Strategy

Finance: Manley heads back to the G20

Now a business lobbyist, former minister warns of tough tax choices to come.

John Manley last attended a G20 meeting in the fall of 2003, when the group’s finance ministers gathered in Morelia, Mexico. Compared with the woes facing today’s finance ministers, the agenda was decidedly light. “I don’t think we had big issues,” he says with a chuckle. “We’d had sustained global growth.”

When the leaders of the world’s major economies convene in Toronto on June 26, their schedule will be laden with big issues, from ending stimulus spending to the European debt crisis to the debate over a global bank tax. Manley will once again be in attendance, albeit in a different role. The former Liberal cabinet minister in January became president and CEO of the Canadian Council of Chief Executives, a business association representing 150 of the country’s biggest corporations. As arguably the country’s top business lobbyist, he was asked by Prime Minister Stephen Harper and Finance Minister Jim Flaherty to organize a summit for G20 business leaders on the eve of the political powwow. The inaugural event has been dubbed the B20. “We hope we’ll have people who are really engaged in the global economy,” says Manley. “We’ll have an opportunity to offer our perspectives to the prime minister and other heads of government going into their deliberations.”

The B20 agenda mirrors its parent summit, with a particular emphasis on how the private sector can spur economic growth now that government spending is waning. Manley contends the explosion in sovereign debt caused by all the stimulus spending over the past two years is the biggest issue facing both the Canadian government and the world’s other major economies. “It took us a long time in Canada in the ’80s and early ’90s to build the political will to do some very tough things,” he says. In a recent speech to the Empire Club of Canada, Manley recalled that, while serving as industry minister, he had his departmental budget cut by 50% as the government struggled to eliminate a close to $40-billion deficit. “I think, quite frankly, what we had to do in the ’90s was easy compared with what some European governments are going to have to do now,” Manley says. “The population doesn’t necessarily get the notion that sovereign debt is not something you can run up without consequences. You actually have to borrow the money from somebody. And sooner or later, people want to be paid.”

European countries have indeed borrowed with alacrity. Greece’s government debt will exceed its GDP by one-quarter this year, while Italy’s debt is currently one-fifth higher than its GDP, according to a recent report by DBRS, a credit rating agency. While Canada’s position is sunny by comparison, combined federal and provincial debt is still $1.2 trillion, or about 78% of GDP. With the federal deficit for 2010 sitting at $53.8 billion and most provinces also facing shortfalls, Manley says tax hikes may be the only way to stem the bleeding. He supports plans to lower the federal corporate tax rates and the harmonization of British Columbia and Ontario’s sales taxes with the GST, but notes both Quebec and Nova Scotia have hiked their sales taxes in the past year. The increases were only made easier by the federal government’s two-percentage-point reduction of the GST. “I think it would be very surprising if some provinces didn’t decide to use up some of the room that the federal government has left them on the consumption tax,” Manley says. “That’s what I’m expecting. But what I’m really trying to get people to do is say, ‘We’ve got to have a sober, sensible conversation on this.'”

The conversation at the B20 will likely touch on the consequences of sovereign debt, but nobody is sure what will result from the gathering. Participants are not expected to deliver a final report, the meeting’s agenda is set but broad, and even the guest list remains undetermined (The only confirmed guests are Manley and Perrin Beatty of the Canadian Chamber of Commerce.) Furthermore, organizers are attempting to minimize the event’s profile in a bid to avoid the ire of anti-capitalist demonstrators. Nonetheless, Manley thinks the B20 is a worthwhile endeavour. “We’ll benefit from having the views of these people from global businesses,” he says. “This is really precedent setting, so we’ll see what comes out of it.”