cimmetry

Budget problems galore, but Liberals do nothing

Posted in Canada, Politics by cimmetry on January 28, 2009

Watching Liberal leader Michael Ignatieff at the podium this morning, listing off the many deficiencies of the Conservative budget that was introduced yesterday, had me feeling very hopeful about the amendment that they would propose. But I was astonished when it became clear that the amendment was empty of any meaningful action.

Instead of making Employment Insurance eligibility uniform across the country, demanding funding for additional child care spaces, or cancelling the paltry but costly cuts to personal income taxes, the Liberal amendment asks the Conservatives to provide a bunch of progress reports. Huh?

Mr Ignatieff claims this is all part of holding the Conservatives to account — ensuring that they do what they say they are going to do in the budget. But who cares about holding them to account over a flawed budget? More importantly, why can’t the amendment also include measures that actually fix the budget?

I am left confused, disappointed and feeling somewhat betrayed. I can only cling to the hope that I have missed something here; perhaps there is some master strategy that has yet to reveal itself. 

Is this a way for the Liberals to exit the coalition? Perhaps they worry that if the Conservatives rejected a beefed up amendment, they might actually have to govern with the NDP. Maybe they are working on a shiny new budget-based platform and will seek to defeat the Conservatives in March. Or is it just that, while they are great at criticising the Conservative budget, they are unable or too afraid to propose any better solutions?

I wonder.

Interesting articles and blog posts about the budget

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

I will be adding links to articles as I find them:

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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.

Stimulus spending versus tax cuts?

Posted in Media, Politics by cimmetry on January 26, 2009

CBC Sunday Report offers a range of views on this issue in their report: Fixing the Economy.

Prescriptions for the 2009 Federal Budget

Posted in Politics by cimmetry on January 26, 2009

The Government of Canada will table its 2009 budget on Tuesday, and expectations of it are enormous. It will be seen as a political sign-post of the survival of Prime Minister Stephen Harper’s minority Conservative government. The budget will also be read as a blueprint of Canada’s economic future.

A deficit in the order of $64 billion over two years has already been announced, erasing approximately half of the federal debt repayments made during the past decade. Most of the borrowing is expected to fund a massive economic stimulus package, but will it be worth the risk of a return to structural deficits?

In some quarters, there is a belief that budgetary stimulus will contribute little to the recovery of the Canadian economy. Andrew Coyne notes that the economic crisis was created by global rather than national forces; therefore, Canada’s recovery will depend largely on that of the United States and our other trading partners. He is probably right, but while domestic stimulus spending will not drive the recovery, it can help to keep the country afloat.

Pointing at the Bank of Canada’s Monetary Policy Report Update forecast of a painful but short recession followed by a return to commodity driven growth in 2010, Jeffrey Simpson argues that stimulus spending will arrive too late and leave the country in a weaker position. But the Bank paints a highly optimistic picture. Even if it proves correct, it the benefits are unlikely to touch all regions and sectors of the Canadian economy evenly.

In any case, a budget without a stimulus package is politically unpalatable. So what measures would be most likely to help Canadians weather the storm, and mitigate the risk of systemic deficit spending?

Support for vulnerable families. Jobs are disappearing and Canadian families need immediate support that will help them to cover basic living expenses in the difficult months ahead. The government must make access to EI easy and quick, and the budget should provide for a temporary benefit increase. These dollars will be spent in Canada and will reduce the number of defaults on mortgages and rent, and provide an important safety net.

Retraining and education upgrades. Many jobs lost during this downturn will not be coming back. Rather than backstop jobs in dying industries, the government should invest in Canadians seeking to retrain or upgrade their education.

Intelligent stimulus. There is no question that infrastructure spending will be an important part of the budget. However, projects that are selected must contribute to strengthening our future. This includes improving the quality and affordability of our housing, infrastructure that is good for the environment, and research, development and technology investments that will be an advantage when the recession ends.

Long-term sustainability. Canadians have worked hard to cut the Federal debt by some $100 billion over the past ten years. The next 3-5 years could see this undone. Stimulus measures must be temporary and the budget must provide a strategy to repay projected deficits once the recovery is underway. The Globe and Mail is apt in suggesting that specific debt-to-GDP and spending-to-GDP anchors be established in the budget. I would also welcome a scheduled future increase in the GST in which new revenue is funnelled exclusively to debt repayment.

In addition, if the budget includes any permanent income tax cuts, they should be offset by a future increase in consumption taxes. Such a structural change to our tax system should improve productivity and better prepare us for the next downturn.