Deficits and debt reduction were the main topics of conversation at a Canada 2020 sponsored event in Ottawa on Wednesday morning, featuring Chief Parliamentary Budget Officer Kevin Page and Jim Stanford, chief economist of the Canadian Auto Workers.
The meeting was billed as a pre-budget debate, but with most economists expecting an “underwhelming” or “do nothing” budget in March, the conversation shifted to other key economic subjects.
Page complained, not for the first time, about the Tory government’s lack of transparency, noting that it’s easy to find information on spending, but when it comes to cuts, “there’s no information.”
“This is a dangerous trend that needs to be corrected,” he added. “Please show us the plan.”
The panelists, which also included Globe & Mail correspondent Barrie McKenna and former deputy minister of finance Scott Clark, mostly turned their attention to the country’s deficit, tapped at $56 billion for 2009-10, with Page projecting a drop to $40 billion in 2010-11, and $30 billion in 2011-12.
“This reflects economic recovery, not austerity, so no kudos yet to the government in terms of managing the deficit down,” said Page.
Page noted that underlying this is a structural deficit of about $15 billion dollars, “which we say is a mismatch between spending and revenues. Flaherty says there is no structural deficit but they don’t produce numbers, they don’t produce analysis, which is not a good thing.”
Jim Stanford, the self-described “outlier” of today’s group, says a balanced budget isn’t necessarily the answer. “It’s wrong to think we have a deficit crisis. Our public deficits in Canada are small, both by historical and international standards. The deficits are clearly cyclical. Clearly, most of the deficit is going to disappear as we get people back to work and that should be our first priority.”
“We may actually wish to have continuing deficits because of the importance of stimulating economic growth,” Stanford added.
And he said that Canada ’s politicians have spent too much time patting themselves on the back after coming through a major recession relatively unscathed. “ Canada ’s economy is sluggish and slowing and we are now being passed by virtually every other country in the G7 in terms of growth.”
Stanford noted that the traditional drivers of growth in Canada , business, capital spending and exports, have been mostly on the sidelines. “The recovery has been dominated by consumer and government spending.”
“It’s ironic how many fingers have been pointed at Canadian consumers for running up their debt – they were doing exactly what the government hoped they’d do, which is respond to lower interest rates and increase their spending, and save our bacon, which indeed they did.”
However, consumers are maxed out right now, Stanford added, and governments are also reining in spending. “So if we cut government spending and ask consumers to do the same, as they’ve been lectured to do in the last few months, where’s the growth going to come from?”
As for the budget, “Just be clean,” said Page. “Just be honest about the structural deficit, give us your analysis on potential output, give us your quantification of risk. There’s a lot of uncertainty but we need to be honest with Canadians about what those risks are.”
“A meaningless budget is pretty disappointing,” said McKenna. “We’re going to hear a lot about corporate tax cuts, which were enshrined in previous budgets and will go ahead until next year. That’s not necessarily a bad thing, but why don’t we talk about other things.”
“If this government is really intent on getting a majority, you might hear some talk about future income tax cuts. I don’t think it’s a good idea at this point, but it’s definitely something to look for.”
Tongue in cheek, Scott Clark said he thought the budget had already been delivered: last October when Flaherty introduced his economic update.
“No-one seemed to notice it, but I thought that was the budget, let’s move on. Nothing much is going to happen. There may be a few little initiatives that have political importance to some people.”
However, Clark says the 2012 budget is critical, since the government of the day will have to begin to confront, if not make, decisions about what to do with respect to federal-provincial transfers for health-care and social spending.
That’s because the current agreement runs out in March 2013. “And the decision the government makes at that time, I think will influence fundamentally the size and role of the government going forward and the nature of federal-provincial relations and policy making.”