Harper Conservatives vs the IMF on Deficits

Here is an extract from my column on balanced budgets in the Globe ROB today.

“When it comes to balancing the books, the Harper government is seemingly more Catholic than the Pope. Even the International Monetary Fund (IMF), hardly big fans of high government spending, argue in their latest Country Report released in January that the federal government should ease up on fiscal restraint in the near term to the tune of 0.3% of GDP. They say this should fund “targeted measures to support growth.”

In effect, the IMF have said that there is no need to quickly balance the federal budget given that growth will be hit hard by the slump in oil prices. They have not said, as has Prime Minister Harper, that we must fall into a recession before we should run a deficit”

Here are the relevant extracts from the report,  to be found here.

21. Federal authorities should consider adopting a neutral stance going forward. Given the strong deficit reduction achieved in recent years (about 2 percent of GDP cumulative improvement in structural balances in 2011–14), the federal authorities should consider a slower pace of adjustment after 2014. Adopting a cyclically-neutral stance would imply a small fiscal easing in the near term but still be consistent with achieving their low public debt objectives by 2021. As the economy gradually approaches potential, this would still allow automatic stabilizers to operate fully if growth were to weaken should further downside risks materialize. Moreover, in terms of the policy mix, a neutral fiscal stance would help monetary policy to rebuild policy space further as the recovery proceeds.
22. Available fiscal resources could be used for targeted growth-friendly measures. Against the backdrop of lackluster business investment (despite very low interest rates) and productivity, such measures could focus on providing further support for R&D, SMEs, venture capital, and strategic infrastructure projects, with little risk of crowding out private investment. Reducing federal taxes could provide more space to raise revenue at the provincial level, given that federal and provincial governments ’co-occupy’ the same tax base.
Relative to current policies, maintaining a cyclically-adjusted primary surplus (at the federal level) broadly constant at its 2014 level would amount to some 0.3 percent of GDP fiscal impulse over 2015–17, but would still be consistent with the authorities’ debt reduction target of 25 percent debt-to-GDP ratio by 2021.

2 comments

  • Bernie Sanders, mulling presidential run, adopts novel stance on deficit
    http://america.aljazeera.com/articles/2015/2/19/bernie-sanders-mulling-2016-bid-adopts-a-novel-stance-on-the-deficit.html

    “If the government were spending $100 and recovering $90 of it by taxation, that’s leaving $10 somewhere in the economy,” Kelton told Al Jazeera. “And the question is, is that too much or too little? The way I would think about it is, the danger of putting too much into the economy and taxing out too little would result in inflationary pressures.”

    That’s not a danger that Kelton sees looming anytime soon. There is, she says, “a lot of slack in the economy,” which could be ameliorated through stimulative government spending on things like infrastructure and a more robust social safety net.
    ***

    Advocates of that viewpoint are unlikely to make very much headway in this Congress. But Kelton said Sanders hopes to use his position within the Budget Committee to shift the focus of public discussions over the budget and lay the groundwork for future policy changes.

    “I think he’s just trying to remind people that while we obsess over numbers on the government’s ledger, real people are suffering,” said Kelton. “Real bridges are falling down, real kids are hungry.”

  • While I sympathize with the idea of pointing out that the Harper government has reached the point at which even a notoriously anti-progressive institution like the IMF is criticizing it for extremism, taking the IMF’s policy prescriptions in any way seriously is another thing.
    There is precious little in what is actually recommended here to constitute more than a profoundly half-hearted improvement on the institution’s usual neoliberal cant.

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