Armagideon time for Canadian dollar

♠ Posted by Emmanuel in at 11/11/2007 03:58:00 PM
The soaring Canadian dollar or "loonie" is wreaking much havoc on the Canadian political economy. Among the most widely read articles in the business section of the Globe and Mail are the following: Bankruptcies rising, along with the loonie; Soaring loonie; plunging outlook; Loonie dips a little lower; Ready for any loonie conditions. Probably the most relevant article for our purposes is the one below on PM Stephen Harper agreeing to convene a meeting of provincial leaders as Canadians become increasingly anxious about excessive loonie strength. Harper proposes more tax cuts to help these provinces (this is a Conservative government, after all). However, many are calling for financial aid from the central government whose coffers are presumably filled with oil revenues. I was going to say that it's a classic case of Dutch disease, but perhaps it's not...
Prime Minister Stephen Harper agreed yesterday to calls from provincial leaders for a meeting to discuss the economic fallout from the strong dollar, but some of the premiers made it clear they want to go well beyond tax cuts.

Mr. Harper said he hopes to meet with the premiers between now and January.

“We do understand the difficulties that can occur when the dollar rises so quickly,” Mr. Harper told reporters. “We understand the problem this causes for certain sectors. We are partners in Confederation and we must discuss how we can work together to ensure the prosperity and competitiveness of Canadians in the long term.”

The premiers have put Mr. Harper on notice that they intend to ask cash-rich Ottawa for financial aid to address job losses in manufacturing and other battered sectors.

Mr. Harper has said he thinks tax cuts are the answer to making the economy more competitive. But premiers in several provinces hit by the high dollar said yesterday that it will take a lot more than tax cuts to put their economies on a stronger footing. They are seeking financial aid targeted specifically at forestry, manufacturing and exporting, sectors hardest hit by the dollar's unprecedented strength.

Quebec Premier Jean Charest led the charge this week, calling for a first ministers' conference to address the effects of the strong dollar. Premiers in other provinces, including Alberta, Manitoba, Ontario, Nova Scotia and New Brunswick, endorsed that request.

Premier Dalton McGuinty, who spoke to reporters earlier yesterday, said the answer to helping the manufacturing sector is a repeat of a $500-million program that led to $7-billion in investment in Ontario's auto sector and created 7,000 new jobs. His government recently unveiled a second, $1.1-billion fund for the struggling auto sector. Mr. McGuinty asked Mr. Harper in a private meeting this week to pump federal dollars into the program, but the Prime Minister was non-committal.

“We are going to need more than tax cuts,” Mr. McGuinty said yesterday. “We are going to need focused efforts for challenged areas. We are experiencing some challenges in a particular sector, manufacturing and forestry, and it's important for us to lend additional support to that.”

Nova Scotia Premier Rodney MacDonald said he raised concerns about the dollar's impact on N.S. forest companies and exporters in a phone call with Mr. Harper last week.

“I don't think there's a one size fits all for any province,” Mr. MacDonald said yesterday. “Tax cuts help on the corporate side, but I think we need to look beyond that.”

Alberta Premier Ed Stelmach said it is time for premiers to start talking about solutions, including eliminating trade barriers between provinces. Alberta and British Columbia challenged other provinces last summer to sign on to their bilateral pact, which co-ordinates rules on trade, investment and labour mobility, but little came of that initiative.

“Everybody's obviously under pressure because this is a huge increase [in the dollar]. No one predicted it,” Mr. Stelmach said yesterday.

A spokesman for Manitoba Premier Gary Doer called on Ottawa to work with the provinces to identify and gain access to new international markets for exporters.

Mr. Harper reiterated in a speech this week to the Economic Club in Toronto that he wants Canada to have the lowest corporate income taxes among the developed countries. He spoke shortly after he met with Mr. McGuinty.

The Premier acknowledged tax cuts have a role in making Canada more attractive on the global stage, but said manufacturers are in a difficult position. “We need to find a way to help support them.”

Mr. McGuinty said yesterday that he intends to adopt a conciliatory tone in further talks with Mr. Harper and hopes to find common ground.

The dollar is having a brutal impact on Canadian exporters. Quebec furniture maker Baronet Inc. shut down yesterday after 65 years in business, leaving 145 workers out of a job. Baronet was further proof of the need for a first ministers' meeting, a spokesperson for Mr. Charest said.