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The Progressive Economics Forum

Austerity through infrastructure Cuts: Budget 2013

One the most amazing things about this budget is that one of its three focuses will actually be the opposite of what it’s touting.  You’ll likely hear that $14 billion will be spent on infrastructure over the next 10 years (actually you may hear much bigger numbers but they just re-announce existing programs like the gas tax transfer).  What you won’t hear is that 75% of that money is going to spent on or after 2020.  In fact, there will be an affective $1 billion cut to infrastructure transfers to the cities in 2014-15.

The Building Infrastructure Fund is one of the foundations for federal-municipal infrastructure spending.  It is currently spending $1.25 billion a year and expires in 2013-14.  The Federation of Canadian Municipalities (and the Alternative Federal Budget) was looking to have this renewed and significantly increased.  However, what has happened is that spending in 2014-15 has gone from $1.25 billion to only $210 million, a significant drop.

Now the government is saying that this plan is worth $14 billion over 10 years, however, 75% of that money is scheduled for on or after 2020.  The plan is heavily back end loaded.  Canada doesn’t need strong growth and lower unemployment in 2020, it needs strong growth and lower unemployment today.

Also the P3 fund is being renewed at $1.25 billion over 5 years, the cities hate this fund and don’t use it.  It requires them to give away control to their corporate partners and pay more in interest on long term projects.  The previous P3 fund incarnation has only spent about 30% of its total with 50% allocated.  In fact half of the previous P3 fund has no plans for it at all.  To build on this stupendous success it is being renewed so there is even more money that the cities can’t use.

There is also a large change in how unemployment training is provided.  The federal government devolved the unemployment training to the provinces in 2007.  Now they are taking $500 million of that back through a new “Canada Job Grants” program.  The feds will put in a third, the provinces a third and employers a third to provide training to unemployed or “under-employed” Canadians.  The requirements are few and the control is in the hands of employers.  Basically if employers are running any training programs right now, they’ll be able to claim them through this program and get funding for what they were already doing.  The dead-weight loss will be significant.

However, we already know that Canadian employers spend much less on training than other countries, like the US.  Canadian CEOs love to complain about the so called ‘skills gap’ while at the same time doing little to train their own employees to fill it, or hire new ones and train them.  Given this lack of interest from employers this program at most will provide $500 million, but if provinces or employers don’t buy in, it could provide substantially less than that.  All of this funding, or lack thereof, will be taken out of current training programs for the unemployed.

The budget this year also provides a handy guide to the damage that austerity has already had on the Canadian economy on page 298.  From there we learn austerity in 2014-15 will have cut $11.8 in federal spending due to cuts in this and the previous two budgets.  Using the economic multipliers handily provided in the 2009 stimulus budget, it is possible to calculate the economic and job impact of this austerity.  In 2014-15 then government austerity has reduced real GDP by 0.84%.  Now that may not seem like a lot, but since growth in 2014-15 is expected to only be 1.6% it’s a pretty big deal.  The total employment impact is approximately 90,000 fewer positions in the public and private sector due to austerity.  When it came to the fast track to balancing the books 75% of it came from the expenditures side with only 25% from the revenue side.

I did want to make a point about the deficit projections going forward and how it connects to stagnant growth in Canada.  Last year at this time, the government estimated that the deficit in 2013-14 would be only $10.2 billion.  Now the deficit estimate for 2013-14 is almost twice that at $18.7 billion.  This is danger of slow growth.  We keep expecting that three years out everything will be great again, unemployment will be low, growth will be robust, but once we get to three years from now, the economy is still stagnant.  The continued revision of the deficit figures are a great example of this reversion to stagnation in action.

Now the budget isn’t all bad.  The gas tax transfer to the municipalities will be indexed to inflation, something the AFB has called-for for many years.  There is a new paid internship program for youth that mirrors some AFB efforts in that same area.  There is some focus on tax evaders, although there is no movement on closing some of the most egregious loopholes like stock options deductions and meals and entertainment deduction.

Unfortunately, in the aggregate this budget is on austerity auto-pilot.  We need job creating programs like infrastructure investments but what we got was cuts in infrastructure spending.  The paradox of thrift continues in Canada with all sectors, consumers, business and government mired in stagnation.

Comments

Comment from Paul Tulloch
Time: March 22, 2013, 4:46 pm

hi David the CCPA group did an outstanding job this year and I hope other parties look to this work for guidance.

You are bang on with this whole false economy nuance that Harper has going. It seems the fact that stagnation is at the heart of the action plan, does not bode well with the Team Harper branding escapes that they provide the public. I guess, it comes down to what exactly will people believe. As time moves ahead, my thinking is one can have all the top NEW York marketing agencies and all the real time data crunching that money can buy- but given the continuing contradiction the reality can sometimes make its way into the real- kind of a Hegelian way to it all. How far can reality be bent.

Comment from Larry Kazdan
Time: March 28, 2013, 5:56 pm

Letter in Toronto Star
http://www.thestar.com/opinion/letters_to_the_editors/2013/03/25/austerity_budget_means_more_of_the_same.html

Re: Flaherty says balanced budget prepares country for another crisis, March 22

Sovereign countries like Canada and the U.S. cannot run out of their own money. U.S. Federal Reserve Governor Ben Bernanke has stated, “the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

Those who say federal coffers are bare or ask where federal money will come from are simply misinformed. Greece and Cyprus may have surrendered their monetary sovereignty to a foreign central bank, but Canada has not.

The rational debate is over the effects of an injection of fiat money into the economy. A reminder that during World War II, our budget deficit rose above 42 per cent of GDP, and our debt-to-GDP ratio was over three times what it is today. The results were a rapid increase in production from the Depression years, unemployment was driven down to 1 per cent, and a military victory was followed by years of prosperity, all with limited inflation.

Finance Minister Jim Flaherty says his proposed balanced budget prepares our country for another potential crisis. However, the main effect of failing to stimulate the economy now will be to keep over a million Canadians unemployed and to keep many families heavily indebted. This will not protect us from a future crisis; in fact, it will more likely help precipitate one.

Larry Kazdan, Vancouver

Comment from Larry Kazdan
Time: May 21, 2013, 11:22 pm

The Australian Fantasy Budget 2013

http://bilbo.economicoutlook.net/blog/?p=23752

The complete suite of Fantasy Budget blogs are as follows:

The indecent inconsistency of the neo-liberals

Australia output gap – not close to full capacity

Daily macroeconomic income losses from unemployment

The Australian labour market – 815 thousand jobs from full employment

What is a Job Guarantee?

Investing in a Job Guarantee – how much?

MMT Budgetary Principles

The Fantasy Budget 2013-14

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