The upcoming Canadian federal election is expected to focus on three key economic issues, according to research firm Global Insight Inc.

Recession and recovery, deficits, and the environment/carbon taxes will get the bulk of attention, but there are other issues that deserve at least equal profile, Global Insight maintains, such as productivity, tax policy, and other political hot potatoes.

On the recession front, the opposition can be expected to blame the Conservatives for the economy’s current weakness, and the Conservatives can be expected to blame the stronger loonie and weak U.S. growth, it says.

Global Insight also expects that the risk of a fiscal deficit will receive considerable attention. However, it says a deficit is unlikely, given strong commodity prices, the fact that interest rates are running slightly below the budget 2008 forecast, and the government now has over $4 billion from the wireless spectrum auction, not counted in the budget. However, the firm concedes that things are much tighter next year.

“The key conclusion is that no party should promise to cut taxes and/or increase spending beyond the budget 2008 plan unless it details how the extra fiscal action will be financed by higher taxes and/or lower spending than the budget 2008 plan,” it says.

The firm also foresees a substantive debate over environmental policy. This is the Liberals’ major economic policy plank, it notes, as they “are strongly promoting a revenue-neutral carbon tax, while the Conservatives favor a cap and trade system, but are keeping their environmental policy less detailed, more flexible, and lower profile.”

Most economists favor the revenue-neutral carbon tax approach, it says, although there “remain many significant questions regarding the Liberals’ “Green Shift” version of this approach.”

Beyond these issues, economic growth and productivity should be on the agenda, the firm suggests. “Most Canadians want a stronger economy, and higher paying and more secure jobs over the medium term. This will probably not be obvious from following the election campaign,” it says.

The firm says the only way to increase standards of living is to boost productivity through measures such as lower marginal tax rates on business and workers; increased funding for infrastructure, education, and training; and more effective regulation. “The record of both Liberals and Conservatives is to present plans for how they plan to increase productivity. But by the time the high-profile politically sensitive needs are served, little is left for the productivity agenda,” it laments.

As for tax policy, Global Insight notes that both major parties argue that personal income taxes are too high. “This is always an important area for election debate, but substantive debate on the costs and benefits of tax changes is often challenging for both the politicians as well as the voters,” it says.

Finally, the firm says that, “there are several real ‘stinkers’ in current economic policy—specifically dairy policy and EI policy. Both move the country backward in terms of economic potential, and lower the standards of living for Canadians overall. The dairy policy even transfers income from poorer to richer.”

“There is an opportunity here for someone to show economic policy leadership, albeit at the expense of alienating some narrow, politically powerful groups,” it says, but it’s not hopeful. “Do not expect any takers on these hot potatoes in this election,” it cautions.

IE