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Focus on deficit reduction comes at tremendous cost

Hey there, time traveller!
This article was published 11/2/2014 (1283 days ago), so information in it may no longer be current.

This country desperately needs a frank discussion about government finances and the future of the Canadian economy. Unfortunately, as evidenced Tuesday in Ottawa when a new federal budget was tabled, there is no threat of that discussion taking place any time soon.

As widely expected, Finance Minister Jim Flaherty delivered a budget with few new initiatives or impactful changes.

The real focus was continued austerity and a prediction the deficit, which reached record levels a few years ago, will be eliminated next year. Many observers believe it will disappear in the current fiscal year. Spending will actually go down this year, quite an accomplishment given the relentless march of inflation.

Eliminating the deficit is, however, a dubious accomplishment.

Unemployment remains perilously high and infrastructure continues to crumble. Many sectors of the economy have simply not rebounded to pre-recession levels. The gross majority of working Canadians are losing buying power to inflation.

Young Canadians have fewer opportunities to earn living wages and the cost of post-secondary education continues to rise, sparking concerns graduates will face crippling debt.

Most of these problems were not created by Flaherty or by Conservative fiscal policy in general. However, continued obsession with the deficit and austerity, to the exclusion of other needs, has made things worse.

Since grudgingly providing stimulus spending in 2009, the Tories have been focused on deficit reduction. That goal has come at a tremendous cost.

Austerity measures in the last four federal budgets have slowed the growth in Canada's economy. Again, government cutbacks are not the only culprit here but there is no doubt they have helped a bad situation last longer.

The real legacy of the return-to-surplus strategies employed by Flaherty will be seen in the next few years as cuts to transfer payments put most provinces in a bind. Federal Tories have suggested the provinces do not have the intestinal fortitude to get their own budgets under control. The fact is Flaherty is just passing on his misery to his provincial counterparts.

Kevin Page, the former parliamentary budget officer, reported last fall Ottawa was on target to be debt-free by 2044. However, the PBO estimated provinces and territories would ultimately see a combined public debt of more than 3.5 times GDP.

In an ideal world, Flaherty would co-ordinate with provinces and municipalities to bring all governments to surplus at the same time. Any cuts to federal spending or major tax cuts would be done with the whole of the economy and public finances taken into consideration.

Ultimately, this is the only way to ensure Canadians do not face higher municipal and provincial deficits and debt in the name of eliminating a federal deficit. Unfortunately, what we have is a federal government working diligently to fill one troublesome hole by digging several others.

It should be noted federal opposition parties have done virtually nothing to raise the level of debate about fiscal policy. In terms of quality of their analysis and commentary, the NDP and the Liberals have been as simplistic and intellectually dishonest as the governing Conservatives.

Their allegations were hollow and opportunistic, given the Tory deficit budgets were, for the most part, triggered by a combination of increased stimulus spending and lower revenues from a shrinking economy. The Tories can be criticized for a great many fiscal decisions, but they cannot be blamed for the size of the deficits accrued during the worst economic downturn since the Great Depression.

Right now, we are stuck in a political quagmire, where the governing Tories continue to pursue a primary fiscal goal that does not make the country more economically stable. And we have opposition politicians more interested in blaming the Tories for anything and everything, regardless of the absurdity of the argument.

In case you thought it couldn't get worse, consider this: Flaherty is already signalling a return to surplus will trigger a new array of tax cuts rather than a restoration of the money cut from transfers and other core government services.

Many economists theorized short-term austerity now would put the federal government in a good position later to deal with increased costs of programs such as health care. However, with the impact of austerity measures clearly evident now, lower taxation will mean even less money for health care, education, social services and infrastructure.

There is a theory circulating that Flaherty elected to table his budget in the middle of the first week of the Winter Olympics to discourage Canadians from paying too much attention to his government's fiscal plan.

Certainly, this week many Canadians are thinking more about skating and skiing than they are about deficits and transfer payments. Unfortunately, that means we're in for a rude awakening when Olympic medals are but a distant memory and our fiscal nightmares come to fruition.

Read more by Dan Lett.


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