Winnipeg Free Press - PRINT EDITION

Bailout cash is barely flowing

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OTTAWA -- You may not believe this, but it's difficult to begin spending money when you're in the federal government.

I say this based on 20 years' experience in the federal public service, much of it in administration. Spenders face a plethora of barriers including lack of co-operation from other federal departments; long federal, provincial and, in some cases, municipal negotiations; fat binders full of rules about spending designed to prevent people from ripping off taxpayers and some federal ministers who have trouble deciding what side of the political bread they want to butter.

There's another feature to government spending: Once it gets going, it's extremely difficult to stop because special interest groups get to count on their annual serving of pork.

Like a roller-coaster, government spending creeps to the top of a hump, then roars down the other side billy-be-damned.

Those of you still with me will wonder: Why are we getting all this arcane information about government spending? Because federal politicians have decided it's the most important issue they can discuss.

The argument started when the opposition decided Ottawa was not spending stimulus funds fast enough. It's important to spend stimulus funds quickly because they are supposed to help employ people laid off by private companies.

Thus, we got opposition demands for "shovel-ready" projects. Liberal Leader Michael Ignatieff made the strident demand that Ottawa should get stimulus funds "flowing out the door." The government said in its January budget it would get money moving in three months. But government spending doesn't work that way (please see opening paragraphs).

The recession started in the fall of 2008. Statistics Canada says federal spending in the first three months of 2009 actually slowed below the historical average. After their conference in Vancouver this month, many of Canada's mayors complained they would lose the 2009 construction season because of the slow release of federal funds.

Prime Minister Stephen Harper says his stimulus program is on track because 80 per cent of the funds have been committed. His party has even taken out full-page newspaper ads trumpeting this statement.

But committing money in the federal service is simply a promise. It means money for the project is allocated to a departmental budget, but it doesn't mean funds are flowing. (Please see opening paragraph.)

At this point, I must admit I'm stymied. Why is a party that has always criticized big government spending taking out ads to say that it is doing just that? More than that, why is a Conservative government running a $50-billion deficit and rushing to spend stimulus money when a lot of reports say that the Canadian economy is turning the corner?

Despite the fact little stimulus money has been spent, the Bank of Canada and the Bank of Nova Scotia said this month Canada's economy is poised for a turnaround that could come sooner and be stronger than many had thought possible. "The global economy is transitioning from recession to recovery," says the Scotiabank report. Robert Zoellick, head of the World Bank, says governments in Canada and the United States should now focus on how to control their deficits and get credit flowing normally.

Many economists fear government spending will take off (see opening paragraphs) just when we don't need it. Big deficits can trigger inflation and higher interest rates. To get control of its finances, Ottawa may have to cut programs, even cherished ones like health care, and/or raise taxes. We know from Paul Martin's years as finance minister how difficult it is for a government to balance its budget. And we also know our economy runs smoothly when government finances are in good shape.

A suggestion: Why doesn't Ottawa cut some of the promised programs that help make up its $50-billion deficit? David Dodge, the former governor of the Bank of Canada, has shown how this could be done. Some government spending is useful, he says, because it helps make us more productive. An excellent example: Winnipeg's inland port that will make road, rail and air transportation more efficient.

But scrap those programs that Dodge describes in his elegant, economist language, as "pissing money down a rat hole."

So far, not one political leader has suggested filling in rat holes. Harper is still in spending mode. Ignatieff says one week Harper is spending too little, the next that he is spending too much.

Let's hope our economy, which has shown surprising strength, can get along without their help.

Tom Ford is managing editor of The Issues Network.

Republished from the Winnipeg Free Press print edition June 22, 2009 A14

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