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The Progressive Economics Forum

Getting out of the deficit hole

We are repeatedly told in the press that getting out of deficit was oh so difficult, and so we need to proceed cautiously down that road in the 2009 budget. In fact, Paul Martin’s landmark 1995 budget that took aggressive measures (1995/96 fiscal year) turned into a surplus of $3 billion in the 1997/98 fiscal year. So it took exactly two fiscal years to get out from under the deficits of the early 1990s in the high-$30 billion range. By 1999/2000 the surplus surged above $14 billion and hit almost $20 billion the year after.

As the CCPA argued at the time, the federal budget need not have been so aggressive. The budget could have been restored to balance much more slowly without unilateral cuts to social programs that angered the provinces, led to program cuts (though the amalgamated and shrunken Canada Health and Social Transfer) and set the stage for the expansion of poverty and homelessness we now confront in our cities (though elimination of the Canada Assistance Program transfer).

So don’t believe the pundits when they go on about how hard it would be to get out of deficit. Fiscal fortunes can change quickly if the economy is growing. And the magnitude of today’s proposed deficits ($34 billion in 2009/00) is rather small, about 2% of GDP, compated to the deficits we saw in the 1990s when GDP was much smaller. The largest ever deficit as a share of GDP was 7.9% back in 1983/84, equivalent to some $120 billion were that to be replicated today (and provinces were running deficits back then, too).

The problem with the newspaper pundits is that they think in dollars not shares of GDP. The concept of compounding growth and its impact in public finance is lost to them, so they get starry-eyed and panic at the prospect of a $34 billion deficit, recalling the early 1990s. They might as well complain that they could buy a candy bar for a quarter back then while they are at it.

Enjoy and share:

Comments

Comment from janfromthebruce
Time: January 25, 2009, 5:38 pm

“As the CCPA argued at the time, the federal budget need not have been so aggressive. The budget could have been restored to balance much more slowly without unilateral cuts to social programs that angered the provinces, led to program cuts (though the amalgamated and shrunken Canada Health and Social Transfer) and set the stage for the expansion of poverty and homelessness we now confront in our cities (though elimination of the Canada Assistance Program transfer).”
It was painful for a certain class of people, and remember for the longest time, it was a jobless recovery. Furthermore, since that time “real incomes”, when taking inflation and buying power of good and services, have remained at the early 80s level. So those corporations now crying the blues, along with banks, made a killing, and enriched themselves.
My fear is that coming out of this recession, it will be the repeat mantra, where again, social programs and transfers did not cause the recession, but they will be used (cut or privatized).
We don’t want neocons or right wing conservatives anywhere near federal govt.

Comment from Leigh Thomson
Time: January 25, 2009, 6:36 pm

and what is bothering me now is that the consecutive leaks around spending are not at all about restoring any of the substantial social transfers.

Finley announced $ for the Canada Health Infoway, which will essentially function as a gift to the insurance industry. Data (patient records from across the country) will be accessible to all care providers, including those which are private, and to their associates “as provided” in law, including cross-border trade agreements. Irrevocably so, with NAFTA’s intellectual property rights provisions.

The retraining dollar promised, as Duncan C. already predicted, represent another gift to the big insurance companies.

Harper is so predictable. The infrastructure announcements tomorrow will be $$ for P3s in transport. He’ll try to talk about ‘corridors’ which is code for and likely to include water and energy transfers. If Harper doesn’t announce the demise of PPP Canada, every environmental and justice group in the country should demand his resignation as PM.

We probably should anyway. These handouts to big insurance and infrastructure financiers will function as more paper chase, further destroying the economy as well as our social and environmental foundations.

Comment from Leigh Thomson
Time: January 25, 2009, 7:18 pm

And I’ve been thinking, ‘what other outrage is Harper going to try? some sly tactic with timing in the House schedule? some joker up his sleeve with extra-parliamentary procedure? another cynical twist for equity seekers?’

I realized that I, like many, have lost what little confidence there was in his sincerity. Together with his past behaviour, Harper continues to behave irresponsibly. He has become too predictably unpredictable. The country needs to give him a ‘time out’ from his duties as PM, so that he can better reflect on the meaning of ‘trust’.

Comment from Travis Fast
Time: January 25, 2009, 10:32 pm

“recalling the early 1990s. They might as well complain that they could buy a candy bar for a quarter back then while they are at it.”

What do a conservative government and a candy bar have in common?

The ones with nuts cost more!

Sorry its late.

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