THE CANADIAN ECONOMY UNDER STEPHEN HARPER’S CONSERVATIVES: BACKGROUND TO SUBSEQUENT ECONOMIC POLICIES AND PERFORMANCE

1. INTRODUCTION

At the time of writing in 2024, Justin Trudeau has been the Prime Minister of Canada now for over eight years, and three terms of office. Under Prime Minister Trudeau, the Liberal Party achieved majority government status by the federal election of October 2015, and minority government status by the elections of October 2019 and September 2021.¹ Although Prime Minister Trudeau’s Liberal Party is still in power,² a federal election must be held by October 2025, and based on current polling data, it appears that the Liberals could lose to the Conservatives in the next election.³ This situation has apparently prompted various commentators to begin reviewing Canadian economic performance since 2015 under the Trudeau Liberals. ⁴ This paper is intended to complement such reviews by examining Canadian economic performance under former Prime Minister Stephen Harper and his Conservative Party who governed Canada for over eight years prior to the 2015 election victory of the Trudeau Liberals. An assessment of the how the economy performed and trended under the Harper Conservatives is especially relevant because Pierre Poilievre, who has been the Conservative Party leader since September 2022, has taken his party to a leading position in public opinion polls by advancing a narrative asserting a decline in Canadian economic performance since the Liberals took over from the Conservatives in 2015.⁵

This paper is not the first to examine Canadian economic performance under the Harper Conservatives. A detailed evaluation has been provided, for example, by Dodge and Dion (2016). This paper, however, provides a distinctive approach. The Dodge and Dion evaluation focuses on a normative evaluation of economic policy measures from the standpoint of mainstream economics without regard for the preferences of voters or for the possibility that mainstream economic orthodoxy might not be a reliable guide to the impact of certain policy measures. This paper considers the need for governments to stand for re- election, the need for minority governments to earn the support of opposition parties for extended periods, and the possibility that certain policy measures might not produce promised results. It is also written with the goal of complementing assessments of Canadian economic performance since 2015 under the Trudeau Liberals.⁶ Section II of this paper will explain the election of Harper’s Conservatives in 2006, and Canadian economic performance under the first term of office the Conservatives. Section III will consider the Canadian economy from the global financial crisis to economic recovery, a period that closely corresponds with the second Harper minority government. Section IV will deal with the period from the recovery to the federal election of 2015, a period that closely corresponds to the third term in office for the Harper Conservatives. In each section, federal election results are explained in terms of economic performance and other factors. Section V provides a conclusion that highlights key findings from the period and also links the analysis of the paper to four key questions related to Canadian economic performance under the Harper Conservatives compared economic performance under the Trudeau Liberals.

2. 2006-2008: MODERATE GROWTH ENDED BYAGLOBALRECESSION

The Conservative Party under the leadership of Stephen Harper came to power by the federal election of January 2006 in which they won 124 of 308 parliamentary seats, enough to defeat the Liberal Party led by former Finance Minister Paul Martin, and form a minority government.⁷ The Liberals did not lose due to the a poorly performing economy or because of public concern about the country’s fiscal situation. The economy was performing well by the usual economic indicators, and the federal government was running a budget surplus. According to International Monetary Fund (IMF) calculations, the economy was even operating slightly above capacity. ⁸ Rather the Liberals were tainted with the Sponsorship Scandal, and many voters wanted changed from the Liberals who had governed continuously at the federal level since 1993. That said, the Conservatives did benefit from convincing many voters that they were better qualified to run the economy. Midway through the election campaign, the Conservatives announced five key promises (Everett 2013: 14): “…to reduce taxes (starting with the much-maligned Goods and Services Tax), cut waiting times for medical treatment, dole out money directly to parents of young children for preschool care, enhance government ethics, and remedy the so-called fiscal imbalance between Ottawa and the provinces.”⁹

In their first term of office, the Harper Conservatives implemented significant tax cuts. Most importantly, they reduced the Goods and Services Tax (GST) rate from 7% to 6% in July 2006 and further to 5% at the beginning of January 2008. These popular tax cuts stimulated aggregate spending in the economy and hence boosted economic output. The Conservatives also reduced the corporate income tax rate in steps, claiming the reductions would boost private-sector investment. On the spending side of the budget, they took measures to reduce the growth of overall government spending while increasing the share of government spending devoted to public-sector investment such as infrastructure projects. Also notable on the economic policy front were new trade agreements and other measures to expand and diversify global market access for Canadian businesses. Interest rates were kept low by the Bank of Canada, which supported the growth of residential investment. Economic growth, as measured by the growth of real gross domestic product (GDP), was moderately positive until the fourth quarter of `2008, when the global economy went into recession. The unemployment rate, which has been at a relatively 6.7 percentage points when the Conservatives came to power, continued to trend down until mid-2007, after which it fluctuated between 6 and 6.2 percentage points until September 2008, when it started to rise with the spread of the global recession. ¹⁰ The federal debt-to-GDP ratio, which had been at 33.9 percent in the 2005-2006 fiscal year dropped year by year to 28.2 percent in 2008-2009.¹¹ The inflation rate held quite steady near the Bank of Canada’s target of 2 percent for most of the Conservative’s first term of office but went above 3 percent for four months beginning in June of 2008¹². Rising commodity prices¹³, particularly for oil and gas, contributed to higher inflation but also boosted export revenues and hence real GDP growth.

On September 7, 2008, after the opposition parties voted to defeat his minority government in a motion of non-confidence, Prime Minister Harper called a general election for October 14, 2008. Global financial problems, which had been brewing for months, turned into a global financial crisis following the collapse of the U.S. financial firm Lehman Brothers within a week of the election call, and this provided a backdrop to the election campaign and the policy-making which followed. The Harper Conservatives were returned to power by the 2008 federal election, but fell short of securing a majority government. They did increase their seats in the House of Commons from 124 to 143 and their share of the popular vote from 36.3% in 2006 to 37.6% in 2008. The Liberal Party remained the official opposition. But under the leadership of Stephane Dion, who centred their campaign on a proposed carbon tax, they dropped from 103 seats to 77, and their share of the popular vote fell from 30.2% in 2006 to 26.2% in 2008. It would appear that economic concerns of Canadian voters played a role in providing the Harper Conservatives with a somewhat strengthened mandate.

3. 2008-2011: RECESSIONAND EARLYSTAGES OFRECOVERY

The U.S.-centred financial panic in the fall of 2008 stemmed directly from the collapse of the U.S. housing bubble that had developed from the early 2000s and began to unwind in 2006. It triggered the global recession of 2008-2009. Economies such as those of Canada, Japan, Australia, and many others, were tipped into recession as the financial panic produced credit crises, stock market crashes, and then declines in exports and private-sector investment. ¹⁴ The recession in Canada and the subsequent recovery characterized the Canadian economy during the second Harper minority government from October 2008 to May 2011. The Canadian economy attracted a greater than usual amount of attention in the aftermath of the financial panic of 2008 and was viewed by some analysts as a superior performer that avoided a housing bubble, maintained stability of the financial system without bank failures or bank bailouts, and attained a relatively rapid recovery from the recession triggered by the global recession of 2008-2009.¹⁵ The Harper Conservatives, of course, were happy to take credit for this performance.

The Canadian economy was often compared to the U.S. one. The United States went into recession in December 2007 whereas Canada followed from the third quarter of 2008. The fall in real GDP was also greater for United States (5.4 percent) than for Canada (4 percent). Both countries came out of recession in the third quarter of 2009, making the recession shorter in Canada than in the United States. Moreover, by the third quarter of 2010 Canadian real GDP had surpassed the previous peak of the third quarter of 2008. but even by the second quarter of 2011 U.S. real GDP had not returned to its previous peak. Not surprisingly, given this information about real GDP, Canadian labour market performance was also superior to U.S. performance by widely-used indicators. Employment in Canada returned to its pre-recession peak by January 2011. U.S. employment, by comparison, had only recovered by mid-2011 to its mid-2004 level. Furthermore, by mid-2011 when the Canadian unemployment rate was 1.2 percentage points above its pre-recession low, the U.S. unemployment rate was a full 4.2 percentage points above its pre-recession low. In assessing Canada’s macroeconomic performance in the immediate aftermath of the global financial crisis, three key questions are: 1) is this comparison of Canada with the United States the most meaningful one; 2) to what extent is Canada’s macroeconomic performance in this period the result of Canadian economic policy decisions, and 3) in particular to what extent is it the result of the economic policy decisions of the Conservative federal government first elected in 2006 and re-elected in 2008? Stanford (2012) has undertaken a comprehensive study of Canada’s comparative macroeconomic performance for 2007/2008 to 2011. His key finding is that a proper understanding of Canada’s comparative performance must consider the extraordinarily high rate of Canadian population growth, even in comparison with the United States. Stanford (2012: 2) presents a table of five-year average population growth rates for the OECD countries up to 2010 showing that Canada’s average annual population growth rate of 1.13 percent is well above the U.S. rate of 0.89 percent, even further above the OECD average rate of 0.65 percent, and, of course, is in stark contract to the negative population growth rates of Japan and three other OECD countries (Germany, Hungary, and Estonia). Stanford argues convincingly that putting Canada’s economic recovery in comparative perspective it is more relevant to examine growth of real GDP per capita than growth of real GDP and to examine change in the employment rate rather than change in total employment.

Proponents of the view that Canada was a superior performer in the 2007/2008 to 2011 period, however, might claim that even taking into account Canada’s higher population growth its macroeconomic performance was superior to that of the United States – a decline in real GDP per capita of -1.4 percent for Canada versus -2.6 percent for the United States, and a decline in the employment rate for Canada of -1.2 percent versus -3.8 percent for the United States. It is also worth acknowledging that there are reasons to think that some economies, such as Canada (which trades so heavily with the United States) and Japan, suffered greater external shocks than other OECD economies did in 2008-2009. This brings us back to the latter two of the three key questions posed earlier in this section: 2) to what extent is Canada’s macroeconomic performance in this period the result of Canadian economic policy decisions, and 3) in particular to what extent is it the result of the economic policy decisions of the Conservative federal government first elected in 2006 and re-elected in 2008? The most relevant economic policies are fiscal policy, monetary policy, exchange rate policy, financial regulation policy, and industrial policy. Fiscal policy was certainly countercyclical during the 2009-2011 period. The federal government budget surplus of 0.6 percent of GDP in fiscal year 2007-2008 was transformed into a budget deficit of -0.3 percent of GDP in 2008-2009 due to the onset of the recession in the third quarter of 2008 and the operation of automatic stabilizers.¹⁶. But the large federal deficits of 2009-2010 and 2010-2011 were largely due to the series of deliberately expansionary fiscal policy measures that began with the federal government budget of January 2009. The fiscal policy response was helpful. But it was pushed upon the Conservative government, which had refused to take countercyclical measures following its re-election in 2008. In late 2008 the opposition parties pressured the government for action, and threatened to bring down the minority government if it did not bring in an expansionary budget. At the same time, the International Monetary Fund, to the surprise of many, began to advocate for governments to resort to expansionary fiscal policies. In January of 2009 the Conservative government of Canada finally complied. The monetary policy response was also helpful. The Bank of Canada, in fact, had already gradually cut its key policy rate, the overnight rate target, from 4.5 percent in December 2007 to 3 percent in April 2008, well before the Lehman Shock of September 2008. Following the Lehman Shock, from October 2008 to April 2009, it brought the overnight rate target in a series of cuts down to 0.25 percent, which it termed the “effective lower bound,” and publicly committed to maintain the overnight rate target at the 0.25 percent until the end of the second quarter of 2010. .¹⁷ The Bank of Canada did raise the overnight rate target at the end of the second quarter of 2010 in line with the improved economic outlook, but after September 2010, when the overnight rate target had been raised to 1 percent, it was not raised again while the Conservatives were in power.

In addition to its implementation of the conventional monetary policy of cuts to the key policy rate and the unconventional monetary policy of committing to maintain its key policy rate at the effective lower bound for over a year, the Bank of Canada engaged in large-scale credit easing..¹⁸ The background to the Bank’s credit easing is that beginning in the summer of 2007, short-term interest rates in Canada rose relative to the overnight rate target. By August 2008 the spread between short-term rates and the overnight rate target has risen by 75 basis points..¹⁹ The credit easing by the Bank of Canada was intended to keep this spread from rising and eventually to reduce it to its traditional historical level. It involved the Bank providing more liquidity to markets by buying up less liquid assets from financial institutions, which the Bank did until April 2010, when the credit easing was judged to be no longer necessary.

Canadian monetary policy during this period was certainly held in high international regard. But the Conservative government deserves a limited amount of credit for Canadian monetary policy during this period. The federal government’s five-year inflation-control agreement with the Bank of Canada was renewed in November 2006 and again in November 2011. These renewals continued the 2 percent inflation target of the previous inflation-control agreements, but at least they did not reduce the inflation target to zero, as some had advocated..²⁰ Although the Bank of Canada Governor's appointment in 2008 was approved under the Conservative Finance Minister Jim Flaherty, it seems to have been a routine approval of the candidate (Mark Carney) recommended by the Bank's search committee, and it is not clear that Canadian monetary policy would have been significantly different under the second choice for the position.²¹

Canadian fiscal and monetary policy actions were not particularly bold compared to those of the United States or of many other countries.²² The one policy area where there was a significant difference in policy between Canada and the United States concerns financial regulation. The Canadian housing finance and banking system in the 2000s contained many features and legal provisions that prevented large-scale securitization, relaxed lending standards, and a consequent housing bubble and subprime lending debacle as experienced by the United States.²³ These aspects of the Canadian housing finance and banking system, however, were in place before the election of the Conservative government in 2006. In fact, as former Liberal Prime Minister Jean Chretien noted not long after the Lehman Shock, the stability of the Canadian financial system was due in part to the decision of the Liberal government in 1998 to disallow the merger of Canada's largest banks and thereby undermine their plans to focus on expanding in the U.S. market. ²⁴ The Conservatives (including their immediate predecessors) had generally advocated a more laissez-faire approach to finance.²⁵ And prior to the Lehman Shock Canadian policymakers had taken some measures to mimic U.S. financial deregulation moves, but before they had gotten very far the negative consequences of U.S. financial deregulation came to the surface. To their credit, Canadian policymakers did then quickly recognize those negative consequences, and began to backtrack on financial deregulation.²⁶

Canada's recovery after the Lehman Shock was also aided by exchange rate depreciation that boosted net exports and hence aggregate demand. The Canadian dollar, which had been trading almost at par with the U.S. dollar in July 2008, dropped well below $U.S. 0.90 in October 2008, hit a low of U.S $0.79 in March 2009, and did not return to its July 2008 level of strength until March 2010.²⁷ But, although exchange rate depreciation did aid the Canadian recovery, the depreciation was not the result of Canadian policy decisions. Interest rate changes can affect exchange rates, but interest rates in Canada did not go lower than those in the United States. And the Bank of Canada did not intervene directly in the foreign exchange markets. Fluctuations in the Canada/U.S. dollar exchange rate are driven by market variables, the most important in recent years being the price of oil, declines in which tend to produce depreciation of the Canadian dollar. ²⁸ The component of the government response to the Lehman Shock for which the Conservative Party can most unambiguously take credit was for its industrial policy, more precisely its emergency aid to the auto industry (primarily for the rescue and restructuring of General Motors and Chrysler). In response to arguments that the collapse of demand for automotive industry output was not structural but a temporary product of the recession, the Canadian government cooperated with the U.S. government to provide temporary aid to the auto industry with a view to maintaining production and employment after the recovery not just in the manufacturers themselves but in their domestic suppliers and distributors. This appears to have been a successful intervention.²⁹

In summary, the Canadian economy attracted a greater than usual amount of attention in the aftermath of the Lehman Shock and was viewed by some analysts as a superior performer. In fact, when properly measured, Canadian economic performance was good, not exceptionally good. The Canadian policy response was generally sound but was not due solely to the ruling Conservative Party. The monetary policy response was timely and appropriate but was not directly under the control of the government. The expansionary fiscal policy response was helpful, but it was implemented somewhat hesitantly by the Harper Conservatives. The stability of the financial system was primarily due to previous governments and the fact that the Conservatives had only begun to deregulate. In addition, some factors that contributed to the recovery were out of Canadian control. These related to Canada's external trade, and included the temporary depreciation of the Canadian dollar mentioned previously as well as the quick and strong recovery of the emerging market economies and the associated rebound of resource export prices. The component of the government response for which the Conservative Party can take special credit was for its emergency aid to the auto industry.

Regardless of how much credit the Harper Conservatives deserved for the recovery of the Canadian economy from the global recession of 2008-2009, Canada’s economic performance was surely a factor contributing to their success in the federal election of mid- 2011. The election was triggered by the major opposition parties -- the Liberals, the NDP, and the Bloc Québecois -- bringing down the Conservative minority government by voting against the federal budget that the Conservatives brought to the House of Commons for approval in March 2011. In the 2011 federal election, the Conservative Party, led yet again by Stephen Harper, won a majority government. They secured 166 out of 308 seats in the House of Commons., up from 143 seats in the 2008 election, and increased their share of the popular vote to 39.6% from 37.6% in 2008. The Liberals, led by Michael Ignatieff, saw their seats reduced to a mere 34 and their share of the popular vote reduced to 18.9%. The NDP, ably led by Jack Layton, received 30.6% of the popular vote, which translated into 103 seats, more than enough for the NDP to become the official opposition party. Having won majority government status, the Conservatives could no longer be forced into elections by non- confidence votes of the opposition parties, and another federal election was not held until October 2015. This paper will now turn to describing and evaluating economic policy and performance under the Harper majority government from 2011 to 2015.

4.THECANADIANECONOMYUNDERTHEHARPERMAJORITY GOVERNMENT:AMODERATEEXPANSIONTERMINATEDBYRECESSION

Upon their election as a majority government, the Harper Conservatives reintroduced and passed their budget with the subtitle of "A low tax plan for jobs and growth."³⁰ Starting with this budget, Canadian fiscal policy became decidedly less expansionary. Canadian federal government expenditure relative to GDP declined from 2009-2010 to 2014-2015. A decline in federal expenses relative to GDP following the recession would be expected both due to the rise of GDP (the denominator) and to the decline of recession-related expenditures. But the decline Canada has witnessed stemmed as well from the Conservative preference for reduced government program spending. On the revenue side of the budget, the Conservative government cut some taxes (not the marginal rates on personal income) both in 2011 and subsequently but with the stated intent of stimulating the supply side of the economy rather than stimulating the demand side. They continued their previous pattern of cutting corporate taxes with the stated rationale that the corporate tax cuts would spur investment in the economy. They cut the corporate tax rate in steps by eight percentage points between 2006 and 2015. ³¹ In addition, they brought in various tax breaks, most notably Tax-Free SavingsAccounts, which came into effect at the beginning of 2009 with an annual contribution limit of $5000, a limit that was increased to $5,500 per year in 2013, and $10,000 per year in 2015.³²

Another key pillar of Conservative economic policy, in addition to cutting expenditures as a percentage of GDP and lowering corporate tax rates, was to continue to promote "free trade" agreements with other economies.³³ The corporate tax cuts were presented with the rationale that they would spur private-sector investment and job creation. Critics countered that a more effective way to stimulate private-sector investment would have been provision of tax rebates for specific forms of investment -- that is, with tax reductions contingent on performance.³⁴ Although the ratio of non-residential investment rose slightly as a percentage of GDP over the 2011 to 2014 period (from 10.6 to 11.1 percent), ³⁵ much of this was investment in highly capital-intensive resource projects driven by resource prices. It is difficult to measure the impact of the many trade agreements signed by the Conservative government, but it does seem significant that instead of running trade surpluses, as has traditionally been the case (e.g. the trade surplus as a percentage of Canadian GDP in 2005 was 5.2 percent), the country ran trade deficits every year from 2011 to 2015, with the trade deficit averaging 2.7 percent of GDP over the 2011-2015 period. ³⁶

It is worth noting that the economic policy of the government over the 2011-2015 period has not been undermined by the policies of the Bank of Canada, as was the case, for example, for the Canada's federal and provincial governments in the early 1990s. ³⁷ As mentioned in the previous section of this chapter, the overnight rate was raised to 1 percent in September 2010 as the economy recovered, but then it was kept at 1 percent for over four years, and then it was cut, not raised. In 2013 Bank of Canada Governor Mark Carney, who left to become Governor of the Bank of England, was succeeded by Stephen Poloz, who was at least as concerned with economic growth as Carney was.³⁸ Under Governor Poloz, the overnight rate target was cut to 0.75 percentage points in January 2015 and to 0.50 percentage points in July 2015 to counter the economic downturn in Canada. The interest rate cuts contributed to depreciation of the Canadian dollar. The Canadian dollar, which was trading at parity with the U.S. dollar in January 2013, depreciated from about $U.S. 0.91 in September of 2014 to about $U.S. 0.76 in September of 2015. ³⁹ Economic growth, as measured by the growth of real gross domestic product (GDP), averaged 2.5 percent over the years from 2011 to 2014, but only registered 0.7 percent for 2015, the year in which the Harper Conservatives stood for re-election. In fact, if we examine the quarterly real GDP data, we can see that real GDP peaked in the final quarter of 2014, fell in the first quarter of 2015 by 0.6 percent, and remained below the 2014 quarterly peak throughout 2015. The weak GDP growth in late 2014 and throughout 2015 is widely attributed in reduced demand for Canadian resource exports. The Bank of Canada Commodity Price Index, based on 26 commodities produced in Canada and sold in world markets, reflects demand for Canadian resource exports, and it plummeted from 656 in June 2014 to 362 in October 2015. Real GDP per capita growth over the 2011 to 2014 period average 1.5 percent, but this growth turned negative in 2015, giving a 1.1 percent growth rate of real GDP per capita for the whole 2011-15 period. The unemployment rate continued to trend down from its 2009 peak. It was 7.6 percent in 2011 and declined to 7 percent in 2015. The federal debt-to-GDP ratio, dropped from 33.4 percent in the 2011-2012 fiscal year to 31.5 percent in 2014-15. The federal budget balance as a percentage of GDP went from a 1.6 percent deficit to a balanced budget in 2014-15. The inflation rate averaged 1.8 percent from 2011 to 2014, just below the Bank of Canada’s target of 2 percent, but dropped to 1.1 percent in the slow growth year of 2015. Some of the policies implemented by the Harper government since 2011 (and even since 2006) were criticized by opposition parties in terms of their potential impact on the income distribution. The OECD has a detailed international database of income distribution statistics ⁴⁰, and provides data on, for example, a Gini coefficient for disposable income, post taxes and transfers.⁴¹ The Gini coefficient for Canada from 2011 to 2015 (or even from 2006) moved in a narrow range from .312 to .318, with no upward or downward trend. It was at its lowest in 2014 and at its highest in 2015, possibly indicating that the recession of 2015 increased income inequality.⁴²

In the fall of 2015, as they were coming to the end of their term of office, the Conservatives were forced to call a federal election. Not only was the economic situation less than ideal because of the economic slowdown, but the political climate was unfavourable because for months and months news media coverage was dominated by the Senate Expenses Scandal.⁴³ The NDP leader Tom Mulcair was especially effective at raising doubts about the Conservatives as economic stewards with repeated attacks on the extravagant expenses claimed by Conservative-appointed Senators, and the NDP was leading in several national polls in the lead-up to the federal election, based in part on Mulcair's performance as Leader of the Opposition.

The economic slowdown from 2014 into 2015 associated with declining oil and gas prices, which enabled critics to raise doubts about the wisdom of the heavy emphasis the Conservatives had given to the development of the resource sector, and specially its energy subcomponent. The opposition parties had been criticizing the Conservatives for implementing corporate tax cuts and tax breaks regardless of the state of the economy, and thereby adding to government deficits and debt. Just weeks before announcing the federal election the Conservative government passed an omnibus bill that included the Federal Balanced Budget Act, legislation intended to improve the public perception of the Conservatives as sound fiscal managers in the upcoming election. ⁴⁴ The Liberal Party, which held power at the federal level for much of the post-WWII period until 2006, and presided over federal government surpluses from the mid-1990s right until the Conservatives were elected in 2006, apparently decided that it could differentiate itself from the front-running NDP and attract more of the left-of-centre voters, by promising to run temporary deficits to fund new infrastructure spending and get the economy out of recession. So, on August 26 2015, it took the risk of being accused of flip-flopping on fiscal policy, and announced its plan to run deficits. In the federal election held in October 2015, the Liberal Party led by a charismatic young Justin Trudeau, received 39.percent of the popular vote and 184 seats, and formed a majority government. The Conservative Party dropped to 31.8 percent of the popular vote and 99 seats, and became the official opposition. The New Democratic Party, which had been the official opposition, fell to 44 seats and 19.7% of the popular vote.

5. CONCLUSION

The three terms of office of Stephen Harper's Conservative governments, extending from 2006 to 2015, offer lessons on the interaction between economic policy decisions and electoral dynamics within Canada. This paper has shown that the economic strategies deployed by the Harper Conservatives—emphasizing tax cuts (including the GST), promoting growth of the resource sector, slowing the growth of government spending, and expanding trade agreements—contributed to the image of the Conservatives as reliable managers of the Canadian economy. The perception of the Conservatives also benefited from Canadian economy’s ability to withstand the global financial crisis and subsequent economic challenges more effectively than many other economies. This ability was partly due to Conservative governance, but also to institutions and policies that were inherited from previous governments. In any case, the Conservatives were able to take credit for Canada's economic performance, especially relative to the United States, and this led them to a majority government in 2011. However, towards the end of the Harper government’s third term of office, dissatisfaction with the government grew. The Senate Expenses Scandal and the economic slowdown tarnished the image of the Conservatives as sound economic managers. The Harper government aimed to refurbish the image of the Conservatives with the Federal Balanced Budget Act, which seemed to make political sense because the opposition parties had been united in proclaiming their adherence to fiscal conservatism. But then the Liberal party, which had an image of fiscal responsibility from the period when former Liberal Finance Minister Paul Martin transformed large federal budget deficits into surpluses, suddenly switched tactics. They transformed public opinion in favour of the view that the Conservatives had taken fiscal conservatism too far, and the Liberals were thus able to emerge victorious from the 2015 federal election.

This paper began by noting that as Canada faces another federal election by October 2025, various commentators have begun reviewing Canadian economic performance since 2015 under the Trudeau Liberals, and that this process of review increases the relevance of re-examining the record of Harper Conservatives who preceded them. While this is not the place for a detailed comparison of economic policies and performance under the Trudeau Liberals and the Harper Conservatives, we can conclude by mentioning four key questions for further investigation. First, why was inflation substantially lower under the Harper Conservative governments and the first two Trudeau Liberal governments than during the Liberal’s third term of office? To what extent was the sharp rise in inflation in 2021 and 2022 the responsibility of Liberal economic policies? ⁴⁵ Was it mainly due to external factors, as the Trudeau Liberals claim, or did excessive Liberal government spending financed by the Bank of Canada fuel the flames of inflation, as claimed by the Pierre Polievre’s Conservatives? Were the Harper Conservatives just lucky that the 2008-2009 global recession prevented rising inflation in 2008 from going further or was there an important policy element in the stability of Canadian inflation under their watch? Second, what accounts for the much sharper rise in Canadian house prices under Liberals (almost 100 percent rise) compared to the Conservatives (under 40 percent rise)? ⁴⁶ Are federal policies mainly to blame, say, or did international factors and/or provincial and municipal policies also play an important role?

Third, why have the growth rates of labour productivity and real GDP per capita been substantially lower under the Liberals and why have these rates even turned negative recently?⁴⁷ Does the decline in these growth indicators from Harper period to the Trudeau one reflect factors common to many mature economies, differences in policy priorities in the two periods, or other factors? Fourth, what explains changes in income inequality under the Harper Conservatives and the Trudeau Liberals? Although, despite the predictions of some critics, measures of income inequality exhibited no upward trend under the Conservatives, these measures (except the P90/P50 disposable income decile ratio) have all been clearly lower under the Liberals.⁴⁸ Answers to these questions will be of interest not just to academics and others who conduct research on Canada, but also to voters in the 2025 Canadian federal election.