The Federal Budget

The Quebec election has kept me from analysing the recent federal budget. In the coming days I intend to do that in some depth. I note that neither the Liberals or the NDP supported it. This is not surprising since they are the opposition and its their job to oppose particularly when they know that the BQ's support for the document guaranteed it would not be a vote that would provoke an election.

There are a number of interesting technical details in the budget worth noting. Among them is the fact that the budgetary surplus all going toward debt repayment is still enormous. The government like the governments before them is still comitted to the foolish policy of building surpluses to pay down the debt now approaching only 29 % of the GDP one of the lowest ratios in the G7, if not the lowest, while at the same time overtaxing the middle class and starving essential services like health care, education , child care and infrastructure of funds.
But one positive feature of the budget is the government's announcement that in the future, savings on interest payments due to the declining size of the federal debt outstanding will be returned to tax payers in the form of tax reductions. For supply side Conservatives this is a smart and useful innovation.Even better would be to target the bulk of any unbudgeted surpluses to fund necessary programs and infrastructure. The government's   earlier announcement that in future they would calculate the ratio of debt to net worth was also a very useful innovation that should help educate the public about the true as opposed to imaginary burden of the debt.

Overall then,   at first glance there are some interesting features in the budget, for example the tax deduction for handicapped family members , the transfers under equalization but the Government's fiscal orthodoxy still gets in the way of appropriate budgeting to meet necessary needs. As I have said and written many times before, the debt to GDP ratio is now well in hand at a very comfortable level and will steadily fall further as the economy grows. Surplus budgets are not necessary so long as unemployment remains as high as it does in central and eastern Canada and inflation remains as low as it does. Provinces like Alberta with a 7 billion dollar surplus and B.C with a 2.9 billion dollar surplus are joined with 6 other provinces with surpluses that total 532 million dollars . Only tiny PEI with a 12.5 million dollar deficit and Newfoundland with 39.8 million are in   deficit. The net provincial budget balance is 10.4 billion dollars. Added to the federal surplus Canada is running an overall contractionary budget that is acting along with excessive interest rates as a moderate drag on the economy contributing to higher unemployment than necessary.More on this later.