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.

USW Response

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.


  • Great commentary, Erin.

    I also find it disingenuous at best for the government to claim that previously announced tax cuts constitute a significant part of a “substantial fiscal stimulus” that they are providing in response to the economic crisis that is upon us.

  • Good short summary

    As Erin notes, This outlook will almost certainly look very dated in a few weeks and months – and even it forecasts a rise in the unemployment rate to 6.9% next year. The lack of action on public investment and EI is appalling.

    On a slightly more positive note, the government will work with the provinces and cities to accelerate infrastructure spending under the current 7 year $33 Billion plan, and will inject $350 Million into both the Export Development Corporation and the Business Development Bank. On top of an increase in their borrowing limits, this will allow each of the federal lending bodies to increase lending by $1.5 Billion, helping ease the credit squeeze on companies. The auto sector will be able to turn to EDC for loans

    The government promises new pay equity legislation – which will have to be very carefully reviewed.

    Minister Flaherty told working families three things about pension plans regulated in the federal sector, and retirement security in general.

    First, temporary relief will be available for employers with pension funding problems given the current financial crisis. To get this relief, employers must gain the consent of pension plan members, or obtain a letter of credit to secure pension benefits. If granted this relief, employers will be given an additional 5 years to pay off solvency funding deficiencies (the current limit is 5 years). In unionized workplaces, the consent of pension plan members requires the consent of their union.

    Secondly, a full-scale review of federal sector defined benefit and defined contribution pension plans will take place in the new year. Such reviews have already happened in Nova Scotia, Ontario, British Columbia and Alberta.

    Thirdly, Minister Flaherty confirmed his government’s main policy to improve retirement income comes through the introduction $5000 per year Tax-Free Savings Accounts (as of January 1, 2009). This commitment to a new species of “do it yourself” pensions comes at a time when RRSPs are showing their worst returns ever, with over $100 billion lost in the subprime meltdown. TFSAs will also not help the 30% of working Canadians today with no retirement savings at all. “Do it yourself” pensions have failed. It’s time to invest in public pensions like Old Age Security, a proven tool to increase retirement income for all.

  • I believe I have witnessed one of my worst ever economic statements in my life today. With all the expaectations, I cannot beleive what transpired today.

    Is this the real tory “reform” party coming fully out of the closet finally. We all knew that underneath the minority government curtains, there was some evil doers lurking. Today’s statement was so morally bad, let alone economically just plain guided by stupidity.

    Lets see, further attacking women (Andrew don’t count on the “collective bargaining enhancements” to actually transpire into anything more than a farce), attacking the democratic notions with the party funding cuts, (plain and simple dictatorship type tactiics to enable his push for a majority, undoubtedly repulsively slitheringly pathetic), clingingly holding onto some high and mighty notion that a surplus should be a goal right now, (wtf kind of economically irresponsible behavior is that)

    Realla nd truly the act of complete fascism is the pulling of the public service’s right to strike. SO much for shop floor moral in the public service. Whats worse, a wage freeze for 10 years or pulling the right to strike, The federal civil servants have become a real whipping post for the feds over the last 15 years, but this one is just plain old fascism. How does stripping the right to strike have anything to do with recession fighting. What books are Mr. Harper reading? (Something quite evil I am sure, maybe more Hayek)

    This display of irreverence and disdain for working people today should enable us to have them arrested.

    Such sheer complete backwardness and it is going to get the economy into a whole pile more trouble, needlessly.

    If the unite the opposition campfire is ever going to get lit and actually allow a roasting of the tories, then now is the time.

    Pass out the hot dogs and grab yourself a pop, it is time for something to happen in Canada that never has, a loose coalition of opposing parties. (the bloc is a wild card, but wild cards are usually only successfully good if you are already holding a pair.)

    Anyway I an not sure but about the rest on here but when Flaherty started talking about surpluses and that crap, my heart sank as I knew at that moment, that they are never going to change their ideological spots.

    For those inclined I had a short piece published examining the crisis in the autosector today, I wrote it last week before the statement. It would probably have a few more colourful comments if I wrote it today.

  • I am not sure the removal of the the right to strike from federal employees will withstand a court challenge because it interferes with section 2(d) of the charter: freedom of association.

  • “Finally, while the Statement promises to “accelerate” infrastructure spending, it insists on “pursuing public-private partnership opportunities in order to lever private capital.”” I’ve been looking out for this shoe to drop for years. This is the essence of neoliberal capitalism, Is it not? It was always depressing to hear about all those lost jobs, which regular announcements about the need for infrastructure spending in effect meant. But I also knew that ideologues in power would open that up to their partners in the private sector. (Fascists always have solutions. That’s the problem.) Defunding the Left and defunding the majority (through cutting social spending, program and otherwise) is a default position of neoliberals and the neocons among them.

    As Erin makes clear, Not only is the behavior of this government (which is more than Jim Flaherty) ideological, but it’s also destructive and irrational, if private capital is indeed going to be missing in action when the good deals are being offered. Will it be though? Putting spending tax dollars on infrastructure for the country whose citizens put up those taxes on hold so that the private sector can line up to get some of those funds for themselves is unconscionable.

  • Erin, I’m glad you highlighted the public asset-sell off and the P3 dimension as well as Equalization issues.

    I received in the mail two days ago an update of the process of review in Ontario for “existing land use management direction for all provincial unregulated Crown lands and waters.” This is being done under the Ministry of Natural Resources Crown Land Use Atlas Harmonization (CLUAH) Project.

    It’s important that people who have the time and mandate look at the EBR registry, click on the background documentation and check carefully for implications of directions given other existing legislation. It’s notable that my existing Crown Land Use Atlas does not include ‘waters’ other than wetlands, so this is new, and very disturbing.

    If equalization is being capped, while P3s and public asset sell-offs are being promoted, and insufficient public investment, Harper is setting the stage for an explosion of private investment in water services.

  • and of course that includes energy/hydro/dams/canals/existing diversions, and new diversions ie) water flows to the tar sands, and to the US, if we are left open to NAFTA challenges and fail to get rid of investor-state provisions and exemption for environmental/ water services.

  • I find it truly amazing that our government actually has $30,000,000,000 to hand out in aid to extremely large companies. Companies which have reaped the benefits from an economy which has grown in leaps and bounds for years. The problem with the speedy growth is the effect on cost of living for all Canadians.
    The problem with the cost of living is that it rises at a much faster rate than do wage increases for the majority of Canadians. This majority of working-class people are the foundation for the entire economy in Canada. Now that we have reached our breaking point and the bottom has fallen out the cream at the top is starting to curdle.
    The large gap between the cost of living for the working people and the accessible income needs to be made smaller in order for these people to survive. When they feel more comfortable financially they will begin to spend again thus increasing demand for products which will in turn put life back into large companies.
    At this time companies had better take a good look at their profit margins and decide if making less each year and managing better would preferable to ending up in this same situation. Greed should not be the ruler of our destiny.
    In saying this would it not be better to take a small amount in comparison to the big number and stimulate the working people directly. There are what? some 35,000,000 people living in Canada. How many of those families are losing employment and homes etc. during this restructuring of our great nation? Perhaps giving $1,000,000 to all working people whose household income is say less than $250,000 per year would help ease the transition period for them and stimulate economic growth at the same time. Then if the government wants to use the rest of the billions to help, try spending more on educating willing individuals to fill vacant positions in our healthcare system. The government should never sell of any of its assets because privatization is what got us here in the first place. Everyone knows that government jobs are one of the better paying in the country. Therefore a sell off of assets is a sell out for Canadians. Implement a mandatory cost of living allowance for all large companies making a profit of more than $1,000,000 per year. Increase the minimum wage. To just throw fistfuls of money to the already fat and winey big businesses would be a waste of good money. Just because they have been spoiled for a long time and are crying very loud doesn’t mean that they are the hardest hit by this recession. If you give them money they will do what any typical spoiled child would do… fill their own bellies first!

  • The Obama home stimulus package has helped our real estate market

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