Worse, CPP premiums will rise next year, further eroding the incentive to hire.

But Martin will barely budge. If he reduces payroll taxes, he cuts his revenues. And the Liberals want every dime for their first priority: the fight to control the debt and the deficit which, they calculate, will lead to lower interest rates. They argue that if companies can borrow more cheaply, they will expand, creating more jobs. As a result, in early November, Human Resources Minister Doug Young will announce a paltry reduction in El premiums: five cents per $100 of employee income, reducing the current $2.95 per $100 for employees and $4.13 for employers. Many MPs demanded further cuts, including Martin’s own parliamentary secretary, Liberal MP Robert Nault, who advocated a 20-cent cut last summer. Thomas d’Aquino, president of the Business Council on National Issues, counters: “If the minister does a massive cut, he will be compelled to bring in a replacement tax. People would be in an uproar.”

The Liberals will also revive their most visible vehicle for job creation, a joint federal-provincial infrastructure program. The current three-year program—to which the provinces, the municipalities and Ottawa each contributed $2 billion—expires next March. But this

‘THE WORLD HAS CHANGED’

Late last week, Finance Minister Paul Martin spoke to Maclean’s Ottawa Correspondent E. Kaye Fulton and Contributing Editor Mary Janigan. Excerpts:

Maclean’s: Personal tax cuts are popular— why play Scrooge ?

Martin: Lower interest rates put more money in people’s pockets than any personal income tax cut could do. That’s what creates consumer confidence. If I give a tax cut and I slow down the reduction of the deficit, everything that we’ve done will be wiped out.

Maclean’s: Is the attack on the deficit impeding job creation ?

Martin: We’ve had decades of doing things that are politically attractive and economically backward. That has put us in a situation where we’ve had high unemployment for far too long. There is no government program that will get people back to work as quickly as getting interest rates down. Well, we’ve got them down and those job numbers are increasing—because we’ve attacked the deficit. So don’t ask me to reverse course on the deficit, because you will never create as many jobs as you will lose.

Maclean’s: What then is your job strategy ? Martin: We’ve got to start talking about economic growth and how you create it. So if somebody says, The deficit is going down—are you prepared to put money into this reinvention of the economy?’ my answer is absolutely yes. People think that the only ones who get employed in the new economy are people who wear white lab £ coats. But you also have the worker in the ship§ ping dock, people cutting the grass, people serv| ing in the cafeteria. The new economy makes a something or provides a service. The old econ“ omy made something or provided a service, t That’s what you’ve constantly got to reinvent. ^ The world has changed—once they were making plastics over here and now they are making nothing. And what we’ve got to do is get them making something. Anything.

Maclean’s: Has the face of unemployment changed?

Martin: I don’t go back to my riding for one weekend when I don’t sit down with people who are out of work. When I first started politics the problem was always, ‘Can you help me get a job?’ Now, it’s ‘Can you get my child a job?’ Either people are growing accustomed to it or their real concern is for the next generation. They don’t blame government any more. But they really feel that there are forces out there that neither they nor government can control.

time, if Industry Minister Manley has his way, most of the funds will go to hightech projects, research and development and the upgrading of tourism facilities. Originally, Maclean’s has learned,

Manley and Young wanted $3 billion to $4 billion over three years. The cabinet has now settled on approximately $1 billion over the same period. The difficulty is that the provinces may not provide matching funds. Quebec simply cannot afford it. And Ontario, British Columbia and Alberta are grumbling about the fact that Ottawa and various city governments somehow managed to reap most of the credit for the last batch of projects, even though provincial governments put up one-third of the money. Since the consent—and the financial contribution—of every province is required to ensure that the benefits are spread evenly across the country, Martin may not be able to proceed with the program before the next election if his provincial counterparts continue to balk during the finance ministers’ meeting in Ottawa this week.

In fact, Liberal MPs will have to make do with programs that are stolid, far from sexy, hard to explain—and maybe even harder to sell. Martin says that he wants to use the tax system to direct more money to low-income consumers. Ottawa will almost certainly use the 1997 budget to increase the following: the $400 tax credit for Canadians who care for dependent relatives; the $100-per-month education credit for students; the $500-per-year Working Income Supplement, already slated to rise to $1,000 in July, 1998; and the $1,020per-child annual Child Tax Benefit for lower-income families.

The Liberals are also likely to find more money for the three areas—youth, high technology and export development—where they calculate they can get the most employment bang for their pennypinching buck. There were actually 25,000 fewer young people working in August, 1996, than in August, 1995; more funding is needed to ease young people from school to employment. There will be more money for programs that foster the development and use of high-tech products. And Ottawa wants to encourage more firms to seek and secure export markets: it calculates that every $1 billion in exports represents 11,000 jobs. As International Trade Minister Art Eggleton told Maclean’s: ‘We are a trading nation, we are not a nation of traders. There are two million businesses in this country but only 100 do half of all exports.”

There are other measures afoot. Last spring, Ottawa promised to transfer $2 billion in federal manpower retraining funds to the provinces. After months of tussling, Young and many of his provincial counterparts are close to a deal. The human resources minister said last week that he expects as many as five provinces—Alberta, Newfoundland, Prince Edward Island, Quebec and New Brunswick—to sign agreements with Ottawa before April 1. Under the plan, both levels of government would set up one-stop centres for all job-seekers, whether they are on El, welfare or simply looking for work. At best, any unemployed person could walk in the door, pick up a cheque from El or welfare and sign up for any training program from any level of government. “We are trying to encourage the provinces to create a single window,” said Young. For the unemployed, who must now wander from office to office, looking for cheques and sorting through a maze of training programs, the chances of finding the right help could improve œ considerably.

§ But for many MPs, these measures are not nearly enough. In Î their frustration, some Liberal caucus members have picked up the I public’s disenchantment with large corporations. The Canadian

Bankers’ Association has nervously pointed out that its members have more than $44 billion in credit available to small business—but only $30 billion of that amount has been borrowed. MPs counter that the banks’ criteria are too stringent. This week, Toronto Liberal MP Sarkis Assadourian will introduce a private member’s bill to allow foreign banks to compete with Canadian banks in the provision of every seris vice, from personal chequing accounts & to small business loans. When asked if f he reminded the banks that their cur! rent protection from most foreign S competition incurred responsibilities, I caucus chairman Fontana replied: ë “Every day. They don’t like it when I ë say to them, You should be doing a lot more, or else.’ They ask me, What do you mean by or else?’ Or else means more taxation. Or else means any number of things.”

In the meantime, federal politicians must still go home to ridings where nearly everyone knows someone who is desperate for work. They are, by now, armed with a communications strategy that is so ingrained that cabinet ministers and MPs alike recite identical sentences larded with identical examples. But many know that slogans are not enough. Sarnia MP Roger Gallaway said that he set up a regional economic renewal council last year composed of 17 politicians and business representatives. The council pinpointed areas where there were job vacancies, asking the local community college to provide training programs to fill the gap. It targeted zoning regulations that impeded investment. Says Gallaway: “For members who are paying any attention, 9.4 per cent unemployment is absolutely horrendous.” It is a verdict that no one would dispute—and no one seems to have the ability to change. □