Spending cuts would kill thousands of jobs and deepen recession

Report calculates economic and social impacts of limiting deficit during recession
August 27, 2009

(Vancouver) In the wake of Tuesday’s Throne Speech signaling major cuts in public spending, a new report from the Canadian Centre for Policy Alternatives (CCPA) cautions that cuts will only make the recession worse.

The CCPA’s modeling shows the status quo (or underlying) deficit for the current year will likely be between $3.2 and $3.9 billion. If the provincial government then cuts between $1 billion and $2 billion in public spending to reduce the size of that deficit, it will further depress GDP by 0.9% to 1.8%, kill 18,000 to 35,000 jobs, and increase the unemployment rate by up to 1.5%.

That spells a deeper and longer recession, according to Iglika Ivanova, economist and author of September BC Budget Reality Check: Facing the Full Force of the Recession. “These deficits are cyclical. They are a direct result of the recession and do not threaten the long-term health of provincial finances. On the other hand, cutting spending during a serious recession will actually harm the economy.”

“The vast majority of policy makers in Canada now recognize the vital role of governments in stimulating the economy to protect jobs and incomes during a recession,” says Ivanova. “Yet despite having abandoned its balanced budget legislation earlier this year, BC’s government seems determined to run as small a deficit as possible — even if it has to cut key public programs and services to do so.”

“Spending cuts will make it harder for low and middle income British Columbians to weather the recession. BC already has the highest child poverty rate in the country. We cannot afford to push more people into hardship,” says Ivanova. “Middle class families already take home lower incomes than their parents’ generation, and most entered the recession with record-high debt. Reducing access to services like child care or public libraries will only shift costs onto individual families.”

The report recommends that the provincial government accept recession-driven deficits and protect vital public services, and fully fund the budget shortfalls of health authorities and school boards. It recommends additional stimulus spending to cushion the impact of the recession, to be invested in social and green infrastructure and poverty reduction measures.

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September BC Budget Reality Check: Facing the Full Force of the Recession, by Iglika Ivanova, can be downloaded free at www.policyalternatives.ca. To arrange an interview, call Terra Poirier at 604.801.5121 x229.