Canada, eh

What President Obama Doesn't Want You To Know About Canada

With President Barack Obama claiming the government builds success, not individuals, Mitt Romney should look north to a story Obama would rather Americans didn’t notice. Canada is outperforming the U.S. on every economic front and they’re doing it with policies Republicans say they’d like to implement.

For the inside scoop I interviewed Tony Clement, Canada’s President of the Treasury Board (the COO for the Government of Canada who is responsible for managing spending among other duties) and a Member of Parliament with the Conservative Party of Canada.

He was enthusiastic. This is a story he wants to tell. A story that people south of the border should be paying attention to. According to senior Canadian officials who’ve had closed-door meetings with Obama administration officials, the White House has been curious about how Canada is growing. When Canadian’s told them how, they even toyed with implementing some of the same policies.

First, for context, we need to do a numbers comparison with the U.S.

Canada’s unemployment rate is now 7.3%, whereas the current U.S. unemployment rate is 8.2%. Canada’s combined federal and provincial debt to GDP ratio is 57.9%, while Canada’s federal debt to GDP ratio is 34%. Meanwhile, the U.S. debt to GDP ratio reached 101.5% in 2011.

Then there is the Canadian banking system. Canada’s banks are among the best capitalized in the world and far exceed the norms outlined by the Bank for International Settlements. During the financial crisis, no Canadian banking institutions had to be bailed out. The rest of this article, of course, could be filled with details about the troubles with U.S. banks and the Democrats’ Dodd-Frank Wall Street Reform and Consumer Protection Act, but I’ll let all that be addressed in other articles.

It’s worth noting here that homeowners are also in better shape in Canada. Today just 0.35% of Canadian mortgages are behind on their payments, whereas TransUnion reported that in the January-March 2012 quarter 5.78% of U.S. mortgage holders were behind on their payments by 60 days or more (that’s more than 10 times more than in Canada).

Canada also has a better credit rating than the U.S. Standard & Poor’s gives Canada a “AAA” rating and a “stable” outlook, but gives the U.S. an “AA+” rating and a “negative” outlook. Moody’s Investors Service Inc. lists the U.S. as triple-A but gives it a “negative” outlook. Meanwhile, Moody’s gives Canada an “AAA” rating and a “stable” outlook.

How Canada is Getting Results

So how is Canada outperforming the U.S.?

First of all, the Conservative Party of Canada has reduced its federal corporate tax rate from 22% in 2006 to 15% in January 2012. (It was cut to 18% in January 2010 and 16.5% in January 2011.) Meanwhile, U.S. rates have been consistently higher than the average of all major industrialized nations. In April 2012, Japan reduced its corporate tax rate to 36.8%, making the U.S. total corporate tax rate (39.26%) the highest.

The Conservative Party of Canada, led by Prime Minister Stephen Harper, also passed a budget loaded with real cuts last March. Clement explained, “We cut 2% from the overall budget, but we didn’t touch health care and other entitlement spending, as we’d promised not to. Our overall budget is about $250 billion. We focused on the $80 billion that’s outside of health care and other social programs. Of this portion our goal was to cut between 5% and 10%. We ended up cutting 6.9%.”

These cuts are real reductions, not just cuts in the expected growth of government as so often is touted in Washington, D.C.

To achieve this the Harper government did something you might more expect to see in the private sector. Clement made history in Canada by tying bonuses of senior bureaucrats to the success of government-wide objectives for reducing expenditures. Get this, about 40% of the bureaucrats’ bonuses were linked to a “Deficit Reduction Action Plan.” Yeah, bureaucrats got bigger bonuses when they proposed ways to make bigger cuts.

Clement explained, “Forty percent of this at-risk pay for senior managers was based on how much they contributed to the target of least $4 billion a year in permanent savings. This is just part of how we’re changing the attitude of government officials from spending enablers to cost containers.”

Meanwhile, the Obama administration’s budget proposal for 2012 failed to pass both the U.S. Senate and the U.S. House of Representatives, marking the third straight year that the U.S. has not had a budget. Obama’s last budget went down 97-0 in the Senate. The president’s budget was so flippant, even his own party voted against it.

In Canada, the government created the “Strategic and Operating Review Committee,” led by Clement to oversee a yearlong hunt for cuts and efficiencies. Their proposal led to the 6.9% decrease in the area of government spending they’d targeted.

Meanwhile in the U.S., the “Super Committee” created out of the Budget Control Act of 2011 was also a committee of elected officials tasked with finding direct savings in government spending; however, if you recall, the Super Committee wasn’t able to agree on a solution.

Of course, the Canadians do have an advantage here. They don’t have the checks and balances purposely enumerated in the U.S. Constitution to inhibit them. In fact, senior sources in the Canadian government who’ve met with Obama administration officials say their impression is that the White House is jealous of the Canadian government’s power to have their way.

The Canadian parliamentary system certainly does give a majority government more unilateral power. Just imagine if the Speaker of the House could pass legislation into law without the Senate or White House to contend with and you get the picture. (As I discussed this with Clement he was thankful they could make the changes, but I kept picturing Rep. Nancy Pelosi (D-CA) with her gavel and Botox smile.)

But the thing is, until 2010, the Democratic Party did have majorities in the U.S. House Representatives and the U.S. Senate. This is how Democrats passed The American Recovery and Reinvestment Act of 2009 (the “Stimulus” bill) without Republican input or support. Whereas the Harper government has used its political power to trim the budget to grow out of the downturn, the Obama administration spent $787 billion.

And Canada got the growth!

Clement says, “Our Economic Action Plan is working. We have already seen the creation of nearly 760,000 net new jobs across Canada since July 2009. And nine out of ten of these are full-time positions.”

Now, while it is true that a lot of Canada’s job growth is coming from oil-rich areas, the Obama administration has again done the opposite of what the Harper government has been doing. While Canada gets barrels of oil from places such as the Athabasca oil sands region in northeastern Alberta, the Obama administration has reduced drilling permits on public lands and has stalled authorization of the Keystone Pipeline from Canada.

White House Chief of Staff, when serving as Budget Director, Jack Lew did instruct U.S. government agencies to submit budgets with cuts of at least 5% and 10%—just like Minister Clement did in Canada—to reduce federal spending. (Bloomberg reported this in Aug. 2011.) Again Clement’s yearlong work resulted in savings of 6.9%; meanwhile, the Obama administration never followed up on the cuts. They were just never mentioned again.

So while President Obama ignores cuts and repeatedly says he wants to raise taxes on the “top earners,” Prime Minister Harper is cutting taxes and streamlining government. Whereas Obama endorsed the “Occupy Wall Street” war on the “top 1%” and wants “everyone to pay their fair share,” the Harper government is cutting waste and taxes and more of its people are working and staying in their homes—are you listening now Romney?

Different Relationships with Public Unions

Another key difference is that, while Obama’s stimulus bill largely funded public unions, the Harper government asked unions to make cuts.

Clement said, “We showed public unions the olive branch by asking them to suggest where we could cut waste, but they didn’t come back with one suggestion. They only wanted the status quo. Families know that when money is tight cuts in the household budget must to be made. This is why a lot of Canadians understand why we’re working to get expenditures under control in these challenging times. Nevertheless, public unions wouldn’t agree to cut anything. The people of Canada gave us a mandate to get our finances in order, so we made the cuts without their help.”

Last fall, while Clement was drafting their 2012 budget, Canadian unions lashed out by saying they were being cut out of the conversation. Clement responded in writing. He sent a letter to Public Service Alliance of Canada (PSAC) President John Gordon and said, “To date, I have not received a single constructive recommendation from you as to how we can make the federal government more efficient and provide better value for Canadian taxpayers. Your silence … leads me to conclude that the PSAC believes there is no room for streamlining government….”

Clement was pointing out that the unions had cut themselves out of the conversation. But though Clement’s letter went public, most of the Canadian press ignored it. The Canadian press is sympathetic to the public unions’ interests. For example, on June 18, 2012 the Ottawa Citizen reported: “One of Canada’s largest federal unions could face extinction as an independent organization unless its members accept a 42-percent dues increase to forestall a financial crisis triggered by the Conservatives’ job cuts.”

They were talking about The Canadian Association of Professional Employees (CAPE) proposal to increase dues by $15-a-month because some of their members had been laid off. CAPE said they needed the money to make up for an expected 10-percent drop in membership because of government spending cuts. Ironically, CAPE mostly represents government economists, research assistants at the Library of Parliament and social scientists. Austerity, it seems, is particularly distasteful to those who teach Keynesian economics.

When asked about this Clement said he would soon be meeting with new union leadership and he hopes they’ll be more reasonable than the last union bosses. He then said, “We repeatedly asked federal public unions for constructive advice to help our government achieve necessary cuts, but the union leadership didn’t respond with a single proposal for savings. Instead, union bosses called for higher taxes, more spending, bigger government and increased debt. We couldn’t do that, especially during a worldwide downturn.”

No, but that’s the Obama administration’s recipe for success.

A New Way of Seeing Government “Service”

At the end of the interview Clement had one more thing to add. He says they’re now moving from a “vertical review of expenditures to a horizontal review, namely to a culture shift from spending enabling to cost containment.”

Basically Clement wants federal bureaucrats to ask themselves how they can do their jobs well at a lower cost to taxpayers. This is why he linked senior civil servants’ bonuses to cuts.

“We have to ingrain this idea of efficient and constrained use of tax dollars on a day-to-day basis at every level—from the politician, all the way down to the proverbial mail clerk, to every level of bureaucracy,” Clement said. “This is not simply a case of making do with less. It is about doing more with what you have. And it will demand a new way of working.”

As Clement spoke, he sounded more like a CEO than a politician. That’s refreshing. That is something Mitt Romney should understand.

“Let me give you an example,” said Clement. “Up here we have the Veterans Independence Program. It provides housekeeping services and grounds maintenance for eligible veterans to help them remain healthy and independent in their own homes or communities. Currently, these veterans must obtain and submit receipts in order to receive reimbursements for these expenses. Frankly, it’s a hassle and it results in millions of transactions that are costly.

“One of the proposals we received as part of the Strategic and Operating Review addressed this situation. The suggestion was to replace the system with up front payments made in two installments each year. Change the system. Change the process. Change the way the work is designed. Everybody wins. Government employees can focus on more productive activities—no longer counting receipts! This idea eliminates the financial costs associated with processing millions of transactions.”

That’s a small change, but one of many small reforms to government Clement is looking for that’ll add up to big savings for taxpayers. Clement had a lot of other examples, but you get the point.

Though one last comparison is worth your time. Remember the spending scandal where employees with the General Services Administration (GSA) partied on the taxpayer’s dime in Las Vegas? They were having such a good time with public money videos surfaced of David Foley, a deputy commissioner of the Public Buildings Service, an arm of the GSA, mocking congressional oversight. In the video, Foley gave a “talent show award” to an employee whose video featured a rap about spending too much with no oversight.

Jeff Neely, the GSA official who organized the 2010 Vegas conference that cost $800,000, pled the Fifth last April before a congressional committee.

In comparison, Canada annually bestows “Public Service Award of Excellence” on people in the public sector who’ve done praiseworthy things. Ministers have spoken in the past at these awards functions. Last June, however, Clement wasn’t pleased with how much the gala was costing, so he asked them to trim costs in these times of need. When the departments wouldn’t cut back, he declined to speak at the event and instead offered to personally call the recipients.

That’s a change in how government is managed Americans might appreciate and that Romney, who is sometimes referred as a possible “CEO in chief,” might be able to bring to the States.