Federal budget Inadequate step in right direction

Jan. 29, 12:24 am. 2009

The budget of the Harper Canadian minority government  
has been tabled in   parliament. It does at least
least move in the right direction by building in two successive stimulative deficits for the coming fiscal years
The budget of the minority Harper Government contains a stimulative package worth 22.7 billion in 2009 and 17.2 billion in 2010. The stimulus is split between infrastructure investments 6.2 billion in 09 and 5.6 billion in 2010, aid to housing construction and renovation 5.4 billion in 09 and 2.4 billion in 2010 support for business 5.3 billion in 09 and 2.3 in 2010; and general income support 5.8 b in 2009 and 6.9 b in 2010.
The problem is the stimulus is much too small considering the severity of the downturn.(Jan.30, 10:10 am the latest release of   information from Stats Canada shows that the economy shrank by 0.7 % in November. This suggests a much worse slump than the budget anticipates. Once again the Dept of Finance economists and those at the Bank of Canada have underestimated the severity of the downturn.The downturn will be greater than 1.2 % and therefore the unemployment rate much higher than 7.7 % in a year's time.)

In addition the budget is way too optimistic in predicting that the unemployment rate will only rise to 7.7 % by 2010.In previous recessions in 1991-2 and 1981-83 unemployment rose by between 3 and 4 percentage points when the GDP fell by less than 2.0 % points.The IMF is predicting that Canadian GDP will shrink by about 1.2 % this time (I think it might well shrink by more given the severity of the market crash and the knock on effects from the US recession)and therefore it is quite likely that unemployment will approach 10.5 % once again. In regions like Québec and the Atlantic provinces the rates will be higher.Therefore the projected stimuluses are too small. At the very minimum something of the order of 50 billion a year in two consecutive years is more appropriate for the circumstances.In addition the changes to Employment insurance are inadequate to ensure a reduction in hardship since it will still exclude many unemployed Canadians.The other problem is that there are lots of strings attached to qualifying for infrastructure funding so it may turn out that the money is not spent in the right places where it may be more urgently needed but because the local municipality lacks the qualifying participating funds it cannot qualify.

The Liberal party's caucus decision to reluctantly support the budget may turn out to be a risky gambit that may backfire in terms of Canadian public opinon once the full weight of the recession has struck home in the coming months.

Hopefully once and for all, the out of date foolish fiscal conservatives will be shown to be the discredited voices from the past by developments in the coming year. They still have far too much influence in Canada.This budget underspends on stimulus because they still have far too much influence in both the Government and on the opposition benches.If the recession is a steep one do not blame it on the failure of Keynesian stimulus. For stimulus to work it must be large enough in the first place.The stimulus in this budget is simply not large enough to do the job that is required.