This Budget Won’t Lead Canada Out of Recession: Ignatieff Should Defeat It

The Conservative budget, unveiled today in the House of Commons by Finance Minister Jim Flaherty, will not mitigate the effects of the deepening economic crisis for Canadians. Members of Parliament should defeat this budget.

Liberal leader Michael Ignatieff has a momentous decision to make. He will decide over the next few hours whether to support the budget and keep the Harper Conservatives in power or to defeat the budget and form a coalition government with the NDP. Either way, he will set the course for the country for the next two or three years.

When we cut through all the details in the budget, one central fact emerges. The amount of money the government plans to spend directly to stimulate the economy is far too low to save jobs and to mitigate the effects of the recession on Canadians and their communities.

Depending on how you interpret the budget, the government is committing itself to direct new spending of about $10 billion to $12 billion, on infrastructure and housing, over the next two years. Some of this depends on matching provincial and municipal funds, which may never materialize. Much of it depends on how much the government actually spends, a crucial matter since the Harper government has left most of the previous infrastructure money it promised in earlier budgets unspent. At most, the new direct spending by the government amounts to about $6 billion a year.

These numbers may sound big. In fact, they are puny. The Canadian Gross Domestic Product totals about $1.5 trillion a year. Six billion dollars a year amounts to just over one half of one per cent of our country’s GDP. Economic announcements and forecasts tell us that Canada is on track to lose hundreds of thousands of jobs over the next six months. The Conservative government’s planned spending would create, at most, about sixty thousand short-term jobs.

The various tax measures in the budget will be equally ineffectual in stimulating the economy.

Much of the $64 billion deficit the government projects over the next two years is accounted for by the tax cuts the Harper government made before the economic crisis took hold with a vengeance. Some of the rest is as a consequence of proposed new tax cuts. The across-the-board income tax cuts in the budget, which not only benefit lower income earners but all income earners, are undoubtedly welcome to many Canadians. But they will do little to stimulate the economy. A sizeable portion of the cuts will go to paying down existing debts or replenishing lost savings. A further and very large chunk will be spent on imported goods. Canadians import over $400 billion worth of goods a year, close to thirty per cent of our GDP. By way of contrast, Americans import goods equivalent to about fifteen per cent of their GDP. A huge portion of the tax cuts announced by Flaherty will leak out of Canada in the form of additional imports. They may stimulate the Chinese, Japanese and American economies, but they will do precious little to stimulate ours.

The best and most effective way to stimulate our economy to counter the descent into deflation and further job losses is through direct government spending. That spending can begin within a few weeks on infrastructure projects with a price tag of billions of dollars. Beyond that, there should be spending on longer-term projects, to improve public transit, to build high-speed rail systems between Canadian cities and to refit housing for greater energy efficiency. The need to fight the recession should be tied to the opportunity to rebuild our cities, design and build cars, trains, and planes for the 21st century, and to transform our forest products industry to make it sustainable and productive for the long-term. In short, we need an economic plan that is green and that is devoted to increasing Canadian productivity.

When it comes to direct government spending, size matters. Anything less that $50 billion a year in direct spending by Ottawa this year and again next year is completely inadequate. Fifty billion dollars a year or three per cent of our GDP would create about half a million jobs, perhaps six hundred thousand, depending on the capital intensity of the projects undertaken. Because the federal government has paid down a considerable amount of the national debt over the past decade and has dramatically reduced the national debt as a proportion of our GDP, we can afford this level of spending. Indeed, we can afford it much more than the United States can afford the proportionally higher level of spending the Obama administration is planning.

Michael Ignatieff has a crucial choice to make. He will take the country down one road or down another. No compromise is possible. If he chooses to support the budget and keep the Conservatives in power, the Flaherty budget will become the Ignatieff budget.

While such a choice may make some people happy in the short-term, Ignatieff needs to keep in mind that the economic crisis is the worst faced by the nation since the 1930s. Its rapacious, destructive course is continuing. As the layoffs and the shutdowns proliferate, the anger at Ottawa for doing next to nothing will rise.

Ignatieff should think about the millions of Canadians who need serious economic leadership now, rather than about the cynical media corps in Ottawa who have no idea what is going on in the country.