Harper Conservatives vs the IMF on Deficits
Here is an extract from my column on balanced budgets in the Globe ROB today.
â€œWhen 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 â€œtargeted measures to support growth.â€
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 deficitâ€
Here are the relevant extracts from the report,Â to be found here.
21. Federal authorities should consider adopting a neutral stance going forward. Given theÂ strong deficit reduction achieved in recent years (about 2 percent of GDP cumulative improvementÂ in structural balances in 2011â€“14), the federal authorities should consider a slower pace ofÂ adjustment after 2014. Adopting a cyclically-neutral stance would imply a small fiscal easing in theÂ near term but still be consistent with achieving their low public debt objectives by 2021. As theÂ economy gradually approaches potential, this would still allow automatic stabilizers to operate fullyÂ if growth were to weaken should further downside risks materialize. Moreover, in terms of the policyÂ mix, a neutral fiscal stance would help monetary policy to rebuild policy space further as theÂ recovery proceeds.
22. Available fiscal resources could be used for targeted growth-friendly measures. AgainstÂ the backdrop of lackluster business investment (despite very low interest rates) and productivity,Â such measures could focus on providing further support for R&D, SMEs, venture capital, andÂ strategic infrastructure projects, with little risk of crowding out private investment. Reducing federalÂ taxes could provide more space to raise revenue at the provincial level, given that federal andÂ provincial governments â€™co-occupyâ€™ the same tax base.
Relative to current policies, maintaining a cyclically-adjusted primary surplus (at the federal level) broadly constantÂ at its 2014 level would amount to some 0.3 percent of GDP fiscal impulse over 2015â€“17, but would still be consistentÂ with the authoritiesâ€™ debt reduction target of 25 percent debt-to-GDP ratio by 2021.