Thursday, January 29, 2009

Domestic Budget with Flexibility to Respond to International Events

(John Curtis — Embassy Magazine)

The federal budget presented yesterday by Finance Minister Jim Flaherty attempts to balance the short-term need to help Canadian families, regions, and sectors and the longer-term objective of taking advantage of the crisis to lay the foundation for a more competitive, greener economy in the future.

The budget is set in the context of, as it states, a “synchronized” global recession, the effects of which have come to Canada later than other countries and had a “shallower” impact.
But the uncertainty of the current situation is made clear, and the possibility of further contingency measures is hinted at if developments abroad—or in Canada—get worse.

The finance minister, therefore, has chosen in this highly economistic document to do just enough—belatedly, according to some, too much, according to others—to meet his government’s political requirements as well as Canada’s commitments made at November’s G-20 meeting in Washington. At that time, all assembled countries agreed to stimulate, wherever circumstances permitted, their economies by two per cent of their respective GDPs.

The budget makes it clear that the economic situation in Canada and abroad has deteriorated sharply since the government’s ill-received November Economic and Financial Statement. It accepts the judgments of international agencies and private sector economists’ that Canada has seen declining economic activity since the fourth quarter of 2008, and builds much of its spending and tax proposals on estimates of economic activity that are even lower than currently accepted.

It intimates, but doesn’t highlight, the fact that the U.S., Canada’s neighbour and dominant economic and trading partner, is in the early stages of a major economic meltdown where household, business, state, national and international debts will have to be reduced over the next two to three years. It acknowledges the continuing negative impact this will have on Canada and every other economy in the world, including the member states of the EU, China, India and other emerging as well as less- and least-developed countries. Read more here.