Canada’s Non-Stimulus Package
By desperately clinging to the facade of a balanced budget, today’s Economic Statement rules out a meaningful stimulus package.
The federal government optimistically assumes an economic slowdown rather than a sustained recession (it projects real GDP growth every year). To avoid the modest annual deficits that a slowdown would cause, the government proposes to reduce overall expenditures, sell public assets, cut Equalization and suspend its employees right to strike. These cutbacks will further damage Canada’s faltering economy.
The Statement proposes to save $2 billion next year through “Stronger departmental management” which apparently means stripping expenditure overestimates out of the budget. This austerity removes funds from the existing fiscal framework that might otherwise have contributed to a stimulus package.
The government promises to raise $2.3 billion next year by selling off public assets. Disposing of assets is not a sustainable way to raise revenue under any circumstances and a sell-off into a depressed market is particularly unwise. Equalization’s total cost will be capped according to economic growth, which reduces Equalization payments by $1.8 billion next year.
Federal employees will have their annual wage increases frozen at 1.5% for three years and temporarily lose the right to strike on wages. This saves $0.6 billion next year and sets an ominous standard for collective bargaining in the private sector. The household debt crisis was largely caused by stagnant employment income. A better response would be to increase the purchasing power of working Canadians by strengthening, rather than restraining, labour rights.
The only sensible source of new money is the Insured Mortgage Purchase Program, through which the federal government hopes to make $1.1 billion next year by borrowing at low public interest rates to buy mortgages with payments at higher interest rates.
Finally, while the Statement promises to accelerate infrastructure spending, it insists on pursuing public-private partnership opportunities in order to lever private capital. But as posted yesterday, the purpose of accelerating public infrastructure is to offset the current shortage of private capital. Requiring public-private partnerships will slow needed infrastructure spending.
The bottom line is that, without running a public deficit, it will not be possible to finance a noticeable stimulus package.
UPDATE (Nov. 28): Count me among those genuinely surprised that the Conservatives pulled out all the stops to avoid projecting a deficit, given all of their recent public statements about the appropriateness of a deficit in current circumstances. Thomas Walkom has documented this apparent contradiction.