Record deficit for Canada?
The 2009/10 federal deficit is now projected to hit $50 billion, the largest ever in nominal terms. The media seem to be obsessed with the nominal number, even though Canada’s economy has more than doubled in nominal terms since we saw the previous record of $39 billion in 1992/93.
If that deficit number holds (and it most surely will not given that we are only two months into the fiscal year), relative to GDP, it is just over 3.3%. On that basis, it is still quite low relative to the “dark days” of deficits invoked by the media. According to the fiscal reference tables, deficits as a share of GDP were in excess of 3.3% were run in EVERY year in the two decades between 1975/76 and 1995/96, peaking at 8.3% in 1984/85.
So media, chill out, please â€“ if anything, the feds need to be doing more to support demand in the economy right now, and the historical experience suggests there is lots of room to do more. And Opposition parties need to stop playing silly politics with the deficit numbers, while arguing (rightly, in this aspect) for the government to do more via unemployment insurance. That analysis may make for good talking points but does not add up unless one also wants to raise taxes, and no one seems to want to do that. For example, here are the NDP and Liberal responses, as quoted from the Star:
“This is a shocking number,” said Liberal MP John McCallum. “It is higher than I think anybody had predicted. This is by far the highest deficit ever in Canadian history â€“ under their watch.”
… Prime Minister Stephen Harper is facing increasing heat as the country’s economic problems worsen, with Liberal Leader Michael Ignatieff threatening to topple the Conservative minority and force an election if the Tories continue to refuse to bring in major improvements to employment insurance during the recession.
Yesterday, the Liberals continued to voice their demands for reforms to EI that would make it easier for the rising army of jobless to access benefits.
While no one is calling for an election, Harper appears headed for an unpredictable clash over this issue with the opposition parties.
“We are pushing it hard,” said McCallum, the Liberal finance critic. “We shall see what happens. In a minority government, one never knows.”
… NDP Leader Jack Layton took aim at the Conservatives for creating “the largest deficit we have seen in the history of Canada.”
“What do they have to show for it? There have been 400,000 people thrown out of work. There should at least be some results for the steps that they have taken, but there are not any,” Layton said.
While it feels unusual for me to defend the Tories, I give them credit for letting that deficit grow rather than the alternative of cutting $17 billion in federal expenditures to keep to the budget’s projection. The opposition parties cannot have it both ways, wanting both more spending through EI and a lower deficit.