The Fall Economic Update was hosted this week by the Fredericton Chamber of Commerce. It seems Minister Flaherty wanted to be sure of friendly faces when he announced that the 2012-2013 budget deficit will likely be $5-$7 billion higher than forecast in March. The reason for the higher deficit is that nominal GDP will be lower than expected, which in turn means lower government revenues. Given that Europe has returned to recession and the US faces an austerity bomb, there are continued global risks to the Canadian economy.
Minister Flaherty’s message was, essentially, “stay the course”. There is an unspecified plan that can be executed should the outlook worsen (likely more public sector cuts, as David MacDonald outlines here).
Public spending and public service cuts are probably the most counter-productive response in the current economic climate. The Parliamentary Budget Officer estimates that the cuts announced in March 2012 will take 1% out of real GDP from 2014 through 2016, and result in 125,000 fewer jobs for 2016. This all means that government revenues will be even lower than expected, prompting further belt-tightening.
This at a time when Canada’s debt-to-GDP ratio is the envy of other industrialized nations, and borrowing costs are at record lows. If anyone can afford to borrow to invest in the future, it is Canada, right now.
What to invest in? The Federation of Canadian Municipalities is calling on the government to invest in critical municipal infrastructure. This is the kind of investment that puts people to work, makes life better, and improves labour productivity. This is the kind of investment that businesses rely on governments to make. A multi-year plan allows smarter and more productive investments. Real Jobs and Growth kind of stuff.