DECEMBER 2017

2017 Policy-Maker of the Year Jody Wilson-Raybould Putting Indigenous issues at the centre of Canadian politics

Also INSIDE: The case for Home-ownership Reclaiming Canada’s Dragon at fiscal reform in Canada human rights leadership the Door 1 Published by the Macdonald-Laurier Institute

PublishedBrian LeeBrian by Crowley, theLee Crowley,Macdonald-Laurier Managing Managing Director, Director [email protected] Institute David Watson,James Anderson,Managing ManagingEditor and Editor, Communications Inside Policy Director Brian Lee Crowley, Managing Director, [email protected] David McDonough, Deputy Editor James Anderson,Contributing Managing writers:Editor, Inside Policy Contributing writers: Thomas S. Axworthy PastAndrew contributors Griffith Benjamin Perrin Thomas S. Axworthy Andrew Griffith Benjamin Perrin Thomas S. AxworthyDonald Barry Philip Cross Stanley H. HarttCarin Holroyd Mike PriaroPeggy Nash Mary-Jane BennettDonald Barry Laura Dawson Stanley H. HarttDean Karalekas Mike PriaroLinda Nazareth Carolyn BennettKen Coates Jeremy Depow Paul KennedyPaul Kennedy Colin RobertsonGeoff Norquay Ken Coates Paul Kennedy Colin Robertson Massimo Bergamini Peter DeVries Tasha Kheiriddin Benjamin Perrin Brian Lee Crowley Brian Dijkema Audrey Laporte Roger Robinson Ken BoessenkoolBrian Lee Crowley Audrey LaporteJeremy Kinsman Roger RobinsonJeffrey Phillips Don Drummond Scott BrisonCarlo Dade Ian Lee Steven Langdon Robin V.Mike Sears Priaro Carlo Dade Ian Lee Robin V. Sears Derek Burney John Duffy Audrey Laporte Richard Remillard Patrice Dutil Catherine CanoLauraLaura Dawson Dawson JaniceJanice MacKinnonMacKinnonBrad Lavigne MunirMunir Sheikh SheikhRobin V. Sears Elaine Carsley Martha Hall Findlay Ian Lee Munir Sheikh Michael ChongGuy Guy Giorno Giorno Tom Flanagan LindaLinda NazarethMeredith MacDonald AlexAlex Wilner WilnerJohn Thompson Dan Ciuriak Janice MacKinnon Gil Troy StephenStephen Greene Greene GeoffGeoff Norquay Scott Clark Daniel Gagnier Velma McColl Michael Watts Ken Coates Guy Giorno Ted Menzies Alex Wilner Past contributors: Mary-Jane Bennett, , Massimo Bergamini, Ken Boessenkool, Brian Bohunicky, , Past contributors:Celine Cooper Mary-Jane Bennett,Stephen Carolyn Greene Bennett, Massimo Bergamini,Robert P. Murphy Ken Boessenkool, Brian Bohunicky, Scott Brison, Derek Burney, Catherine Cano, Dan Ciuriak, Scott Clark, Philip Cross, Celine Cooper, Peter DeVries, Don Drummond, John Duffy, Derek Burney, Catherine Cano, Dan Ciuriak, Scott Clark, Philip Cross, Celine Cooper, Peter DeVries, Don Drummond, John Duffy, Patrice Dutil, Joseph Fantino, Daniel Gagnier, Brad Lavigne, Tasha Kheiriddin, Jeremy Kinsman, Steven Langdon, Velma McColl, Patrice Dutil, Joseph Fantino, DanielCover Gagnier, photo: Brad Courtesy Lavigne, of theTasha Office Kheiriddin, of the JeremyMinister Kinsman, of Justice Steven Langdon, Velma McColl, Ted Menzies, Robert P. Murphy, Peggy Nash, Gil Troy, Michael Watts. Ted Menzies, RobertProduction P. Murphy, designer: Peggy RenéeNash, DepocasGil Troy, Michael Watts. The contributors to this publication have worked independently and are solely responsible for the views presented here. The contributorsThe toopinions this publication are not necessarily have workedthose of independently the Macdonald-Laurier and are Institute,solely responsible its Directors for or the Supporters. views presented here. The contributors to this publication have worked independently and are solely responsible for the views presented here. The opinionsThe opinions are not are necessarily not necessarily those those of the of theMacdonald-Laurier Macdonald-Laurier Institute, Institute, itsits DirectorsDirectors or or supporters. Supporters. Inside Policy is published six times a year by the Macdonald-Laurier Institute. The contents of the magazine are copyrighted, but may be re-produced with permission in print, and downloaded free of charge from the MLI website: macdonaldlaurier.ca Inside PolicyInside is Policy published is published six times four a times year aby year the by Macdonald-Laurier the Macdonald-Laurier Institute. Institute. The The contents contents ofof the magazinemagazine are are copyrighted, copyrighted, but may bebut re-produced may be re-produced with permission with permission in print, in print, and anddownloaded downloaded free free of ofcharge charge from from the the MLIMLI website: macdonaldlaurier.ca macdonaldlaurier.ca For advertising information, please email: [email protected]

For advertisingFor advertising information, information, please please email: email: [email protected] [email protected] Subscriptions: $39.95 per year; single issue, $6.95. | ISSN 1929-9095 (Print) | ISSN 1929-9109 (Online)

Subscriptions: $39.95 per year; single issue $6.95 | ISSN 1929-9095 (print) 1929-9109 (online) Subscriptions:The Macdonald-Laurier $39.95 per year; Institute single is issue, grateful $6.95. to Intuit | ISSN Canada 1929-9095 for their support(Print) |of ISSN Inside Policy1929-9109 magazine. (Online)

Inside Policy 323 Chapel Street, Suite 300, Ottawa, ON, Canada, K1N 7Z2 | Ph 613-482-8327 The Macdonald-LaurierInside Policy: 8 YorkInstitute Street, is Suitegrateful 200, to Ottawa Intuit ON,Canada Canada for K1Ntheir 5S6,support PH; 613-482-8327of Inside Policy magazine.

2 Inside Policy —Inside The MagazinePolicy: 8 York of The Street, Macdonald-Laurier Suite 200, Ottawa Institute ON, Canada K1N 5S6, PH; 613-482-8327

2 Inside Policy — The Magazine of The Macdonald-Laurier Institute insidepolicy [march].indd 2 14-04-01 10:00 AM

insidepolicy [march].indd 2 14-04-01 10:00 AM From the editors Contents

4 New Conservative leader should be open to elcome to MLI’s annual Policy-Maker of the Year issue. Past recipients new ideas Whave included: Truth and Reconciliation Commission chair Murray Stanley H. Hartt Sinclair, former Foreign Minister John Baird and former 7 Policy-Maker of the Year Jody Wilson-Raybould: Governor Mark Carney, as well as institutions and processes, such as the from activism to politics Supreme Court of Canada and the process of “consultation” that has become Kate Heartfield the leitmotif for the current government. Jody Wilson-Raybould: forging real partnership This year, we are pleased to name Jody Wilson- 11 Ken Coates Raybould, Minister of Justice and Attorney General, as our Policy-Maker of the Year. As ably documented by both Kate Heartfield and Ken Coates, 14 How to get Canada out of the EA quicksand Minister Wilson-Raybould has emerged as a truly impressive figure with one Ken Coates and Bram Noble of the most challenging mandates in cabinet. Her contributions on justice 15 BC tanker moratorium is killing First Nations’ and Indigenous affairs are already notable. In the words of Coates, Wilson- enterprise Raybould is a politician to watch. Robert Hage Another politician with many eyes on him is the new Conservative leader 17 Trudeau and Morneau understand tax dodging. . This is especially true following a tense leadership race and a They do it, too narrow victory. Stanley Hartt offers some important advice to the new leader Philip Cross on his policy options. 18 No help for would-be homeowners in Canada’s Even with champions like Wilson-Raybould, it is also clear that the new housing strategy government’s engagement with Indigenous communities can still be Jane Londerville improved. This is the subject of separate articles by Coates and Dwight 19 Ottawa should avoid complacency on public Newman and by Robert Hage. finances Questions can also be raised about the state of the government’s public Sean Speer finances, as noted in an article by Sean Speer. Yet, as explained by Philip 20 The case for fiscal reform: lessons from Cross, this challenge is unlikely to be solved by raising the marginal tax rate the Anglosphere on upper-income Canadians. Sean Speer and Alex Brill Sadly, relief for Canadians hoping for more affordable housing is unlikely 23 Arithmetic not ideology to be in the offing as well, at least based on the government’s own National Housing Strategy. That is the conclusion of MLI’s newest Munk Senior 24 Washington should learn from the fiscal lessons Fellow Jane Londerville. of the Anglosphere Federal fiscal reform in the United States is increasingly necessary but Sean Speer remains ever elusive. We are delighted to offer MLI’s contribution to this 25 Reclaiming Canada’s role as a global human debate with our Lessons from the Anglosphere series. This issue of Inside Policy rights leader includes a shortened version of the introductory essay by Sean Speer and Marcus Kolga Alex Brill, the foreword of one of the papers by Paul Martin, and an article 27 Canada should be wary of China’s Asian detailing what Washington can learn from the Anglosphere by Speer. Infrastructure Investment Bank The passage of the Sergei Magnitsky Law provides an important sign that Philip Cross Canada is reclaiming its leadership on human rights. Marcus Kolga offers his 29 The CCCI-Aecon deal is China’s gain, thoughts on this subject. not Canada’s This issue concludes with some articles from MLI’s continuing Dragon at Duanjie Chen the Door series, exploring China’s Asian Infrastructure Investment Bank, the 31 Free trade with Chinese characteristics: proposed purchase by a state-owned enterprise of Canadian construction giant let the buyer beware Aecon, and what lessons Canadians can learn about China from Australia. These Peter Layton are authored by Philip Cross, Duanjie Chen, and Peter Layton, respectively. As this is the last issue of the year, Merry Christmas and happy holidays from MLI!

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 3 CONSERVATIVE PARTY OF CANADA Photo: public domain – flickr.com/photos/andrewscheer Photo: New Conservative leader should be open to new ideas

Andrew Scheer should be open to good ideas from his closest competitors and be willing to discard the more notorious proposals from the leadership campaign.

good humour and civility during his stint the ballot (even though one of them, Kevin Stanley H. Hartt as Speaker of the House of Commons. His O’Leary, had dropped out of the race after French is better than passable, as it would the ballots were printed). Voting members ismarck’s famous statement that, have to be as presiding officer in our elected were asked to list in numerical order of B“Politics is the art of the possible, the legislative chamber. He has a tendency to preference their top ten choices. Each attainable – the art of the next best” was very smile, even when discussing extremely member was associated with an Electoral much in play at the Conservative Party’s polarizing and contentious issues. But, if District Association (“EDA”) – the riding leadership selection process. By adopting the Tories were hoping to identify someone organization which the Party maintains in a preferential ballot to make the selection, who could inspire crowds and lead masses, each of Canada’s 338 constituencies. Votes they made sure that their new leader would the man who was the first choice of 21.82 by Party members were proportioned so that be the first choice of a few and the second, percent of Party members on the first round each EDA had 100 votes, in order to ensure third or fourth choice of many. of voting is not the guy. regional equity. So an EDA with 10,000 Andrew Scheer is a presentable For those who did not follow the intrica- members had 100 votes, and one with 63 politician. He earned a reputation for cies of the process, 14 candidates were on members had 100 votes.

4 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute On the first round of voting, Deepak that seemed outrageous to the others and to referenda, and popular initiatives to “let Obhrai came in last with 0.41 percent of the the media, just to be distinguished from the the people speak,” an idea far more suited votes. His votes were then re-allocated using pack. But it was often the case that excellent to the system of government south of the the same procedure to the second choices of proposals came from losing candidates, border but anathema in our Parliamen- his supporters. This continued until the 13th including some who lost badly. tary representative democracy. Responsible round of voting, where, for the first time, Mr. Now, it will not surprise the reader to government operates through the principle Scheer passed , MP from learn that sometimes victorious candidates that the executive must at all times retain the Beauce, Québec, and won 50.95 percent to shun the ideas of their closest competi- confidence of the legislature, failing which 49.05 percent of the weighted points. tors. They may even relegate opponents we get an election to select a government It isn’t just that the victory wasn’t to minor positions in assigning critic that will enjoy such confidence. stirring. It leaves the public scratching their roles or committee memberships or when Other ideas suitable for the trash bin heads about what the Party actually stands determining the general prominence of would include ’s resurrec- for. The Leader is not free to set policy Party up-and-comers. Every Party does this. tion of the ill-fated Harper-era ban on based on his successful campaign. The Party Even MPs sitting in the current Liberal wearing the Niqab by public servants requires policy development conferences Cabinet got there because they were not, or when voting or swearing the oath of at the membership level to submit policy in their view, accorded the standing they allegiance at citizenship ceremonies. proposals for voting and vetting by EDA, deserved when they began their political Apart from any view on its substantive regional, provincial and ultimately national careers in the Conservative Party. merits, this idea was in large measure policy committees, and are only enshrined in The new Conservative Leader would responsible for giving a potential platform by resolutions adopted be wise if he immediately discarded his majority. It was Tom Mulcair, after at a national convention. some of the most notorious, unhelpful all, who when forced to choose between

How are the best ideas from the various platforms of the leadership candidates to be retained?

As Thomas Jefferson said, “Democracy views that emerged during the leadership the anti-clericalism of his Quebec base, is cumbersome, slow and inefficient, but contest. Kellie Leitch attempted to which would have supported the ban, in due time, the voice of the people will be grab attention by suggesting that every and the soft-hearted, inclusiveness of the heard and their latent wisdom will prevail.” foreign applicant to Canada should have Anglophone-majority provinces, broke In the meantime, how are the best ideas a face to face interview with a Canadian the “anybody but Harper” tie with the from the various platforms of the leadership government representative – to ensure that Liberals by opposing the ban. candidates to be retained, developed and the applicant shared “Canadian values.” ’s carbon tax should refined so that some of the strong views This concept could have been intended to not be far behind for Conservatives. Nor expressed during the campaign are not lost mean inclusiveness, generosity, support for should Pierre Lemieux’ pre-occupation as “sound and fury, signifying nothing”? our medical care system, social programs, with re-opening lost social conservative Candidates often spoke from conviction etc. But it was purposely allowed to fester battles on abortion and same-sex marriage. about potential legislative initiatives they as an unspoken reference to “barbaric Brad Trost had proposed a Trump-like would press if elected, and many of the cultural practices,” such as honour killings ban on entry to Canada from countries or ideas were sound, creative, thoughtful, and and female genital mutilation. regions that harbour, support, or encourage helpful. Despite some observers writing This is not surprising. This was the terrorism and extremism, and it would be off the leadership race on the basis that all same candidate who set up a “snitch line” easy to forecast how long such a broad-brush Tories more or less stood for the same thing, during the last election campaign, resulting approach to border security would survive a there were a multitude of areas where this in significant voter outrage. Then Ms. test in the Supreme Court of Canada. was not so. Sometimes a candidate went Leitch came out with the idea that Canada But what of the good ideas proposed out of their way to espouse a policy plank needed to be governed by more plebiscites, by Mr. Scheer’s rivals? There seemed to

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 5 be a consensus for lower taxes, smaller to “needy” individuals and groups is easier tions that we be willing to have these government, and fiscal responsibility, and to understand than the Conservative “on the table.” We escaped with only a the new Leader will doubtless build the view that better results are obtained by readjustment of the quotas, largely because next electoral platform around such basic creating an environment for investment, distance meant that few New Zealand or conservative values. But is there a risk that risk-taking and job-creation by reducing Australian dairy producers saw Canada bolder, imaginative and growth-oriented the size of government and the tax burden, as a practical market for their products initiatives fall by the wayside merely controlling inflation, and limiting red in any mass volume. But, with NAFTA because they originated with campaign tape and regulation. It takes a very good up for renegotiation, we should turn our rivals, particularly those who came close to and committed communicator, like Mike attention to thinking about the economic claiming the prize? Harris, for example, to get citizens to buy gains to be achieved by restructuring Maxime Bernier’s platform was based into that logic. these basic food-producing industries on rock-solid economics. From complete- ly ending all barriers to interprovincial trade, to pursuing new international trade agreements (including, presumably, Maxime Bernier’s platform was based retaining some form of the Trans-Pacific on rock-solid economics. Partnership [“TPP”], despite the US decision to withdraw), to eliminating corporate welfare and ending the plethora of boutique tax credits, Bernier’s policies It might, of course, be even more while massively lowering the costs to were an economic purist’s delight. politically problematic to espouse Mr. consumers of dairy and poultry products. He was also a strong proponent of Bernier’s promise to eliminate marketing New co-operatives, like Agropur, could privatizing Crown assets that were an boards for dairy and poultry products. But emerge providing ownership interests and impediment to creative market competi- the potential results might well be worth employment to the owners of small farms tion, such as the mortgage insurance and the painful adjustments that all institu- dedicated to those product lines and, with securitization functions of the Canada tional disruption inevitably causes. When proper adjustment programs, the resulting Mortgage and Housing Corporation, as the Canadian Wheat Board was eliminat- growth would increase our prosperity and well as Canada Post and our airports while ed, a number of significant new grain standard of living. also eliminating the power of the CRTC industry traders and processors emerged to Don’t write these ideas off too (Canadian Radio-television and Telecom- give farmers real choice and to modernize quickly. They are sound, overdue and in munications Commission) to constrain our market. At the time of the original the country’s best interest. Over to you competition in broadcasting. Canada-US Free Trade Agreement, we Mr. Scheer! Make these truly Conserva- But the natural impediment to all had identified industries that we were tive policies yours and the Party’s. Selling growth-oriented policies is that good certain would effectively disappear, among them will be the legitimate test of your economics do not always lead to attractive them the wine industry. What happened leadership skills! political positions. Once a program is in instead was that, with the entire North place, it invariably has a following who American continent as their market, the Stanley Herbert Hartt, OC, QC is a lawyer, lecturer, adore and defend it. The mantra in the best Canadian winemakers grew exponen- businessman, and civil servant. He currently serves as Finance Department when I served there tially. Smaller, craft wineries of very high counsel at Norton Rose Fulbright Canada.Previously was always, “The easiest policy to cut quality emerged, and we now can hold Mr. Hartt was chairman of Macquarie Capital Markets is one that hasn’t been announced yet.” our heads up as among the world’s leading Canada Ltd. Before this he practised law as a partner An economics professor of mine, David wine producers. for 20 years at a leading Canadian business law McCord Wright, used to put it even more Our marketing boards have already firm and was chairman of Citigroup Global Markets simply: “Growth comes through change escaped one round of trade negotiations Canada and its predecessor Salomon Smith Barney and causes change.” in which there was some risk of their Canada. Mr. Hartt also served as chairman, president This is the bane of Conservatives. demise. New Zealand and Australia had and CEO of Campeau Corporation, Deputy Minister at The Liberal practice of transferring made it a condition of our entry into the the Department of Finance and, in the late 1980s, as resources through government spending Trans-Pacific Partnership (TPP) negotia- chief of staff in the Office of the Prime Minister.

6 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute COVER FEATURE

Policy-Maker of the Year: Jody Wilson-Raybould From activism to politics

Canada’s Justice Minister and Attorney General Jody Wilson-Raybould came to office with an extensive mandate. She is one of the busiest, most active members of Cabinet, and MLI is delighted to name her Policy-Maker of the Year.

Kate Heartfield

n her first speech as Canada’s Justice Minister, early in 2015, IJody Wilson-Raybould spoke about the values she was taught in a matrilineal, communitarian Indigenous society. “Our whole system was and is about balance,” she told a crowd at Simon Fraser University’s School of Public Policy. Photo: CourtesyPhoto: of of Office the Minister the Justice of

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 7 Two years later, in Ottawa’s hyper- are prevented from playing a role, then the Wilson-Raybould studied at the partisan corridors, with a stack of highly community suffers.” University of Victoria and the University charged social and justice issues on her desk, Wilson-Raybould, 46, grew up and was of British Columbia and was called to the the right balance is never easy to achieve. educated in British Columbia. She comes bar in 2000. She worked as a provincial Advocates of justice reform criticize her from the Musgamagw Tsawataineuk and Crown prosecutor in Vancouver’s for being too slow to address the many ways Laich-Kwil-Tach peoples of Vancouver Downtown Eastside. She became a policy in which that system is broken. At the same Island. Her grandmother, Ethel Pearson, advisor to the BC Treaty Commission in time, the Opposition is constantly pushing or Pugladee, was the matriarch of their 2003 and was elected to council of the We against a Liberal justice agenda that social clan and her father, Bill Wilson, is a Wai Kai Nation in 2009. From 2009 until conservatives characterize as a reckless hereditary chief. 2015, she served as Regional Chief of the attempt at social engineering. After Wilson-Raybould was elected, the BC Assembly of First Nations. “She has been one of the busiest and Internet was charmed by video from 1983 Perry Bellegarde, who is now the most active ministers just on the policy file of Wilson confronting then Prime Minister National Chief of the Assembly of First alone,” says Emmett Macfarlane, a political Pierre Elliott Trudeau. “I have two children Nations (AFN), got to know her during scientist at the University of Waterloo whose in Vancouver Island,” said Wilson, “both of those years. “She’s very principled. She’s research focuses on rights, governance and whom for some misguided reason say they fair, transparent. Those are strengths that public policy. “My appraisal of that is that want to be a lawyer. Both of whom want to she’s going to need as Attorney General and she has also been one of the most competent be the Prime Minister. Both of whom, Mr. Minister of Justice. And she’s professional.” and successful ministers in handling a set of Prime Minister, are women.” In 2013, Justin Trudeau came to an difficult files.” There was general laughter, which tells AFN meeting in Whitehorse. He sat down If Justin Trudeau’s Liberals want to you something about 1983. with Wilson-Raybould, 30 years after make a lasting impact on Canadian society, “Tell them I’ll stick around till they’re their fathers traded barbs. He asked her if the justice file is key. If they want to change ready,” the elder Trudeau quipped. she would consider running, and invited the way Canada deals with social problems The pre-teen Jody Wilson-Raybould her to chair the Liberal convention in such as poverty and racial injustice, they watched that exchange on television, and Montreal the following year. In 2015, she have to change the Criminal Code and while it’s true that she grew up planning to be ran and won the seat in the new riding of reform the court system. If they want to a lawyer, the bit about wanting to be Prime Vancouver Granville. On Nov. 4, 2015, achieve any measure of reconciliation with Minister was her father’s rhetorical flourish. she was sworn in as Justice Minister and Indigenous peoples, then more than 150 Wilson-Raybould carries the Kwak’wala Attorney General. years of colonialism will have to be stripped name Puglaas, which means “woman born The mandate letter she received from the out of Canada’s laws. to noble people.” (It’s her handle.) Prime Minister is exhausting even to read. Wilson-Raybould came into office with a mandate to, among other things, If Justin Trudeau’s Liberals want to make respond to the Supreme Court decision on physician-assisted death, help a lasting impact on Canadian society, develop the inquiry into missing and the justice file is key. murdered indigenous women, review the government’s litigation strategy, repair several major aspects of the criminal Two years into the job, Canada’s Justice The name was given to her when she was justice system, help guide the legalization Minister and Attorney General says she a child, at a potlatch. Potlatches are a and regulation of marijuana, change the still sees her role as correcting imbalance: system of governance that involve dancing laws regarding national security and guns, “Balance between a diversity of views. and speeches, the giving of names and the introduce legislation to prohibit some Balance between ensuring rights of individ- distribution of gifts and property. forms of discrimination against transgen- uals to participate in our democracy. It From 1884 to 1951, the assimilationist der people — all this while serving as the comes from the values that I learned from outlawed potlatch- Crown’s chief law officer and as the legal a really young age, that everybody in our es, and participation in them was an offence advisor to cabinet, and while dealing with community has a role to play. When people punishable by imprisonment. new events and circumstances as they arise.

8 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute Minister Wilson-Raybould and Prime Minister Justin Trudeau speak with first Minister attends Justice Canada’s employee national awards ceremony, responders and community leaders about opioid use in Vancouver. recognizing outstanding performance and contributions in 2017. (Photo: pm.gc.ca/eng/photos) (Photo: Courtesy the Office of the Minister of Justice via Twitter @MinJusticeEn)

15 years. That’s what we see with Justice Martin; she’s 60 years old and could sit on the court until she’s 75.” She’s also been But when it comes to her policy impact on Canada’s justice system so far, Ottawa lawyer busy with judicial Michael Spratt calls the pace “disappointing.” appointments and “There’s been a stunning lack of advancement on the criminal legislation is proud of the work that has been introduced,” says Spratt, that she’s been able who is a partner at Abergel Goldstein & Partners. “What has been introduced is to do there. rather unambitious, save for the medical assistance in dying bill, which is one of the (Photo: Courtesy the Office of the Minister of Justice) highlights of her tenure thus far.” Beyond all that, she’s had to meet the less have been working on achieving the ends of The bills on cannabis and impaired tangible expectations that come with being C-16 for decades and the emotion on their driving, he says, “have from the perspective a role model, as the first Indigenous person faces when the bill received royal assent was of the defence bar missed the mark and are (and only the third woman) to hold that job. something that I’ll never forget.” very problematic.” “She has earned a reputation,” says She’s also been busy with judicial Wilson-Raybould has started to deal with Macfarlane, “not just for having a steady appointments and is proud of the work that some of the problems in the Canadian court hand on the wheel but for initiating a she’s been able to do there, and on her work system, but Spratt says one likely explanation whole set of successful policy changes, just advising the Prime Minister when it comes for the slowness on this file is that criminal in terms of the bills that have gone through to the Supreme Court. Trudeau announced justice has become intensely politicized. Parliament under her portfolio.” the nomination of Sheilah Martin to the Take, as one example of this, an exchange Her political successes this year include Supreme Court in November. from May in the justice committee. the passage of Bill C-16, which amends “It is an incredible responsibility for Conservative MP listed bills the Canadian Human Rights Act and the a gal that is from the west coast of British related to medical assistance in dying, the hate-speech provisions of the Criminal Columbia who went to law school at UBC,” transgender rights bill, a repeal of a sexual Code to add gender identity and expression says Wilson-Raybould. “I could never have offence in the Criminal Code that targeted as prohibited grounds for discrimination. It imagined me being in a position where I gay men, and safe injection sites. Falk asked received royal assent in June. could assist a prime minister in charting, the justice minister: “These pieces of legisla- “That to me was a big highlight,” she essentially, for the legal community, the tion seem to have a particular theme to them recalls, “because I saw the advocates who Supreme Court of Canada for the next and I’m wondering what is it that motivates

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 9 your government to, in my opinion, be Prime Minister announced a working Carolyn Bennett is the Minister of so bent on and recklessly determined to group of ministers charged with reviewing Crown-Indigenous Relations and Northern destroy our social and moral fabric?” all laws and policies related to Indigenous Affairs, and is the Minister of Wilson-Raybould responded that she peoples, with Wilson-Raybould as chair. Indigenous Services. wouldn’t apologize for upholding Charter Bellegarde says one of the major “I’m proud to be a part of that,” says rights. “We are making decisions as a benefits to having someone of Wilson- Wilson-Raybould, “working with my government that ensures we uphold what Raybould’s background in the job is that colleagues Ministers Bennett and Philpott and makes this country great, which is its diversity. Indigenous people have not had to spend under the Prime Minister. I believe that our We benefit from having a Charter of Rights time educating a new minister about basic relationship with Indigenous peoples will be and Freedoms and it is my most important concepts such as treaty rights. one of the lasting legacies of our government.” job, that we ensure that we uphold those “We both agree that we need to move Wilson-Raybould says her greatest rights. If I didn’t do that I wouldn’t be doing beyond the Indian Act and exert First challenge so far has been balancing all her my job. I will not apologize for those pieces Nations jurisdiction and sovereignty, and duties as MP of a Vancouver riding, as of legislation but I will stand up and shout move back to nation to nation. That’s the Attorney General and Justice Minister. She’s from the rooftops as to the substantive public work we need to do together, collectively. working harder than she’s ever worked, she policy that stands behind each of those.” And having an individual with her says, but wouldn’t change it.

I believe that our relationship with Indigenous peoples will be one of the lasting legacies of our government.” – Jody Wilson-Raybould

If every piece of legislation becomes a background and her experience in a very key Jumping into the world of partisan front in a culture war, that takes time – and position, as the Attorney general of Canada, politics has also been a contrast, in some that even scarcer commodity, political courage. will mean we’re going to get better policy ways, to her former life in First Nations Spratt says the polarization on criminal and better legislation, and more sensitivity politics and activism. justice policy will make Wilson-Raybould’s to First Nations law and jurisdiction and “Debate on public policy sometimes job even more difficult now that the Liberals inherent rights and treaty rights.” gets lost in the wrangling of partisan are well past their honeymoon period. Part of the task of reconciliation is the politics. I know that’s the reality of life here “I can understand impatience. I am implementation of the United Nations and it’s always going to be that way. But impatient as well,” says Wilson-Raybould. Declaration on the Rights of Indigenous Peoples. there are issues that are so important that She says she’s been talking with her Another part is the inquiry on missing and require a non-partisan approach to their provincial counterparts and with Canadians murdered women, which has been so plagued resolution. Issues like the environment and across the country to identify priorities and by bureaucratic tangles, delays and resigna- climate change. Issues like the recognition is planning “bold” reforms. “It’s something tions that Wilson-Raybould’s father called of Indigenous peoples within our constitu- that I’m deeply committed to and I want to it a “bloody farce” in the summer. There are tional fabric. If I can bring anything I know make sure that when we introduce reforms, the recommendations from the Truth and I bring this to my role and try to work in it benefits from broad consultation and Reconciliation Commission to implement. this regard with every member of Parliament dialogue and debate… When all of those All of this is informed, or should be, by the and try to work toward consensus around voices are heard and reflected in the public nearly 22-year-old recommendations of the issues that require the investment of all policy decisions that we make, I hope that Royal Commission on Aboriginal Peoples. members of Parliament and the investment the hyper-partisan nature of the reality that Wilson-Raybould says a lot of the of all Canadians.” we live in dissipates somewhat.” government’s early work on reconcilia- An overhaul of the Criminal Code tion has been internal or in consultation Kate Heartfield is an Ottawa-based writer and editor. is not the only major review on Wilson- with Indigenous communities, laying the She is the former editorial-pages editor for the Ottawa Raybould’s to-do list. Early in 2017, the groundwork for more visible changes. Citizen, and teaches journalism at Carleton University.

10 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute POLICY-MAKER OF THE YEAR Photo: CourtesyPhoto: of of Office the Minister the Justice of Jody Wilson-Raybould: forging a real partnership

Minister Wilson-Raybould has tackled one of the most pressing issues of our times – Indigenous legal and constitutional rights – with grace and determination.

Ken Coates and, in particular, to Indigenous- before entering federal politics. She has government relations in Canada. She tackled one of the most pressing issues of our ody Wilson-Raybould is a truly impressive argued that the status quo was unacceptable times – Indigenous legal and constitutional Jindividual. Having followed her career but also made it clear that there was no rights – with grace and determination. She in Aboriginal politics with interest over simple or obvious solution to a set of has navigated the uneven terrain between the years, I was delighted to learn that she issues hundreds of years in the making. In Indigenous politics, federal politics, the civil was giving the introductory address at a a field often given to polemics and strong servants of the Department of Indigenous governance conference at Queen’s University. opinions, Jody Wilson-Raybould adopted a and Northern Affairs Canada, and a highly In that formal scholarly setting, Wilson- practical, problem-solving approach. sensitive general public. Her unflappability Raybould did a remarkable job of setting As one of the most important cabinet has served her and the government well as the tone for the conference, challenging ministers in the Government of Canada, the complications of treaties historical and academics to produce more creative Wilson-Raybould is still as refreshing and contemporary, numerous court challenges approaches to Indigenous administration straight-forward as she was in her time and decisions, wide-ranging Indigenous

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 11 demands, complex Indigenous positions She has managed a diverse and exacting Indigenous policies, including shaping on resource development, and the many portfolio with grace and competence – while the government’s evolving position on the shortcomings of federal Indigenous policies leading the government’s efforts to redefine United Nations Declaration on the Rights of play themselves out in national politics. the nation-to-nation relationship sought by Indigenous Peoples (UNDRIP), reviewing Wilson-Raybould’s greatest achieve- Indigenous peoples in Canada as promised the foundations of the federal relationship ment – and this is no small feat – is that by Prime Minister Trudeau. with the First Nations, Inuit and Métis, and she has shifted, with the full support of the Wilson-Raybould came to federal restructuring Canada’s legal arrangements Prime Minister and his cabinet, Indigenous politics in a unique manner. The daughter with Aboriginal people in Canada. affairs from the margins to the centre of of prominent – and provocative – Wilson-Raybould’s contributions are Canadian politics. She has accomplished Kwagiulth hereditary chief Bill Wilson, numerous and extend beyond the specific this through her knowledge of the file and she emerged from often fiery and always confines of Indigenous policies and the her forceful, yet understanding approach intense world of British Columbia politics. law, but here her impact has been substan- to the Canadian business community and Educated as a lawyer, she had a diverse tial. Together with her cabinet colleagues non-Indigenous people generally. Together career before entering national Indigenous Carolyn Bennett and Jane Philpott – a with Assembly of First Nations National politics, serving as a Crown Prosecutor and triumvirate of unusual talent and even Chief Perry Bellegarde, she has taken one of advisor to the BC Treaty Commission. As greater determination – she is directing the most divisive issues in Canadian public the Regional Chief for British Columbia a “whole of government” approach to affairs and made it accessible and yet still with the Assembly of First Nations, she rebuilding relations with Indigenous urgent. She knows that the Canadian public made major contributions to the develop- governments, organizations and peoples. is not yet fully onboard but has managed to ment of Indigenous self-determination While the government’s promises have,

Minister Wilson-Raybould, a member of the We Wai Kai Nation, is also the most influential Indigenous federal politician in Canadian history.

push the most aggressive Indigenous agenda and effective governance. Capitalizing on to date, been more substantial than its in Canadian history without producing the Government of British Columbia’s accomplishments, significant progress has a sustained backlash against Indigenous more conciliatory approach to Indigenous been made in building the underpinnings peoples and the Government of Canada. affairs, Regional Chief Wilson-Raybould of new political and structural approaches Wilson-Raybould is changing Canada helped shape a more promising agenda in to Indigenous affairs. and Canadian politics in the most valuable a province long-known for conflict between Indigenous organizations remain as ways: by introducing bold and construc- provincial and Indigenous leaders. vigilant and assertive as ever, but close tive policies while challenging the country Jody Wilson-Raybould came to observers of federal politics know that to change the way it is governed. She is national prominence as the co-chair of the groups like the Assembly of First Nations, one of the remarkable group of female 2014 Liberal convention, held in Montreal. Métis National Council and the Inuit cabinet ministers who have demonstrat- Her political potential, long known to Tapiriit Kanatami have been drawn ed that Prime Minister Justin Trudeau’s observers in British Columbia, had found a into the productive co-production of commitment to gender equity truly was national outlet. She accepted Liberal leader policy processes and more collaborative more about unleashing political potential Justin Trudeau’s encouragement to seek approaches than in the past. Canadians than making grand symbolic gestures. the nomination in Vancouver-Granville. have become used to Indigenous political Minister Wilson-Raybould, a member She won the nomination and then the activism – the spirit of Idle No More lives of the We Wai Kai Nation, is also the most seat in the 2015 federal election. She was on in powerful ways – but the Trudeau influential Indigenous federal politician in subsequently appointed Minister of Justice government has awakened the country to Canadian history, although it misrepresents and Attorney General of Canada. the prospect for real and sustained change her contributions to the government and to As Minister of Justice, she has played a in both policies and, even more promising, Canada to label her an “Aboriginal politician.” prominent role in the development of federal Indigenous outcomes.

12 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute For generations, Canadians have been used to seeing Indigenous policy-making as an important but marginal element in national politics. Occasional conflicts brought Indigenous affairs to the fore, but the troubled nuances of reserve water policy, Indigenous economic development, Discussing Canada’s modern treaties and social programs rested justice system and on the periphery of Canadian politics. how to reduce poverty at the National Poverty With Minister Wilson-Raybould in a Conference in prominent cabinet position, and with the September. force of her personality, political instincts, (Photo: Courtesy the Office of the Minister of Justice and insights into Indigenous policies, via Twitter @MinJusticeEn) she has been pivotal in regularizing the national prominence of Aboriginal affairs. Jody Wilson-Raybould has built The Trudeau government has succeeded in st ensuring that Indigenous matters are viewed the most powerful 21 century persona as among the most important questions in federal politics. facing the country. The ground has been prepared for a substantial, sustained and, one hopes, successful effort to address the cabinet and Parliament, and working with persona in federal politics. More than any economic, social, political and cultural her colleagues and Indigenous groups to other federal politician, she has present- needs of Indigenous people in Canada. build a foundation for long-term partner- ed a vision for the transformation of The most effective federal politicians ships. She has run her Ministry with skill Canada, breaking away from the tired and in Canada often work behind the scenes, and integrity, avoiding the controversies harmful policies of the past and creating developing ties with their provincial, territo- that are commonplace with first-time the foundation for a new Canada where rial and, in this case, Indigenous counter- cabinet ministers, and developing a Indigenous peoples are – finally and firmly parts. They work on structural matters – national reputation for calm leadership. – true partners in Confederation. less newsworthy, perhaps, than large-scale Jody Wilson-Raybould is a politician to She has demonstrated that the country budgetary announcements – and on shifting watch. Her broad contribution is perhaps need not remain locked in the past and the legal and policy foundation in Canada. without parallel in the current Liberal can contemplate dramatic changes in One of Minister Wilson-Raybould’s main government. As an Indigenous leader willing the political status quo. Where else in tasks – identifying new approaches to legal and able to speak bluntly and forcefully to government are we seeing such transfor- relations between Canada and Indigenous her counterparts in Indigenous organiza- mative rebuilding of policy and the civil peoples – has the potential to restructure tions, she has developed an audience for service? Through the force of her personali- and regularize a system that has become constructive change. Driven by the family ty combined with her confidence, Minister a focus for contention and conflict. This is passion for justice for Indigenous peoples, Wilson-Raybould has made it clear that a not the “stuff” of high politics, but it has the schooled in the hard-knock world of First country that is based on real collabora- potential to shift relations with Indigenous Nations politics in British Columbia and tion with Indigenous people is actually peoples from the courts, time-consuming and well-aware of the social challenges facing a much better place, for Indigenous and expensive, to more collaborative, problem- Indigenous peoples across Canada, Minister non-Indigenous peoples alike. One gets solving partnerships between the federal Wilson-Raybould is a powerful and the sense that she is just getting started. government and Indigenous authorities. unrelenting advocate for true social justice. Canadians, in the main, under-estimate By giving a new face to Indigenous Kenneth S. Coates is MLI’s Munk Senior Fellow in the important roles that Minister Wilson- affairs in Canada – and with a sweeping Aboriginal and Northern Canadian Issues. He is the Raybould plays in national affairs. She has impact on her portfolio and on the broader Canada Research Chair in Regional Innovation in the toned down the rhetoric on Indigenous government – Jody Wilson-Raybould Johnson-Shoyama Graduate School of Public Policy at affairs, pushing for new approaches in has built the most powerful 21st century the University of Saskatchewan.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 13 NATURAL RESOURCES How to get Canada out of the EA quicksand A new regional environmental assessment process could help address big picture issues surrounding proposed resource projects.

Ken Coates and Bram Noble project-based environmental assessments. With these parameters understood, The established procedures were never the work is typically turned over to he federal government’s commit- intended to tackle big picture issues such technicians charged with completing Tment to fixing Canada’s environmen- as downstream greenhouse gas emissions the environmental research and analysis. tal assessment process appears to be going or the future of the Oil Sands. All the while, costs to the companies nowhere fast. Recently Indigenous partici- A big part of the answer is to ask project- mount, governments wait anxiously for pants walked out of the Ottawa meetings based EAs to do less, not more. Canada the anticipated jobs and tax revenue, and aimed at EA reform, declaring themselves should create a new process of regional Indigenous communities wrestle with upset that the government had proceeded assessments to address the big picture issues difficult local decisions. with development work without Indige- first – before individual project proposals But there is a better way: Do not nous involvement. are on the table. wait for companies to identify a specific The federal government had promised property or site to be evaluated. Instead, to reform the major underlying legislation develop a collaborative approach by and co-produce EA policy with Indigenous government, business and Indigenous representatives. Yet, as Assembly of First A big part of the communities that covers broad regions, Nations Regional Chief Isadore like Ontario’s Ring of Fire or the Western Day commented, “It’s a sad story but we answer is to ask Arctic. This approach has already been have become strangers to the process. project-based tested on a smaller scale in the Great … I’m sensing we are in darkening times Sand Hills region in Saskatchewan. Such when it comes to sunny ways of this Prime EAs to do less, a practice is also unfolding in British Minister and his commitment to nation-to- not more. Columbia’s coal-rich Elk Valley. nation relationship.” The regional assessment would review Making progress on this file is vital. the natural environment, Indigenous The National Energy Board has been In the current system, the discovery land and water use and areas of cultural subjected to extensive and overwrought of a resource deposit starts the clock and spiritual importance, provide a criticism, and a high-profile study ticking for governments and corporations. comprehensive evaluation of ecologically recommended its effective elimination. This, in turn, puts enormous pressure on and culturally sensitive areas, and explore The EA processes for the Kinder Morgan Indigenous communities to get in line the potential future outcomes under Trans Mountain pipeline and other with the project. different types of development. projects have become battlefields. Energy The environmental and social effects Indigenous communities would work East is dead. The word is out that Canada of the proposed developments must be with other interested parties to chart areas has become EA quicksand. understood. Plans have to be in place of environmental, cultural and spiritual Governments, Indigenous communi- to mitigate against potential ecologi- vulnerability. These baseline studies would ties and resource companies agree on cal and social disruptions. Consulta- be updated over time – a crucial require- the need for comprehensive, accurate tions with Indigenous peoples have to ment given changes to the environment. and effective environmental and social be rigorous and comprehensive. Further, Proactive measures like this could assessments of proposed resource projects. the accommodations and compensation transform the development process So how can we do better? We should provided to the communities must be start by acknowledging the limits of appropriate and effective. Continued on page 33

14 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute OIL TANKER MORATORIUM Lewis Pratt Lewis BC tanker moratorium is killing First Nations’ enterprise

The proposed BC-Alberta energy corridor is premised on Indigenous engagement. Yet the federal government remains an obstacle despite its priority of Indigenous reconciliation.

Robert Hage met. In return, energy companies would peoples. As part of the process, the United get a “pre-approved” First Nations corridor States government created 12 regional ive years ago, as debate swelled across through which pipelines and other infrastruc- profit-making native corporations. These Fsouthern and central British Columbia ture could run. Government and industry were designed to give its indigenous about pipeline proposals to transport would have the certainty missing from peoples the means to ensure their financial Alberta’s oil sands crude to BC ports, other projects, the now defunct Enbridge independence through their corporate members of the coastal Lax Kw’Alaams First Northern Gateway and the now approved ownership of large tracts of land and the Nation had an idea: develop an “energy Kinder Morgan pipeline, still opposed by opportunity to develop that land. corridor” across First Nations’ traditional some First Nations and environmentalists. The Arctic Slope Regional Corpora- lands from Fort McMurray to the BC coast. Consultations followed among the nine tion represents 11,000 Alaskan Inupiat; Instead of endless arguments this corridor native bands along the corridor and, with it is now the largest Alaskan-owned would provide a “social licence,” not only time, won broad acceptance. They created company with 10,000 employees. The for oil pipelines but potentially for liquefied a governing body, the Chiefs’ Council, Chugach Alaska Corporation, with natural gas, hydroelectric power and even and a company, Eagle Spirit Energy, as its 5,000 miles of coastline along the Gulf fibre optic cable. operational arm. BC’s Aquilini Investment of Alaska, represents Aleut, Inuit, and This would be a win-win situation. Group provided the seed money. Native American stakeholders. Through The First Nations would be part of any The Chiefs’ Council did not have far its companies, Chugach designed, built, government/industry decision-making to look for inspiration. Alaska’s petroleum and operates the Trans-Alaska Pipeline. Its process with the prospect of obtaining development has, from the beginning, spill response and maintenance operations ongoing employment, revenue and assurance been a partnership among government, have made it one of the world’s largest spill their environmental conditions would be industry, community and indigenous preparedness and response organizations.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 15

Continued on page 33 The proposed BC-Alberta energy stop the development of Enbridge’s Northern On December 9, 2015, Helen Johnson, corridor mirrors this approach. It is built Gateway oil pipeline and Kitimat terminal. chair of the Chiefs’ Council, wrote to on the premise that First Nations must be These bills all failed once the Conservatives Trudeau to request an urgent meeting to engaged in a meaningful way from the start gained a minority government in 2006. discuss the proposed moratorium legisla- in development, design, construction and Shortly after coming to power in 2015, Prime tion. She stated the government’s “unilater- operation with a strong focus on environ- Minister Trudeau gave Transport Minister al tanker moratorium…did not involve mental protection, exceeding Canadian a “top priority” mandate to consultation with First Nations who have regulations. Moreover, the council sees the formalize such a moratorium. been stewards of the lands and waters since social and economic opportunities offered The previous bills proposed banning time immemorial and who have a right to First Nations by the energy corridor as tankers sailing within the defined waters to access economic opportunities on our directly addressing Canada’s “agenda for of what is known as Canada’s “Fishing lands.” No meeting took place. Almost a reconciliation.” Zone 3,” stretching from the northern year later the Lax Kw’ Alaams Hereditary Chiefs asked the Prime Minister’s Office for consultations before implement- First Nations must be engaged in ing a moratorium. They underlined the a meaningful way from the start in importance of environmental protection while meeting their social and economic development, design, construction and operation. needs in an area with 90 percent unemploy- ment. Again, no meeting. When the Liberals subsequently It is paradoxical that the major tip of Vancouver Island to the Alaska introduced the legislation in May, the same impediment to the corridor’s ongoing Panhandle. Bill C-48, on the other hand, chiefs issued a declaration on September development comes from the very federal prohibits tankers carrying crude oil from 28, 2017. It said that the moratorium government which has made reconciliation entering or leaving ports in the same area. encompassing the Great Bear Rainforest, one of its top priorities. On May 12, 2017, In focusing on the use of Canadian ports, which includes their traditional tribal lands, the government introduced Bill C-48, the government has avoided a possible was “done without any prior consultation the Oil Tanker Moratorium Act, which confrontation with the United States, or consent” as required under Canada’s is still before Parliament. The proposed which has protested Canada’s claim that constitution and upheld by the Supreme moratorium will apply to all large crude Fishing Zone 3 constitutes Canadian Court of Canada. As a result, “the Oil oil shipments by tanker from ports along internal waters. The rather odd result under Tanker Moratorium Act… has no applica- the BC coast and inland areas north of the new bill is that tankers carrying crude tion or effect in our traditional territo- Vancouver Island (what the government can still ply these waters as long as they do ries.” They concluded “such initiatives refers to as the “Great Bear Rainforest” and not enter or leave from a Canadian port. run counter to Prime Minister Trudeau’s “Great Bear Sea”) as well as Haida Guaii. The legislation does not apply to tankers supposed reconciliation commitment to a The rainforest includes the coastal and transporting refined oil. new relationship with Indigenous Peoples inland territory of the Lax Kw’Alaams, in This, in turn, raises the question why one based on the recognition of rights, fact, the very location where they envisaged such legislation is required at all. It does respect, co-operation and partnership.” a tanker terminal. The act’s stated objective not apply to BC’s southern waters including It’s time to put a moratorium on the is to “provide extra protection for BC’s the Strait of Juan de Fuca used by Alaskan Moratorium Act. pristine northern coastline.” crude oil tankers headed for Puget Sound The moratorium has been in the works or to the Port of Vancouver/Burnaby, the Robert Hage, a former Canadian diplomat with the for a decade. In 2010, Liberal MP Joyce site of the Kinder-Morgan tanker terminal Department of Global Affairs, served as Canada’s Murray, now parliamentary secretary to the now approved by the federal government. ambassador to Hungary and Slovenia, and as director president of the Treasury Board, introduced a Enbridge’s Northern Gateway project was general for Europe and director general for legal affairs. private member’s bill to legislate a tanker ban cancelled by the government this year. In He is author of the 2015 MLI study “Risk, Prevention on the West Coast. Her bill was one of five sum, the only pipeline and terminal project and Opportunity: Northern Gateway and the Marine introduced by the Liberals or NDP between the Moratorium Act would affect is the First Environment.” This article first appeared in the 2007 and 2011. Their stated objective was to Nations’ Eagle Spirit Energy Corridor. Financial Post.

16 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute TAX AVOIDANCE Trudeau and Morneau understand tax dodging. They do it, too

No one likes to pay taxes. Not you, not me, certainly not Justin Trudeau or Finance Minister Bill Morneau.

Philip Cross the $45.6-billion underground economy in Some say that citizens have a moral duty 2015 was twice the size in high-tax Quebec to pay taxes they are not legally required to. rime Minister Justin Trudeau has urged as in relatively low-tax Alberta. This has about as much chance of working Phis fellow wealthy Canadians to pay Tax-avoidance schemes are not to as requesting taxpayers to voluntarily send more taxes. “We have to start telling the be confused with tax evasion. Despite money to the federal government to help truth about income inequality in Canada,” its illegality, almost all Canadians at pay down the debt (in the 1990s, you he said in a speech in PEI. “There are people some point in their lives have engaged could check a box on your tax return to in Canada who are so wealthy that not only in tax evasion, usually involving the donate your tax refund to deficit reduction; do they think they don’t need to pay their fair underground economy. This includes the take-up was so low this was quickly share of taxes, they’re forcing us to spend a everyday occurrences, such as giving your discontinued). More broadly, if people billion dollars to go after them just so they’ll plumber cash to avoid paying the GST. Tax were so fundamentally unselfish with their do the right thing and pay what they owe.” evasion also takes the form of the plumber money, we could get rid of government However, Trudeau’s comments were carefully not reporting that income, or money and rely on charities to provide everything from welfare to schooling. If all people were angelic, we could dispense with religion Trudeau has increased the incentives for because there would be no sin. It is not just for selfish reasons that people to direct their income into small people don’t like paying more taxes than businesses or to move their money offshore. legally required. Some of the increase in tax avoidance reflects falling confidence that governments spend your taxes wisely or efficiently. Polls show that while health care focused on illegal tax evasion and not tax earned from illegal activities such as drug is the number one priority of Canadians, avoidance, which involves legal means to dealing or sex work. While the individual people are skeptical that government can reduce your tax bill as employed enthusiasti- amounts of tax evasion are usually small, actually deliver better health care. cally by himself, some cabinet colleagues and they add up to billions of dollars, on par Much of the contrast between higher close friends like Stephen Bronfman. with estimates of the tax revenues lost due government spending and deteriorating Income taxes and schemes to evade or to offshore bank accounts. outcomes from this spending is because avoid taxes have grown hand in hand over By raising the marginal tax rate on civil-service pay and benefits capture a the past century. Income tax rates were first upper-income Canadians and reducing the growing amount of government spending. raised to punitive levels to finance the debt small-business income tax rate, Trudeau A classic example was the 2002 Romanow left behind by the First World War. Soon has increased the incentives for people to report on our health-care system, which the marginal tax rate was over 50 percent direct their income into small businesses concluded that health care could be fixed in European nations such as France, and or to move their money offshore. Both are with the simple infusion of billions of tax almost immediately the Swiss banking usually perfectly legal; every large bank in dollars. The government followed this system was offering to shelter money from this country advertises the ease and benefits advice, but all of the increased funding the tax authorities. High taxes are still the of moving money offshore, especially to was commandeered by the health-care main motivation behind tax evasion. It is no jurisdictions like Bermuda or the Cayman coincidence Statistics Canada estimates that Islands which have no income tax. Continued on page 33

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 17 AFFORDABLE HOUSING No help for would-be homeowners in Canada’s new housing strategy There’s very little in Ottawa’s new national housing strategy for Canadians trying to buy their first homes in high-priced markets.

Jane Londerville insurance, financial regulation, interest Social and affordable rental housing rates and tax policy. built under various government programs anada’s federal government recently Actions by the federal government in represents approximately six percent of the Creleased its National Housing Strate- relation to home ownership in recent years housing market. That leaves a large segment gy. It is the first fully articulated strategy have been somewhat confused. Rules for of the population that must find a way to for Canada, containing several initiatives lending on housing have been gradually afford the housing provided by the private designed to make housing more affordable tightened every few months for the past market. Some attention to this segment of for the most vulnerable in our country. few years. At the same time, tax credits the housing continuum is warranted in a But what’s in the policy for Canadians for first-time buyers have been introduced full National Housing Strategy. trying to buy their first homes in to encourage home ownership. It’s not This is not to diminish the importance high-priced markets like and clear whether the government wants to of social housing or the potential for new Vancouver? Very little. encourage or discourage home ownership. thinking on how the federal government Ottawa has generally been removed can more effectively support those who from the debate on how to make home Social housing important require social housing. The announce- ownership more affordable in pricey A recent report published by the ment of a new portable housing benefit markets. The provinces and local Macdonald-Laurier Institute makes several that helps people living in unstable governments have control over many recommendations for supporting affordable housing situations, for instance, is a factors that affect affordability. But it’s home ownership. major step forward. wrong to assume that there’s no federal First, there needs to be a recogni- But Ottawa should also put any new or role in ensuring affordable and responsible tion that affordable housing and housing pending changes to mortgage and financing home ownership. affordability are different and require rules on hold, including the January The federal government can affect the different policy responses. 2018 change requiring g stress-testing of ability to buy a home through mortgage uninsured mortgage loans at approximately two percent above the rate negotiated by the borrower.

Mortgage arrears practically non-existent Mortgage underwriting rules have been al- tered several times since 2009. The market has experienced considerable policy vola- tility. The cumulative impact of successive changes is still playing itself out. These tweaks have continued despite the fact that mortgage arrears in Canada have been well under one percent – and dropping – for more than two decades.

Continued on page 34

18 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute PUBLIC FINANCES Ottawa should avoid complacency on public finances Given the government’s troubling predisposition to deficits, we need a renewed focus on the principles to govern federal fiscal policy.

Sean Speer hear about “kick-starting” the economy This deficit-for-deficit’s sake mentality as we did in the campaign. Now it’s all is the main reason we’ve gone from $30 here’s been plenty of debate about about long-term investments to “build the billion in accumulated deficits, as the Tthe Trudeau government’s budget- Canada of tomorrow,” as the Minister of Liberals promised in the campaign, to now making since it was first elected in October Finance has put it. projecting nearly $75 billion over their 2015. Two recent developments – the The circumstances may be different. The four-year mandate. A drop in revenues is Fall Economic Statement and news that message may have changed. But the answer only a small part of the story as others have Ottawa will reprofile further infrastructure is still the same: more spending. demonstrated. spending into the future – provide some This ought to concern even those who What’s interesting is not just Ottawa’s useful insights into its fiscal policy. Investi- were nonplussed by the government’s choice predisposition to deficits and spending but gating these two separate yet linked govern- to run deliberate budget deficits. Or its also its spending composition. Remember ment announcements can help us come decision to abandon its three-year timeline to the message during the election campaign away with a better understanding of what’s restore budgetary balance. Or its judgment and through its first two years (including for behind Ottawa’s deficit and where it may be to put off setting out a medium-term plan to example Minister Morneau’s 2017 budget heading in the medium- and long-term. eliminate its deficit. speech) was that infrastructure was a major The real story here seems increasingly clear. This isn’t about economic theory, stimulus-like investments, or short-term fiscal improvements. This is basically a case The message may have changed. But the of run-of-the-mill spending growing faster than revenues. And the underlying evidence answer is still the same: more spending. suggests it may get worse rather than better. Much of the reporting on the Fall Economic Statement was about how the deficit has shrunk. This is true. A combina- There are few voices out there that or even principal source of the government’s tion of improved economic conditions believe the government should run deficits incremental spending and in turn its and delays in spending have caused deficit in good and bad times. Even fewer are in budgetary deficit. projections to go from $28.5 billion favour of deficit spending as an end. These The evidence is clear that this claim is to $19.9 billion this year and shrink are positions that should be able to secure overstated. I’ve previously written about cumulatively by nearly $25 billion in the a broad cross-section of support across the how incremental infrastructure funding subsequent four years. But this belies a intellectual and political support. only represents a quarter of the Ottawa’s deeper dive into federal fiscal policy. But not with the Trudeau government. ramped-up spending. A recent announce- Ottawa’s fiscal policy is increasingly The Fall Economic Statement both ment that the government is “reprofiling” unmoored from any consideration of the boasted about Canada’s strong economic (which basically involves moving it into business cycle. It’s notable, for instance, performance and signaled that the timing subsequent years) billions of infrastructure that the idea that deficit spending is is wrong to focus on budgetary balance. It’s dollars reinforces this point. This means justified due to the economic circumstanc- hard to understand under what circumstanc- that infrastructure funds earmarked in es has mostly disappeared from the es a deficit wouldn’t be justified according to government’s talking points. We no longer this perspective. Continued on page 33

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 19 LESSONS FROM THE ANGLOSPHERE Covers design: Monica Thomas Monica design: Covers The case for fiscal reform: lessons from the Anglosphere A new MLI series looks at what US lawmakers can learn from the fiscal reforms of Canada, United Kingdom, Australia, and New Zealand.

Sean Speer and Alex Brill background to the US policy debate and debt levels, and the same tendency to ultimately help shape a bipartisan consen- “kick the can down the road” that is ederal fiscal reform in the United States sus for action. present in Washington. Eventually, their Fis increasingly necessary but over the That is the goal of this essay series behaviour caught up to them. It became last two decades has remained elusive. The published by the Macdonald-Laurier a matter of “arithmetic,” not “ideology,” result is that the US federal debt continues Institute (MLI). We have asked scholars and as then Canadian Finance Minister to grow unabated, which poses an increas- leading politicians from these Anglosphere Paul Martin once said. Each country ing threat to future generations of citizens. countries to describe their respective subsequently undertook ambitious fiscal The fiscal reform experiences in Australia, experiences with fiscal reform. reform programs to control spending, cut Canada, New Zealand, and the United At different times, these Anglosphere budgetary deficits, and reduce the size of Kingdom – what can be described as the countries were each confronted with government. Their actions led to positive “Anglosphere” – can give some context and fiscal crises thanks to overspending, high economic and social outcomes.

20 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute The potential lesson from these primary economic, scientific, and cultural 1. Pursue public transparency and real-world experiences is that well-designed force in global commerce well into the 21st coalition building fiscal reform can yield economic and social century. The reason for his prediction: the Reform-oriented politicians need to speak benefits. We hope that US lawmakers from Anglosphere’s underlying ideas, institu- directly to the public about the need for across the political spectrum learn from tions, and traditions provide a linguistic, reform, the opportunity it entails, and these experiences and see how fiscal reform cultural, and technological advantage. their plans to achieve it. Voters must un- can ultimately strengthen the US economy derstand the magnitude of the problem now and in the future. What connects us? before they are prepared to accept the This essay sets out the reasons why US Deep linkages connect countries in the remedy. Transparency is thus key to ob- lawmakers should look to the Anglosphere Anglosphere. Political and policy ideas are taining a mandate and sustaining the po- for lessons from their successful fiscal regularly diffused. Our political cultures are litical battle in the face of the inevitable reforms. Leading politicians from Canada, similar, and thus the ideas that animate our hue and cry of special interests. The Aus- United Kingdom, Australia, and New politics are generally common. The con- tralian government’s fiscal transparency Zealand introduced individual papers, and nection is not just a political abstraction or reforms provides a good example. we are pleased to showcase one of these cultural identification. Countries in the An- It also helps to build a common forewords in this issue of Inside Policy. glosphere have various economic, govern- understanding of the problem across mental, and security links. One example is political parties. There will no doubt be What is the Anglosphere? “the Five Eyes” cooperation on intelligence political disagreements about how to The term Anglosphere was first coined by gathering. solve a problem, but the first order of science fiction writer Neal Stephenson in his Yet, notwithstanding our interconnect- business is to build a broad coalition in 1995 book The Diamond Age. British jour- edness, there have been only limited efforts favour of reform. nalist John Lloyd adopted the term in a 2000 to understand how we can learn from one Canada succeeded in its fiscal reforms essay and defined it as including the United another on public policy in general and partly because the government was clear States and the United Kingdom along with fiscal policy in particular. Australia, Canada, about the problem and partly because the the English-speaking Australia, Canada, Ire- New Zealand, and the United Kingdom Prime Minister had support from opposition land, New Zealand, South Africa, and the have previously gone through precisely the parties. The post-2010 experience in the British West Indies. American scholar James same debates on government spending, United Kingdom is similar in this regard. Kotkin calls it “predominately a union of deficits, and debt that we have seen in the The political marriage between Conserva- language, culture and shared values.” United States over the past decade or so. tive David Cameron and Liberal Democrat The shared culture and values are Each country can learn lessons from these Nick Clegg may have been odd, but they unique and strike at the heart of what experiences by understanding how these agreed on the need to address the country’s makes our societies successful. It is no debates played out. deteriorating public finances. accident that countries in the Anglosphere In the United States, pro-reform consistently top the Legatum Institute’s Lessons from the Anglosphere members of Congress from both sides of Prosperity Index. The fiscal reform experiences in Australia, the aisle must work together to address the What precisely does this mean? It is that Canada, New Zealand, and the United federal government’s short-term budgetary our wealth and opportunity are no mere Kingdom were, of course, different. They deficit and long-term debt challenges. This accident but a result of the Anglosphere vision occurred in different time periods and un- cannot be a party-line issue. of society – including individual liberty, der different types of governments, were personal responsibility, merit-based opportu- composed of different mixes of tax changes 2. Get the institutional and fiscal nity, free markets, democratic governance, and spending reductions, and ultimately governance arrangements right private property, and the rule of law. were accompanied by different sets of Establishing clear fiscal rules, targets, Kotkin has argued that the Anglosphere broader policy changes. and criteria is essential for maintaining model will continue to be dominant. His But there are still common lessons that political will and demonstrating progress 2010 book, The Next Hundred Million, US lawmakers can derive. In particular, to the public. There are plenty of threats to anticipated that the US and its Anglosphere five crucial lessons can be drawn from the fiscal reform including the electoral cycle, allies – Australia, Britain, Canada, and experience with fiscal reform in the four special-interest pleading, and spending New Zealand – will continue to be the Anglosphere countries. pressure from government departments and

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 21 agencies. Rooting reform in clear, achievable The US tax system is already uncompet- reform has placed undue burden on other rules, targets, and criteria can mitigate this itive, particularly with regards to corporate areas of government spending. risk and should be an initial priority. income taxes. Raising tax rates to address It is important, therefore, that any fiscal It is also important that fiscal targets be the deficit would exacerbate this uncompet- reform exercise in Washington involve all clear and understandable and that nonparti- itiveness and hurt the economy. areas of government spending. It is key to san organizations such as the Congressional Incidentally, eliminating Canada’s making the government more affordable, Budget Office are responsible for reporting budgetary deficit produced a “fiscal efficient, and ultimately smaller. to the public on progress. Clear public dividend” that the government then used criteria can also help to justify different to lower taxes across the board, including 5. Make fiscal reform part of a broader fiscal choices and address false claims about the corporate tax rate, which was eventual- agenda politicization. The Canadian government ly dropped to 15 percent. Fiscal reform Fiscal reform should not just focus on easy used a publicly available 6-point test that could provide the US government with a or popular cuts. Defunding the Corpora- enabled the public to understand how similar fiscal dividend to address its own tax tion for Public Broadcasting, for instance, decisions were reached. competitiveness challenges. may be a good idea, but it is not going to Similarly, spending reductions should fix Washington’s fiscal challenges or mark- be embedded in legislation, giving the edly improve the country’s economic com- government or Congress minimal ability to petitiveness. There must be a higher level of unwind the cutbacks. Firm, legislated rules ambition. can minimize (though not eliminate) the Fiscal reform must Here is where Australia and New risk of budget backsliding. Zealand provide models for US lawmakers involve a clear-eyed to emulate. Their fiscal reforms focused 3. Focus on government spending – review of all federal on reforming and modernizing what not higher taxes government does and how it does it. The In the United States, increases in federal government spending. emphasis in such exercises ought to be outlays now and in the future are driving on right-sizing social welfare programs projected fiscal instability, not any forecast and altering their structures so they are of declining tax receipts. Deficit reduction 4. Put everything on the table compliments to instead of substitutes for should therefore focus on addressing this Fiscal reform must involve a clear-eyed re- work, skill training, healthy behavior, and root problem directly. view of all federal government spending retirement savings. This is the best way to Moreover, the experiences in the to understand what should be eliminated, reduce the size and scope of government in Anglosphere certainly accord with Alberto reformed, or maintained. Everything must the long-term. Alesina’s research, which shows that be up for discussion. For instance, business The US Congress should see fiscal spending reductions are less economi- subsidies and corporate welfare should be a reform as part of a broader agenda to cally damaging than tax increases. As an big part of any fiscal reforms, as was the case revive US dynamism and opportunity. example, New Zealand’s experience shows in Canada. Eliminating the deficit and putting public that fiscal reforms – focused primarily on Excluding certain areas of spending debt on a sustainable path is the first step. spending – ultimately contributed to the from the exercise precludes the opportunity Addressing distortionary policies such as country’s pro-growth environment. for administrative efficiencies, consolida- agricultural subsidies or federal mandates The Canadian experience is also tion, or other improvements. It also risks in education and other state-level relevant here for US lawmakers. Then undermining public support if people do responsibilities should be concurrent. The Finance Minister Paul Martin understood not believe that the process is fair and that outcome will be not only an improved that Canada’s poor tax competitiveness was certain groups are being protected. fiscal position, but a more dynamic and already an economic drag when he enacted The UK’s experience is critical for competitive economy. fiscal reforms. Raising taxes would have understanding the risks inherent in dampened economic growth and exacerbat- protecting various sectors or departments. Sean Speer is a Munk Senior Fellow at MLI. Alex Brill ed the government’s fiscal challenges at the The government’s decision to exclude is resident fellow at the American Enterprise Institute. precise moment that dynamism and growth certain types of spending (such as pension This is a shortened version of their essay for MLI’s were required. benefits and foreign aid) from its fiscal Lessons from the Anglosphere series.

22 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute LESSONS FROM THE ANGLOSPHERE Arithmetic not ideology

Canada’s former Finance Minister and 21st Prime Minister describes his experience putting Canada’s public finances on a sustainable path.

Paul Martin To this end one advantage I had is that I inherited a highly competent and hen I was sworn in as Canada’s 34th well-regarded team at the Department of WFinance Minister on November 4, Finance – one that had the expertise and 1993, it was clear that my tenure would be influence throughout the government to marked by the degree to which our Govern- shape and help drive reform. This is one ment was able to put the country’s public of the strengths of Canada’s permanent finances on a sustainable path. Hence the public service system. story I was asked to tell in this article. My second point is that once you have Budget deficits may be unavoid- your colleagues and government on side able and are fully justifiable in some you have to speak to the people. circumstances. Public investment can Here I had another advantage. External spur an economy particularly when it is events had started to shape public awareness. operating below capacity and borrowing A Wall Street Journal article in January 1995 costs are low. But a few instances of deficit that warned Canada was hitting a fiscal wall spending were not Canada’s issue. underscored the need for reform and the Our problem was no secret. The Mexican peso crisis in 93, 94 which drove Federal Government had been running our interest rates up as I had predicted, Paul Martin speaking at the World Economic consecutive budgetary deficits forForum in Davos, Switzerland, 2004 demonstrated graphically that countries decades and the trendline showed no (Photo: commons.wikimedia.org : World Economic Forum with balance sheet issues like ours were (weforum.org) swiss-image.ch/Photo by Remy Steinegger) signs of abating despite generally positive highly vulnerable to other’s problems. economic growth. We faced a 6 percent The truth is the Canadian public was deficit and a federal debt to GDP ratio All of this being said, my biggest fear lay more attuned to the magnitude of the of 67 percent and both were rising at an in the fact that our existing debt servicing problem and the need for reform than most ever escalating rate despite the fact that costs consumed 36 cents out of every tax politicians gave them credit for. But this each ratio was already the worst of the dollar and I knew that an international didn’t mean they didn’t have to be engaged. G7 countries but for Italy’s. Further- financial crisis of some kind was cyclically Thus early on we started country-wide more, as the Deputy Finance Minister at inevitable. This would cause interest rates consultations with Canadians from all walks that time Scott Clark has summarized, in countries with dicey balance sheets like of life to help contextualize the problem and “interest costs on the debt were increasing Canada’s to climb further and our finances to seek their input. The process was extreme- faster than the operating surplus, and the to spiral out of control if we did not act ly valuable. We were clear and transpar- government was borrowing just to pay the quickly before the chaos occurred. ent throughout which helped to bring the interest on its debt.”1 Finally, as if this was And so we acted. And thank heaven we public onside and to maintain their trust not enough, our National Pension Plan did because we skated through the Asian and support which is obviously crucial if had an unfunded liability greater than the crisis two years later without incident. you are to have the permission to act. national debt and it could not be ignored. This brings me to the first point I Trust is also important if you are would make which is that deficit cutting to continue to have that permission. is very much a question of priorities Governments have only one shot to fix 1 Clark, C.S. 2011. “What is ‘Credible’ Fiscal Policy? but it is also a question of arithmetic. the problem. You cannot ask the public The Canadian Experience, 1983-2010: The View of a Former Practitioner.” In Fred Gorbet and Andrew If you are not prepared to make tough to make sacrifices only to return to them Sharpe, eds. New Directions for Intelligent Govern- ment in Canada: Papers in Honor of Ian Stewart. choices and defend them then you will Centre for the Study of Living Standards, pp. 104. not succeed. Continued on page 34

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 23 LESSONS FROM THE ANGLOSPHERE Washington should learn from the fiscal lessons of the Anglosphere

Fiscal reform can be part of a pro-growth, pro-opportunity agenda.

Sean Speer deficit reduction can be associated with by conservatives. Some involved broader positive economic and social outcomes. market reforms. Others were more limited ax reform has not only trumped action Mr. Mulvaney and others in Washington to public finances. Ton the federal deficit and debt, it now would be wise to heed these lessons. The commonalities of these even has former fiscal hawks such as the US Australia, Canada, New Zealand, and Anglosphere experiences, though, are Office of Management and Budget Director the United Kingdom have each grappled where Mr. Mulvaney can derive some Mick Mulvaney claiming “we need new with structural deficits and unsustainable lessons. Greater public transparency helped deficits.” It’s quite an intellectual about-face. public debt at different times over past three people understand the magnitude of the It’s one thing to make a short-term politi- decades. The similarities to the current US problem and the need for a proportionate cal judgment about legislative priorities. situation are notable. solution. Budgeting was rooted in conserva- It’s another to adopt left-wing arguments about the necessity of deficit spending. The case for sound public finances and limited Australia, Canada, New Zealand, and the government is invariably lost along the way. United Kingdom have each grappled with The problem, of course, is not just that Mr. Mulvaney’s formulation is inconsistent, structural deficits and unsustainable public debt. it’s also wrong. It wrongly assumes that all current spending is productive and efficient and that reducing the deficit will necessarily These countries fell into vicious patterns tive assumptions rather than accounting harm the economy. of deficit spending divorced from the gimmicks. Clear fiscal rules and targets This false case against spending reform business cycle. It didn’t matter if the economy were established to hold the government or deficit reduction is hardly unique to was growing or slowing. More spending and accountable. Fiscal reforms were mostly him. There’s always an excuse. The timing is higher deficits was always the policy response. comprised of spending reductions rather seemingly never right. The economy is too Special interest calls for more spending than tax hikes. And fiscal tightening was soft. Other tax and spending priorities are always trumped deficit reduction. Warnings married to broader non-fiscal reforms too important. And so on. about so-called “austerity” always precluded (such as liberalizing protected sectors and This is how Washington ends up spending cuts. Short-termism superseded eliminating corporate welfare) to boost recording a budgetary deficit 45 of the long-term solutions. Debt continued to pile growth, investment, and job creation. past 50 years and with a federal debt that up. Their public finances ultimately became But the most important commonality amounts to $119,499 per household. Alan unsustainable. was the outcome. Anti-austerity warnings – Simpson and Erskine Bowles, former heads Sound familiar? many of which sound similar to claims heard of the bipartisan commission on fiscal Where these Anglosphere countries now in Washington – failed to material- responsibility and reform, have called it diverge is they actually did something about ize. Quite the contrary. These experiences “deficit denial.” it. Each eventually undertook ambitious with fiscal reform were generally marked The real-world experiences with fiscal reforms to control spending, cut by positive economic and social outcomes fiscal reform across the Anglosphere budget deficits, and reduce or stabilize including economic growth, investment, show these arguments and concerns are government debt. The experiences were and job creation. Especially since the “fiscal unfounded. There’s no reason for denial. slightly different. Some were led by Well-designed spending reforms and center-left governments. Others were led Continued on page 35

24 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute HUMAN RIGHTS LEADERSHIP

Proponents of the Magnitsky Law at the UK Parliament. Left to right: Andrew Foxall, Henry Jackson Society; Ian Austin MP; Vladimir Kara-Murza, Open Russia; Marina Litvenenko, widow of Alexander Litvenenko; Bill Browder; Marcus Kolga; MP (Photo: Evgenia Kara-Murza) Reclaiming Canada’s role as a global human rights leader

MLI is pleased to present Senior Fellow Marcus Kolga’s statement on the Sergei Magnitsky Law to the UK Parliament.

Marcus Kolga some whom we are lucky have here with to enact the legislation, and then again after us today. Many foreign observers might the second. hank you everyone and a special thank be surprised to learn that this Canadian I’ve frankly lost count of the number Tyou to MP Ian Austin and to the human rights legislation took as long as of times Bill Browder visited Canada in Henry Jackson Society for the kind invita- it did to pass. pursuit of this goal. It is ironic that it tion and the great honour of having me here The first attempt came from former took the persistence of a US born, British today to talk about Canadian efforts to pass Justice Minister, Irwin Cotler, who financier to convince Canada to reclaim its the Sergei Magnitsky Law in Canada over introduced a private members motion role as a global human rights leader. the past seven years. which, after having been adopted When Canadians look in the collective, Let me begin by saying that Canada’s unanimously in Parliament in 2011 called national mirror, we see a towering defender Sergei Magnitsky Law is a global human on the Government of Canada to adopt of global human rights and a grand broker rights law. It does NOT target specific Magnitsky style legislation. of peace and stability. states. It targets individuals. Individuals Boris Nemtsov himself, was among Much of this Canadian self-image who abuse the rights of their fellow citizens the first activists to visit Ottawa in 2012, is rooted in Canada’s contribution in and profit from those abuses. to petition Parliament to adopt it. Vladimir drafting the 1948 Universal Declaration of Our efforts were immenselyKara-Murza, came to Ottawa later that year Human Rights. So deeply ingrained is this challenged and involved the participation to do the same. in our national identity, that our Foreign of many global human rights advocates: He came back to Canada, after the first Ministry website includes this history on some of whom are no longer with us, and attempt on his life, to convince Canadians its homepage.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 25 The statement, which has endured Chrystia Freeland, the government’s position hypocritically championing human rights several changes of Canadian government on Sergei Magnitsky legislation aligned is absolutely pointless and reprehensible.” since the mid-1990s, says that: “Canada with the overwhelming pro-human rights The Kremlin has also claimed to have has been a consistently strong voice for consensus that had emerged in Ottawa. imposed sanctions on Canadian officials the protection of Human Rights and the As the movement to adopt Sergei as a retaliatory measure but perhaps advancement of democratic values from Magnitsky legislation gained support unsurprisingly, no list of those sanctioned its central role in drafting of the Universal and momentum, so too did the Kremlin’s has ever been released. Declaration of Human Rights to its work at objections intensify. In the Kremlin’s macabre world of the UN today.” In March 2016, the Kremlin lawyer Orwellian double speak, it is Vladimir Putin It is remarkable that then Prime at the center of the current Trump-Russia who is relentlessly presented as the victim Minister Louis St. Laurent ordered investigation, Nataliya Veselnitskaya, of this human rights legislation, and the Canadian diplomats to avoid any role in publicly attacked Canadian efforts to adopt human rights activist as unfairly persecuting the deliberations of that declaration, and the law. Veselntiskaya triggered a ripple these regimes. persisted in obstructing its advance. effect of criticism in Russia’s pro-Kremlin Yet, Canadians have universally So too did Canada’s most recent former media and even prompted a call from embraced this new law and reclaimed their Foreign Minister, stall and block Magnitsky Russia’s lower house to open an official role as a global human rights leader, just as legislation. investigation into the Canadian movement. they did with the Universal Declaration of Human Rights. Other nations can now use Canada’s Other nations can now use Canada’s example and work towards adopting their example and work towards adopting their own global human rights legislation. The overheated bluster of Kremlin own global human rights legislation. propaganda and threat of retaliation are to be expected. And quite safely ignored. We cannot allow human rights to be held The former minister’s opposition was so Vladimir Putin’s hollow foot stomping hostage by hot air. great that he even claimed, incorrectly, that was echoed by local proxy groups, set up No one in the United Kingdom or Canada already had the power to sanction solely to amplify Kremlin messaging. Europe or elsewhere should ever fall for human rights abusers and that Magnitsky Progressively malicious public attacks the attempts of the world’s totalitarians legislation was redundant. Canada after against Canadian parliamentarians and and kleptocrats to vilify the norms and all, was seeking to reengage with Vladimir activists lost all mainstream credibil- principled values that motivate our actions. Putin, and Magnitsky legislation would ity, becoming morbidly desperate when Accountability for human rights and further complicate that effort. Canadian MPs who supported the legisla- individual sanctions are a sovereign right In 1948, Canada took a similarly soft tion including the Minister herself, were that no regime should be allowed to bully position, when it was the only country to side accused of harboring neo-Nazi sympathies another nation into rejecting. with the Soviet Union to abstain on a final by pro-Putin, alt-right conspiracy theorists. Once again thank you for the immense vote on the Canadian drafted Declaration. Despite the Kremlin’s best efforts to honour of being invited to speak to you here The risk of international isolation and inspire the worst fears in Canadians, The in The Parliament of The United Kingdom. embarrassment eventually forced Canada to Sergei Magnitsky law, which was introduced I hope that our experiences in Canada acquiesce and support it. and heroically shepherded by two Conserva- will serve you others well in adopting a more Just as Canada’s then position on the tive opposition parliamentarians, Senator complete piece of Magnitsky legislation. Declaration was too shameful to sustain, so Raynell Andreychuk and MP James Bezan; too was the Canadian government’s more passed unanimously in both the House of Marcus Kolga is a Senior Fellow at MLI’s Centre for recent trajectory towards appeasement of Commons AND in the Senate in October. Advancing Canada’s Interests Abroad. This statement modern, repressive regimes and kleptocrats In a statement released days after Royal was presented to the UK Parliament on November by rejecting Magnitsky legislation. Assent, the Kremlin said that “Canada’s 16, 2017. He was among six politicians and activists Last January, in a cabinet shuffle, a new decision to extend its anti-Russia honoured to receive the Sergei Magnitsky Human Minister of Foreign Affairs was named. With sanctions under the false pretext of Rights Award on November 17 in London, UK.

26 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute DRAGON AT THE DOOR Canada should be wary of China’s Asian Infrastructure Investment Bank

By joining the Asian Infrastructure Investment Bank, Canada is helping pivot the world economy away from the US.

Philip Cross

ttention has recently focused on ATrudeau’s visit to China and its continuing “exploratory discussions” of a possible free trade deal. The wisdom of the government’s haphazard approach can be questioned, especially given its decision to eschew efforts at building consensus in the renewed Trans-Pacific Partnership negotiations prior to dealing with China. Instead, it favoured going one-on-one to negotiate with China alone – something not even the Americans have been comfortable doing. The results were predictable, if embarrassing. Yet, as attention focuses on free trade, we also need to remember other elements of AIIB headquarters the Liberal government approach to China in Beijing – some of which will likely prove equally (commons.wikimedia.org) troubling. A good example can be found in it is far from clear why Canada wants to long-term growth, but the efficiency of the government’s budget bill from last help pivot the world economy away from investment. Many Asian countries like month, which included a new law called the US to China. Nor is it clear there is Thailand, Malaysia, Indonesia and Taiwan the Asian Infrastructure Investment Bank a shortage of capital in Asia that Canada had high rates of investment leading Agreement Act. This law would set the needs to help finance, especially at a time up to the Asian crisis of 1997, but these terms for Canada’s involvement in the Asian when plans are being made for a new investments (often state-directed as part Infrastructure Investment Bank (AIIB), Canadian Infrastructure Bank to make up of their industrial policy) did not pay off. fulfilling a promise from earlier in the year for our own infrastructure deficit. While Canada’s enthusiasm to have a place at the about joining this Chinese-led initiative. Asia’s infrastructure needs are massive, table when the AIIB chooses investments The government has been eager to so is their available pool of capital as bodes ill that investment will be driven improve economic ties with Beijing – and reflected in its large trade surpluses. Many by market considerations alone. Canada the decision to join the Bank is only one Southeast Asian countries have savings and and other late joiners to the AIIB appear element of that approach. Yet that raises investment rates of over 30 percent or even motivated to get a share of the contracts important questions about the nature 40 percent of GDP. Their priority should for infrastructure work in the region. This of the AIIB and the wisdom of actually be finding a mechanism ensuring that suggests a certain cronyism is anticipated joining this new institution. capital is deployed where it is needed most. in the process of awarding contracts, with The AIIB is a Chinese-founded It is well-known that it is not local citizens in Asia ultimately paying alternative to the US-led World Bank. Yet the amount of investment the drives more for investments they may not value.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 27 Why Asia’s emphasis on infrastruc- sustain its economic growth seems to echo in Emerging Market Economies in 2015, ture? While good infrastructure is certainly claims by experts in the 1970s that the Soviet when slumping commodity prices and a necessary for sustained growth, maintain- Union would surpass the United States, strong US dollar revealed that this model ing growth beyond the early developmen- then in the 1980s that Japan was poised of growth was ultimately premised on debt, tal phase requires an ability to move into to become the world’s next superpower, the most precarious source of growth. consumer products with the flexibility and finally forecasts in the 1990s that the Even the Chinese seem to have lost and ability to adapt to rapidly changing European Union would dominate. All of faith in this path to growth, judging by the consumer tastes. Japan and South Korea these predictions were wrong. increasing amount of capital local investors have auto and electronics companies that There are other reasons to be wary of are moving out of China – $1.7 trillion have demonstrated that capacity; China and increasing our reliance on China as the in 2015-2016, leading China to impose other southeast Asian countries have not. It emerging power in Asia. Its policies are controls in 2017. Such capital flight by local is not clear how investment in infrastruc- often the exact opposite of what economists investors also preceded the Asian financial ture helps make that leap. usually advocate for economic growth. crisis in 1997. The steady outflow of capital from China, including an unknown amount China regularly uses the attraction of of funds into Canada’s housing market, reflects that China’s own leaders are skeptical the sheer size of its market to intimidate about the continuation of economic growth foreign companies and governments. and political stability in the future. It is worth recalling that the breakthrough for growth in many emerging markets in Canada’s contribution to the AIIB Rather than encouraging liberty and the free recent decades was not remotely the result appears premised on the idea that China flow of thought with innovation protected of successful investments made over time by inevitably will become one of the world’s by property rights, China controls its own multilateral institutions such as the World dominant economic powers. This is far Internet and social media, steals intellec- Bank. It reflected countries adopting capital- from a sure thing. Before the global tual property, flouts WTO trade rules, ism, tentatively at first in China, then in financial crisis of 2008, its rapid growth manipulates its currency, initiates cyberat- Eastern Europe after 1989 and then increas- was built on exports as it integrated its tacks on nations and companies around the ingly around the world as nations realized it production into global supply chains. world, makes unsupported territorial claims was institutions and not government-directed However, since 2009 it has relied more on in the South China Sea, engages in human investments that drove economic growth. domestic demand for growth, much of it rights violations, breeds rampant corruption China regularly uses the attraction of fuelled by debt. This is not a sustainable and increasingly pursues a cult of personal- the sheer size of its market to intimidate foundation for growth. ity instead of fostering democracy. foreign companies and governments In The Rise and Fall of Nations, Morgan Even more than infrastructure or from initiating cases against its habit Stanley’s Chief Global Strategist Ruchir investment, growth in emerging market of routinely ignoring WTO rules. This Sharma observed that nations experienc- economies requires good institutions and effectively reinforces and rewards China’ ing increases of over 50 percentage points governance, something China sorely lacks. It belief that it can make its own rules in their debt to GDP ratio inevitably is not clear that the AIIB will help or retard without consequences. Unfortunately for experience a prolonged period of slow the development of good institutions. Canada, the US is also learning the lesson growth, if not financial crisis. China’s debt It became fashionable among the Davos that access to its lucrative market gives it to GDP ratio has almost doubled from 150 elite to speak of a new Beijing Consensus enormous clout in negotiating trade and percent in 2007 to 282 percent (Canada on state-directed economic growth, the security deals with its nominal allies. The has nearly kept pace with an increase from successor to the Washington Consensus actions of China and the US threaten the 250 percent to 350 percent). He predicts over-emphasis on macroeconomic stabili- structure of liberalized international trade China faces poor growth prospects over ty as a precursor of growth. Faith in the that has benefited Canada for decades. the coming year as a result of its recent so-called Beijing Consensus peaked in debt binges as well as steep population 2014, just when the AIIB was being Philip Cross is a Munk Senior Fellow at MLI. This decline (partly due to its one-child policy). created. Belief in the Beijing Consensus was piece is based on his presentation to the House Finance Projecting that China will be able to soon undercut by the sharp drop in growth Committee, November 7, 2017.

28 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute DRAGON AT THE DOOR The CCCI-Aecon deal is China’s gain, not Canada’s

Canada should recognize that the CCCI-Aecon deal represents a gain for the China model over our free market system.

Duanjie Chen

he pending acquisition of Aecon by Tthe Chinese firm CCCC Interna- tional Holdings Inc (CCCI), at the cost of $1.5-billion, has triggered a nationwide debate in Canada. Aecon is a jewel among Canadian construction and engineering firms, one that built many a Canadian landmark. CCCI, on the other hand, is an investment arm of the notorious China Communication Construc- tion Co. (CCCC) – a state-owned enterprise (SOE) that has built artificial islands in the South China Sea and is therefore on the radar screen of the US Senate. CCCC has also engaged in fraudulent chuttersnap business practices across multiple countries. A good example is its involvement in a CCCI’s aim is to boost China’s This deal therefore cannot be disguised “collusive scheme designed to establish state capital as “merely a case of acquisition between bid prices at artificial non-competitive As a small open economy, Canada needs two construction companies.” Instead, levels and to deprive the borrowers of the to ensure that any foreign acquisition of it’s a case of boosting China’s state capital benefits of free and open competition.” our domestic businesses is a beneficial one. to “become stronger, do better, and grow This led to the CCCC being debarred in Foreign acquirers must uphold three ba- bigger,” as stated in President Xi Jinping’s early 2009 from any World Bank project sic principles for free trade: property and report at the Chinese Communist Party’s for eight years. contract rights, competitive neutrality, and 19th National Congress. The debate around the pending reciprocity. It is well known that all Chi- Every acquisition of a reputable western CCCI-Aecon deal has centred on the net nese SOEs violate these principles by fol- company by a Chinese SOE is a concrete benefit to Canada and its impact on our lowing their government’s anti-free-market step taken by China to grow its global SOE national security. China’s ambassador to principles and practices. empire. It is worth noting that Aecon was, Canada calls it “a common commercial CCCI’s acquisition of Aecon is undoubt- by revenue size (in 2016), number three transaction.” On that, I have to disagree. edly motivated by Beijing’s aspirations for a among construction and civil engineer- It is not a win-win deal for Canada. On more dominant global role and backed by its ing companies in Canada. It is also the the contrary, it represents a gain for government’s financial power. Clearly, it is a most versatile in Canada, with its business the so-called “China model” over our deal CCCI intends to use to help enhance extending to infrastructure, energy, mining, free market system – one that will only China’s global influence while compromis- and concessions. Aecon’s breadth of business negatively impact our economic and ing competitive neutrality within our own is unmatched by any individual Chinese political systems. construction and engineering firms. SOE operating on a similar scale.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 29 Aecon’s 140-year history comes with question because only the Chinese not imply any benefits unless Aecon underval- solid tracking of western technology government has the final say in how CCCI ues itself and is prepared to settle for less. and management advancements in the will allocate its financial sources. What In summary, the only visible “benefit” construction and engineering industries. we can be sure of is that to borrow CCCI to Aecon would be the 42 percent premium As such, Aecon’s competitive edge and financial strength, Aecon’s international on its last pre-agreement trading price for business reputation would be used to help pursuits will have to be aligned with those its shareholders. Nothing else would be conceal and obscure the infamous history of the SOE, which receives its orders from certain in Aecon’s future. of CCCI’s parent company CCCC. the Chinese government. Will these be easy Currently, CCCI’s acquisitions of the orders for Aecon to take? The net benefit to Canada is Australia firm John Holland (2015) and “Benefit Two”: It is claimed that “CCCI below zero the Houston-based Fried & Goldman will seek out areas in which Aecon could It’s all too easy to be relatively sanguine (2010) are being used to bolster its image deploy its unique expertise across CCCI’s on the CCCI-Aecon deal, and to offer the and aid in acquiring Aecon. In the future, international network.” Being part of CCCI nonchalant response of: “We need capital if Aecon’s acquisition is approved, it could will definitely afford Aecon a competitive edge and they have it, so what’s the matter?” allow CCCI to acquire bigger and more against its Canadian peers within CCCI’s Or, in the words of the Chinese ambas- influential foreign companies. international network, but only after CCCI’s sador, “Many cases of Chinese enterprises Chinese contenders get their first pick. acquiring Canadian enterprises have proved The net benefit to Aecon is questionable Aecon’s newsroom has listed seven “benefits We don’t need to be desperate for Chinese to Canada,” which in reality means benefits to the company. A careful combing through state capital – that’s unjustifiable. these seven “benefits” tells us the following: “Benefit One”: It is claimed that “CCCI’s size and financial strength will The tricky wording here is “unique that it was funding from China that helped augment” Aecon’s competitiveness for larger expertise”: Within the CCCI network, Canadian enterprises solve their problems. and more complex projects in Canada and Aecon would be given business opportuni- To some extent, Canada benefits more from internationally. But this raises two questions ties only in areas where its expertise is not to such cases.” Really? about this benefit.” be found among CCCI’s domestic affiliates. It is a myth that Canadians are in First, is it certain that CCCI’s size and It is well known that once foreign expertise is dire need for foreign direct investment financial strength will be good things for “learned” by Chinese partners, it turns into (FDI). According to the OECD, “Canada’s Aecon? Chinese SOEs are notorious for using a competitive edge for China. There is no outward investment (equivalent to 80% of their government’s favouritism and financial need to look very far – simply look into the GDP in 2016) has grown faster than inward backing to grow into monsters in order to short history of China’s global expansion in investment in recent years (equivalent to overtake their private-sector rivals, both its high-speed railway construction. China’s 62% GDP in 2016).” That is, as measured by domestically and globally. CCCI’s size and first high-speed railway was built only net outflow on the global scale, Canadians financial power are integral parts of China’s around 2005 and had to rely on foreign are providers of capital, not beggers! state capital and should play no role in our technologies provided by several multina- Of course, this is not to say that we do domestic competition in any industry. This tional corporations (MNCs). Yet all these not need inward FDI. But we don’t need to is especially true with larger and complex MNCs have long since lost their competi- be desperate for Chinese state capital – that’s construction projects, most of which involve tive edge against China’s state capital, unjustifiable. We can welcome China’s FDI, national infrastructure construction. Should it which now dominates the global high-speed so long as it does not lead to any unintend- become part of a Chinese SOE, Aecon might railway market. ed or unchecked consequences that could want to keep a close eye on its eligibility to bid “Benefits Three to Seven”: these putative be inimical to our national interests. on large, more complex projects in Canada. benefits to Aecon are all about ensuring its The question, then, becomes: what Second, is CCCI’s current financial continuity in Canada and would be standard are the potential consequences of any strength readily available for Aecon’s clauses in any international merger and international aspirations? This is a big acquisitions agreement. Hence, they would Continued on page 35

30 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute DRAGON AT THE DOOR Free trade with Chinese characteristics: let the buyer beware

Australia’s experience in dealing with China provides an important lesson for Canada.

Peter Layton

anada will seek a free trade agreement Cwith China – only the timing is uncertain. Integrating with the world’s largest economy (in purchasing power parity terms) offers too much to ignore. In so doing, however, we should not ignore the attendant (and significant) security dimension. This does not arise from concerns over Canadian security, or even over China’s. Rather, it arises from the insecurities of the Chinese Communist Party. The principal way the Party addresses these insecurities internationally is through carefully focused economic statecraft – and it is into this that Canada’s future free trade agreement chuttersnap fits. After initially discussing the Party’s insecurities, some implications for Canada will be drawn out, mainly using Australian “East Turkistan independence” separatist Reflecting these worries of being examples from its current bout of rampant forces; the last two having recently inflict- overthrown from within, today’s Party has China fretting – much of it well founded. ed “serious damage” on China. Moreover, decisively clamped down on civil society, The Party runs China but is much more “anti-China forces have never given up their domestic dissents, local human rights than a simple political party, being deeply attempt to instigate a ‘color revolution’ in lawyers, artists and cultural groups, internet embedded across Chinese society. It has this country. Consequently, China faces access and usage, media censorship, and been astonishingly successful in moderniz- more challenges [today then previously] in foreign non-governmental organizations. ing China in a remarkably short space of terms of national security and social stabili- Moreover, in a move reminiscent of Orwell’s time, lifting hundreds of millions of people ty.” To some this may seem like an alternative 1984, the Party is now developing the Social out of poverty and dramatically improving universe – but not to the Party. Credit System that will monitor and rate people’s standard of living. Amongst many To counter these perceived threats, the all 1.3 billion citizens. Most amusingly for Chinese, these achievements have earned People’s Liberation Army (PLA) is required foreigners, but symptomatic of the Party’s the party respect and at times admiration. to “actively participate in the country’s insecurities, are some bizarre bans: Doctor Even so, as is normal for authoritarian economic and social construction, and firmly Who as only the Party owns history and regimes, the Party continuously fears for its maintain social stability so as to remain a Winnie the Pooh because of his resemblance own survival from internal forces. The 2015 staunch force for upholding the Communist to current President Xi Jinping. China’s Military Strategy is an interesting Party of China’s ruling position.” It should In this, the Party may appear trying to illustration of this paranoia. be remembered that the PLA isn’t a national insulate China from the rest of the world, In the document, the Party sees domestic army, or even an army of the state, instead it but this would be a serious misreading. perils aplenty given the Taiwan, Tibet and is the Party’s Army. Chinese international tourism is booming.

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 31 In 2015 Chinese took 128 million trips exploited if international relations hit some Chinese students in correct patriotic views. abroad; 60 percent in the 18-34 age group. turbulence. Several countries have had In a rare foray, Australia’s Department of And therein lies a glimpse of the Party’s Chinese trade sanctions applied, including Foreign Affairs recently publicly signalled mounting problems. cutting tourism when they took foreign the government’s displeasure concern- Safety for the Party means it sees an policy stances that the Party disagreed with. ing the deepening Chinese interference in imperative to control its environment – to South Korea, for example, recently Australian education institutions. ensure stability – and what constitutes the installed an anti-missile system to defend A future free trade agreement will help environment is now spreading beyond the itself against North Korea but this attract- China undertake these various integrated domestic to the international. If Chinese ed China’s ire and damaging economic activities across Canada but in this there people, including large numbers of young sanctions; to remove these South Korea is little choice. Becoming prosperous from students, are travelling overseas, they had to agree to significant national defence Chinese economic opportunities carries represent a potential threat to domestic restrictions. Through its economic ties, with it certain vulnerabilities. The principal stability through being possibly exposed China is steadily gaining veto rights over way to manage the inherent risks is to to “color revolution” ideas. Careful South Korean foreign policy. The utility of build resilience by having diverse interna- management is necessary. its economic heft lies behind China’s strong tional trade relations, thereby limiting the

China thinks of the overseas Chinese as ultimately part of China as well, whether the people concerned like it or not.

There is a twist. China thinks of the preference for bilateral economic agreements economic damage if at some future time the overseas Chinese as ultimately part of China rather than multilateral ones. Party feels threatened. Such a diversification as well, whether the people concerned like it Thirdly, the Party actively seeks control concept lay behind the annoyance felt by or not. Indeed there is a view in China that of Chinese nationals and migrants overseas several Asia-Pacific nations towards Prime “one cannot ever become un-Chinese.” With by capturing local associations, friendship Minster Trudeau’s actions over the multilat- a large Chinese migrant population, Australia societies and Chinese-language media, eral TPP free trade agreement. These actions (and undoubtedly Canada) has become to and by manipulating those people with set Canada’s East Asian ambitions back but some extent included in China’s domestic family remaining in China. This intrusion doubtlessly played well in Beijing. gaze. Our domestic is now their domestic. extends further into channeling donations The security dimensions of China’s Based on Australia’s experience, the through Chinese businesses or migrants to economic statecraft are an inherent part Party’s insecurities have some broad implica- local political parties to try to help friendly of developing and sustaining productive tions for future Canada-China relations as politicians get elected and to influence trading links with the country. The bad these gradually deepen, including through a those currently in power. comes with the good, with the onus on the free trade agreement. Fourthly, Chinese students form an host state to recognise the issues and take Firstly, China has an internation- important part of the international national steps to limit the difficulties accordingly. al grand strategy of building influence education market; they are both cashed up China is rapidly becoming the largest through economic statecraft. With more and numerous. Many are funded by the single economy in the global market and economic linkages, there will be more Party-State with explicit (and understand- is actively shaping it. The emerging era of people in the target country benefiting from able) economic incentives to return globalization with Chinese characteristics China. The Party expects that these people home after their studies finish. Academic appears to mean that all of us will become will then be grateful, more understanding institutions are at times reminded that ‘part’ of China to varying or lesser degrees. of China, respect the country (read Party) their continuing cash flow depends upon The age of the Middle Kingdom lies before and generally not cause trouble. Chinese students not being exposed to us. Caveat emptor; let the buyer beware. Secondly, if economic statecraft looms harmful perspectives. Extending this, large, it also creates vulnerabilities in the Party-led networks are now being built in Peter Layton is a Visiting Fellow at the Griffith Asia targeted country that can be purposefully host countries to properly educate visiting Institute, Griffith University, Brisbane, Australia.

32 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute Regional assessments (Coates, Noble) The disconnect between rising taxes and typical for some infrastructure funding to Continued from page 14 falling services for taxpayers continues to be reprofiled. We’ve also written elsewhere in Canada. To be effective, regional widen. The Trudeau government’s emphasis in favour of focusing on long-term assessments would require regional on so-called “deliverology” is being revealed projects with high economic return. The government-to-government negotiations as a sham to distract the public from point is it’s wrong to assume that major, with Indigenous authorities. Subsequent what the auditor general of Canada last new infrastructure spending is behind the government actions and corporate decisions week called the disconnect between the federal deficit. would have to respect and adapt to the bureaucratic focus on the process of service At least for now. There is a risk that regional assessments. Industry participa- provision and the way the public actually it contributes to higher deficits in the tion is essential, due to their technical and experiences service delivery. medium- and long-term. This is something commercial knowledge. No one likes to pay taxes. Not you, that we’ve been warning about since ahead Regional assessments would empower not me, certainly not Justin Trudeau or of last year’s budget. Let me explain. Indigenous communities while respecting Finance Minister Bill Morneau, who use Annual program spending has grown the interests of industry and governments. various legal means to minimize their by an average of 6.1 percent in the first They could break the current pattern of tax bill and maximize their bequest to two years of the Trudeau government. expensive, time-consuming and confronta- their families and beneficiaries. So it is The Fall Economic Statement projects that tional environmental assessments that give hypocritical for them to criticize people it will fall to an average of 2.3 percent in limited space for Indigenous cultural input. who minimize their tax bill, even as the final two years. This isn’t a best-case You can’t satisfy everyone. Some governments increase the incentives to scenario that eliminates the deficit. This environmentalists are intractably opposed engage in these strategies. is the government’s own plan. Even to resource development, and have used The risk is that, once undertaken, after more than halving year-over-year the current EA process as a weapon in a tax avoidance will be hard to reverse spending growth the government would much broader and different battle. But since someone who goes to the bother of still be running deficits exceeding $10 the majority of Canadians are prepared to consulting with expensive tax lawyers and billion per year. support projects that are environmentally accountants on lowering his tax bill is One can’t help but be skeptical sound, respectful of Indigenous interests, unlikely to later unwind these strategies. that Ottawa will achieve such a drop in and economically viable. The long-term consequence of the rising tax spending growth for a host of reasons, Canada’s economic future cannot be rates governments impose on high-income including: held hostage to unreasonable demands. earners is likely to be an ongoing reduction • Reprofiling of infrastructure funding Nor should it be held hostage to confron- in the tax yield they generate and growing into later years will cause spending to be tational and manipulated assessment questions about the legitimacy and effective- higher-than-projected in those years. processes. It is possible to create a process ness of government spending. • Likelihood of new spending priorities that is less expensive, faster, fairer, (e.g., Fall Economic Statement’s enhance- more effective and more responsive to Philip Cross is a Munk Senior Fellow at MLI. This ments to the Canada Child Benefit and Indigenous needs and aspirations. article first appeared in theFinancial Post. Working Income Tax Benefit) will also drive spending – particularly as we approach the Ken Coates is a Munk Senior Fellow at MLI. Bram Public finances (Speer) 2019 election. Noble is author of the recent MLI study on EA reform, Continued from page 19 • Unlikelihood that the government titled “Getting the Big Picture.” will cut or slow spending based on past 2016-17 and 2017-18 will be redirected to record and proximity to 2019 election. the future and thus can’t be attributed to the There’s a good probability then that Trudeau and Morneau (Cross) Continued from page 17 present year’s deficit. Put simply: Short-term average spending growth will amount to spending hikes and the budget deficit weren’t something closer to 6.1 percent than 2.3 bureaucracy, with no reduction in wait driven by infrastructure funding. percent. The result would be to put consider- times or other front-line benefits to patients. I should be clear that this isn’t able pressure on the budget deficit. This is the real moral rot undermining our a criticism about failing to expedite One example: Program spending is tax system, not the desire by some to limit infrastructure projects or a call for Ottawa projected to grow by 2.4 percent from their tax liability. to accelerate infrastructure spending. It’s $304.9 billion to $312.2 billion between

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 33 this year and next. If it were to grow by 6 comes largely from accumulated or Registered Disability Savings Plans and percent instead, it would go from $304.9 mortgage insurance fees collected from could support equity-accumulation and billion to $323.2 billion and ceteris paribus first-time home buyers. A surplus of this reduce the share of insured mortgages. the deficit would go from $18.6 billion to size indicates that mortgage insurance Now that the government has $29.8 billion. fees, last hiked in March 2017, are higher announced a comprehensive plan for The outcome would potentially be a than required. assisting the affordable housing segment longer and higher deficit than is currently There are different methods of charging of the housing market, it’s time to turn its projected. The real story then is not that for mortgage insurance that would result attention to helping people buy homes. the deficit is shrinking but rather that the in lower overall fees for borrowers — for medium-term risk is more to the downside example, those that involve a monthly Jane Londerville is a Munk Senior Fellow at MLI. This than to the upside. payment until the loan-to-value ratio for article first appeared in theConversation . This isn’t a crisis. I agree with those who the house falls below a designated level, caution against alarmism. Federal public instead of the large upfront fee added to the Arithmetic not ideology (Martin) finances are strong. Higher deficits in the mortgage loan used in Canada. Continued from page 23 medium-term aren’t going to change that. But surely we shouldn’t succumb to Room for creativity the next year and ask for more. To do so complacency either – especially since Finally, there’s room to consolidate and aug- is precisely how a government loses the (1) Ottawa’s deficit is principally about ment existing pro-home ownership tax poli- public’s confidence as we saw in Europe and discretionary spending rather than cies. The Liberal party’s 2015 election plat- elsewhere. I was determined not to make infrastructure-related stimulus, and (2) form committed to a comprehensive review the same mistake. the focus on short-term fiscal improve- of federal tax expenditures comprised of Thus we reformed how budgets were ments neglects the medium-term risks credits, deductions and other special pref- developed. We were open and transpar- to the government’s projections. These erences. This exercise was supposed to en- ent, but in this case replacing pablum and insights should catalyze a renewed focus sure that the federal tax code was efficient, overly-optimistic assumptions with more on what principles should govern federal simple and fair. prudent ones based on the requirement fiscal policy. This is the conversation we The federal tax code presently that there could be no future surprises. ought to be having. This is the best way to includes tax expenditures related to home Canadians understood what we were ensure that federal public finances remain ownership that total roughly $5 billion in doing and why we were doing it. The lesson strong. annual foregone revenue — a substantial here is that the public is prepared to support amount. tough choices but they will not do it twice. Sean Speer is a Munk Senior Fellow at MLI. Some of these tax expenditures have If they think you have mislead them this is gone unchanged for decades or have when your support begins to erode. been enhanced without much thought My final point is fairness. This was Housing affordability (Londerville) towards the broader federal housing policy not a slash-and-burn exercise. As with Continued from page 18 framework. There’s room for more creative any government we wanted to make There is room to rethink how the and ambitious thinking about how the our operations smarter, more efficient mortgage insurance program operates, federal tax system can support affordable and more responsive. Our process was including investigating alternative and responsible home ownership. systematic and evidence based, albeit some models of insurance that are less costly to One option would be a means-tested of that was anecdotal but it was also fair. borrowers. tax credit to defray the costs associated with We placed a high premium on equity. The Canada Mortgage and Housing a home purchase. Another option would Spending reductions were fairly distrib- Corp. announced in June 2017 that be to allow prospective home owners to uted. No group or region or sector was it would pay the federal government contribute to a Tax Free Savings Account disproportionately affected. We were all a special $4 billion dividend over the with means-tested matching contributions in this together. Too often fiscal reform next two years beyond what the Crown from the government for the purpose of amounts to deep cuts to benefits and housing agency already sends Ottawa saving up for a larger down payment. services for people. We were determined from its net income. This idea is along the lines of the to ensure that families did not bear a Why is this significant? The money current Registered Education Savings Plans disproportionate brunt of the cuts.

34 INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute That being said, our social programs Fiscal lessons for Washington (Speer) This loss is directly linked to our security were cut, as indeed were business Continued from page 24 concerns. National security is often narrowly subsidies by 60 percent but Canadians linked to possible loss of our technologi- accepted it because they understood dividend” resulting from deficit reduction cal edge and infiltration of our defence and that the reduction in the deficit enabled a raft of fiscally-neutral reforms such security infrastructure and industry. In the was the only way we could protect as lowering personal and corporate tax rates. pending CCCI-Aecon deal, these two aspects our social foundation in the longer term. The main takeaway is that well-designed could be specified as the loss of Aecon’s Indeed, this was our principal fiscal reform can be part of a pro-growth, technical expertise to China and possible message. Our goal was not simply a pretty pro-opportunity agenda. future harm to our nation’s infrastructure – balance sheet, it was to protect the social It’s a message currently missing in both of which should be a concern. programs on which people relied and that Washington. Overblown warnings about But national security is much broader were so important if we were to have an so-called “fiscal drag” have apparently won the than that. It’s about how we define the economy that grows. To this end, I made day. Deficit spending is now the fiscal norm security system required for protecting our one promise, i.e., that once the nation’s irrespective of the circumstances or context. way of life. The lessons from one country balance sheet permitted it, our first Even fiscal hawks have fallen for this form of come to mind: Australia. investments would be in those programs bastardized Keynesianism. No wonder people Canberra opened its doors to FDI on which families depended. And we kept wonder if “fiscal conservatism is dead.” from Chinese SOEs, and was able to our word. The lesson from the Anglosphere is that dodge the global financial crises thanks Four years later, Canada’s deficit was it should be resuscitated in Washington. to the commodity boom unleashed by no more. We began to run surpluses and The government doesn’t “need” more deficit the Chinese government’s $600 billion our debt to GDP ratio began a steady spending. It’s had plenty of it for the past stimulus program. But what happened downward track. As a result, we were able half-century. It also doesn’t need more excuses since then? Not only did the commodity to boost key basic research and enhance about the timing or other priorities. What bubble burst, but Australians have also important social programs including the is needed now is a serious plan to eliminate awakened to China’s meddling in every largest single investment ever in Canada’s the budget deficit and stabilize Washing- aspect of their lives. As their domestic healthcare system while lowering the taxes ton’s long-term finances. The conservative intelligence chief Duncan Lewis has of Canadian families all because we had case for sound public finances and limited warned, foreign interference in Australia wrestled control of spending and our debt government ultimately depends on it. represents “a threat to our sovereignty, the servicing costs. integrity of our national institutions, and The results in many ways speak for Sean Speer is a Munk Senior Fellow at MLI the exercise of our citizens’ rights.” themselves. We averted Canada’s advance in Canada. This article first appeared in the Let’s hope that our government will into the fiscal wall and instead put it on Washington Examiner. indeed examine the CCCI-Aecon deal a more virtuous path. Our public finances “very carefully,” not only in light of the became the envy of many. And by the Investment Canada Act but also by taking CCCI-Aecon deal (Chen) lessons from the Australian government’s way our National Pension Plan, thanks Continued from page 30 to provincial and federal action is now an experiences with China. Protecting the international example to follow. acquisition by Chinese SOEs? As argued integrity of our economic and political Of course, it was not always easy. It above, allowing Chinese SOEs “unfettered” systems is too important to be overweighed involved tough choices but they were entry into our country would itself be helping by whatever financial premium offered worth it and the Canadian people made it the growth of the China model – featuring by any Chinese SOEs to a few Canadian happen. one-party rule, SOE dominance, and an shareholders. eclectic approach to free markets – over our The Right Honourable Paul Martin was Canada’s model that cherishes free-market capitalism, Duanjie Chen is an independent scholar. Previously, Finance Minister, 1993–2002 and the 21st Prime Minister rule of law, and multi-party democracy. she was a Research Fellow at the School of Policy of Canada, 2003-2006. This is the foreword to the MLI If we reject the China model, and we Studies, University of Calgary and Research Associate Lessons from the Anglosphere series paper: Getting certainly should, then allowing Aecon to be and Associate Director with the International Tax Out of a Fiscal Hole: Canada’s experience with fiscal folded into a Chinese SOE would represent Program at the Rotman School of Management, reform, authored by Sean Speer and Alex Brill. a total loss to Canada. .

INSIDE POLICY • The Magazine of The Macdonald-Laurier Institute 35 THE MACDONALD-LAURIER INSTITUTE ANNUAL DINNER SERIES

The Future of CANADA-US Relations February 13, 2018 Come and celebrate the Canada-US relationship with Canada’s leaders in business, politics, academia and media.

Canadian War Museum, Featuring a panel discussion including: Ottawa, ON Former Canadian Ambassador to the US Frank McKenna (moderator) US Ambassador to Canada Kelly Knight Craft George Mason professor and Trump speechwriter F.H. Buckley Other panelists to be named. Hosted by MLI Managing Director Brian Lee Crowley

TICKETS now on sale at macdonaldlaurier.ca