Canadian Conservative Party leader Stephen Harper’s landslide victory in Monday’s election, capturing the first center-right majority since 1988, is a tutorial in economics as much as politics. Aspiring Presidential candidates south of the 49th parallel, please take note.
Mr. Harper has been running a minority government since 2006 and this time he won big. Conservatives captured 167 seats of 308. Second place went to the hard-left New Democratic Party, which won 102 seats and is now the official opposition, replacing the more moderate center-left Liberal Party. Liberals won a scant 34 seats, while the separatist party, Bloc Quebecois, took the worst drubbing, winning only four seats against 47 in the last parliament.
Mr. Harper was conciliatory on Monday night but also took appropriate credit. "We got that mandate because of the way we have governed, because of our record," he said in Calgary. That record is worth reviewing, especially as it relates to government spending and taxes.
Despite its reputation for leaning left, Canada has been economically opening and liberalizing since the mid-1990s. Progressive Conservative Prime Minister Brian Mulroney negotiated the North American Free Trade Agreement in 1993 and later that decade, as the Canadian dollar swooned, the Liberals were forced to begin cutting federal spending.
Yet Liberals were only willing to go so far in shrinking Ottawa’s bureaucracy. Enter the Harper government in 2006. It made tax cuts, a strong national defense and rationalizing government its priorities. And it made good on those promises. On January 1, 2008 Canada’s general sales tax fell to 5% from 7%. Mr. Harper has also cut the federal corporate tax rate, which is now 16.5% and is scheduled to fall to 15% in 2012. (Add in provincial corporate rates of about 10%.) The U.S. federal rate alone is 35%.
Canada avoided America’s housing mania and meltdown, but as our biggest trading partner it shared some of our economic pain. Conservative policy—low taxes and a willingness to allow the exploitation of rich oil and mineral deposits—has been a life saver for a small economy heavily integrated with the U.S. Its GDP grew by 3.3% last year, compared to America’s 2.9%, and it now takes $1.05 to buy a Canadian dollar.
Mr. Harper did engage in stimulus spending, but he was also mindful of the risks. Canada’s stimulus did not add to the country’s entitlement rolls, and as the nearby chart shows, he has avoided the debt explosion afflicting the U.S. and much of Europe. He has also promised to balance the budget by fiscal 2014-2015 without raising taxes, which was a clear dividing line in the recent campaign.
All of this has made Mr. Harper’s Tories the party of Canada’s working and middle classes, including the immigrant communities around Toronto, which has long been a Liberal stronghold. As the Canadian polling company Compas explained on Sunday before the vote: "The historic middle class or bourgeois bastion of the Liberal-Conservative establishment, university-educated voters, have become the fortress of the anti-establishment NDP, while less educated and hence lower status Canadians are set to become the stronghold—the impregnable fortress—of the Conservatives."
The bad news here is that Canada’s extreme left is now the opposition party, suggesting a sharper ideological polarization more typical of America. New Democratic leader Jack Layton moderated his populist tone during the campaign but the party’s official "constitution," as reported on in the Canadian press, is anything but moderate. It includes references to "the extension of the principle of social ownership" and promises to increase government control of the economy in the interest of social justice and the environment. If the Tories mess up, the NDP would be poised to take the country sharply to the left.
For now the Conservatives will get to showcase their agenda with far more freedom than before. The NDP’s constitution isn’t well known and its victories, particularly in Quebec, seem largely attributed to a protest vote against the failures of the separatists and Liberals.
On the other hand, a too-cautious Mr. Harper could have trouble with his own party. Tory voters have been waiting for this majority for a long time and their victory means a lease of four years in power. Canadians will expect Mr. Harper to reshape economic policy to make the country more internationally competitive. That would seem to include reform of the national health-care model, which is draining government budgets but which Mr. Harper has been reluctant to talk about. Cuts in personal income tax rates are also on the conservatives’ list.
The lesson of Mr. Harper’s victory is that well-implemented conservative economic policies can attract and keep a political majority. America’s Republicans might want to send a visiting delegation and study up.