Deficit hysteria no excuse to end economic stimulus

March 2, 2010

As Canada's recession winds down, there is growing talk of housing and debt bubbles but there is an even bigger bubble that's set to burst.

It's the Harper government bubble – that carefully crafted, out-of-touch universe our Prime Minister has been living in since recession threw hundreds of thousands of Canadians out of work.

Within the Harper bubble, the recession is over and so it's time to turn the taps off stimulus funding and get back to the original extreme Conservative program of gutting public services.

Within the Harper bubble, unemployed Canadians are grateful to the Harper government for all the help they are getting. Within the Harper bubble of government-sponsored TV ads, Canada's recession victims look downright cheerful, despite the fact that 810,000 employment insurance (EI) recipients are poised to run out of benefits with no strategic stimulus plan to get them working.

In the real world of recession and a fragile economic recovery, the Harper government's efforts in last year's federal budget fell far short of what's needed. It's a problem still in search of a solution.

Canada's commitment to economic stimulus has been lukewarm compared with that of many other countries in the OECD.

The contrast between the Canadian stimulus program and that of the United States could not be more stark: A scattergun program less than the sum of its parts in Canada versus a strategic focus on capacity-building priorities in the United States.

In Canada, the Harper government held up more than 80 per cent of its stimulus spending for more than a year – and then winter set in and the ground froze.

In the U.S., where President Barack Obama refuses to live in a bubble, the federal government had already delivered millions of jobs by the third quarter of 2009.

Thanks to the Harper government's foot-dragging and scrambling for political advantage, Canada's economic stimulus is late getting into the market, and with the threat of a slowdown in Canada's hot housing market, the worst thing the government could do right now is take its foot off the gas and hit the brakes.

Canadians deserve better. And it isn't too late to use the 2010 budget to make a fresh start.

The number 1 priority has to be employment. Canada lost nearly half a million jobs in the recession and those jobs aren't coming back quickly.

Canadians still need the support of extended EI.

Canadians also need a robust stimulus program aimed at creating jobs and building Canada's capacity for the future.

The absolute worst thing the Harper bubble government could do now is to shift its focus to deficit hysteria. Canada's economic recovery is fragile, and that of the United States – our biggest trading partner – is even weaker. As both the International Monetary Fund and World Bank have pointed out, governments that pull their stimulus funding too quickly could cause another recessionary dip.

That mistake must be avoided at all costs.

As big as our deficit may look in Canadian historical terms, it is not that large in a global context. A recent survey in The Economist shows that Canada's deficit as a share of GDP is the second smallest on a list of major economies, larger only than China's.

Our debt as a share of GDP is a fraction of that faced by other major countries. It is far too early in the economic cycle to know if Canada even has a structural deficit large enough to worry about in the longer term.

The Harper government should use the opportunity presented by this week's federal budget to shift the emphasis in economic stimulus toward investments that will pay off for Canada's economy in the long term: strengthening our post-secondary education system; addressing the health system challenges of an aging population; continuing to rebuild our physical infrastructure; and funding a Canadian response to climate change.

Finally, although this may be too much for even the most incurable optimist, the government could set aside its ideology, suspend its planned corporate tax cuts and reconsider its non-policy on early childhood education funding.

The corporate tax cuts don't make sense. They put Canada out front in a race to the bottom in North America that we shouldn't be in. They make no contribution to the recovery of businesses hurt by the recession – and not making any profit anyway – while delivering savings to industries that don't need the help.

A budget that took on these challenges would be a refreshing change for Canada. It's time for the Harper bubble to burst.

Hugh Mackenzie is a CCPA Research Associate.