Leaky budget sends money down the drain

Posted in Canada, Economy, Politics by cimmetry on January 27, 2009

Let’s be clear: the point of a massive deficit-laden Canadian budget is to stimulate the economy. Spending measures should be bold, targeted and effective. Fiscal projections should conservative and accompanied by realistic measures that will swiftly return the country to a surplus.

The 2009 Federal Budget has none of these qualities. Leaked out in bits and pieces over the past week,  the Conservative budget proposes huge deficit spending, but lacks focus and ambition. Many of its measures are deficient, and unlikely achieve their intended purpose. The fiscal projections are unrealistic and will not return the government to a surplus in five years.

That the Conservatives consulted widely in the run-up to the budget is clear; their paucity of vision is equally obvious. The budget betrays the government’s lack of direction and their desperation to hang on to power.

Here are five deficiencies that I noted in the budget:

  1. Employment Insurance benefits need to be quickly and equitably accessible across the country. The duration and amount of EI payments should increase to help vulnerable families survive the difficult months ahead. The measure to merely extend EI by five weeks is insufficient.
  2. Infrastructure funding should be accessible and favour green projects and others that provide long-term benefits for cities and communities. Cut the red tape and allow funds to flow immediately, especially where they can support projects that are shovel-ready or already underway.
  3. Cancel the expensive middle-class income tax cuts. The paltry sums saved by individuals will neither boost confidence nor encourage spending. But keep the Home Renovation Tax Credit. This will encourage Canadians who had postponed renovations to revive their plans and will replace old furnaces and windows with efficient new ones.
  4. It is not clear to me that the budget helps Canada to prepare for the recovery. There is a need to invest in technology, particularly green technologies. Research and development funding is required to underwrite the knowledge society of our future and avoid another brain drain.
  5. Introduce measures that will definitively return us to surplus budgets based on realistic assumptions. For example, I would fully support a 2% increase in the GST in 2011 if that new revenue is allocated to debt repayment. Such an increase could restore the $10-12 billion of government revenues lost when the Conservatives cut the GST.

The Conservative budget is broad and shallow. I am not convinced that it will lift Canada out of recession. I am certain, however, that it will erase a decade of surpluses and send us back to structural deficits.


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