Federal budget plans for recovery

The past two weeks of the last session of parliament have been dominated by discussion related to the federal government’s 2010 budget. This budget is characterized by its wrap up of stimulus spending under Canada’s Economic Action Plan and is seen by many as a course of future fiscal restraint to deal with the federal deficit.

Budget context
The solution to the global economic crisis in Canada was Canada’s Economic Action Plan, a two-year package of tax relief and economic stimulus designed to help Canada through the recession.

“The government has taken the approach of restrained growth; an expected response given the nature of the massive stimulus spending that has occurred during an unprecedented economic downturn,” said Nick Gibson, president of the WLU Young Liberals.

Conservatives applauded the recent to commitment to spending restraint as they viewed it to be a hallmark of responsible fiscal governance.

“The fact that the federal government is looking into spending in the public sector and freezing spending there as well as freezing MPs’ salaries sets a good example for prudent savings from the top down,” said Chloe Arbutina, president of the Laurier Campus Conservatives.

While the Liberals agree that restraint is necessary to a degree, they believe the government should be wary of a fragile economy.

“Our hope was that the budget would have more of a focus on targeted policies to stimulate the creation of jobs, as this of course is the only way to get the economic fundamentals strong again and will also aid in fighting the deficit,” explained Gibson.

The Canadian Taxpayer’s Federation, an advocacy group dedicated to “lower taxes, less waste and accountable government,” also question the effectiveness of economic stimulus to help Canada emerge from the recession.

“The government does not have the knowledge necessary to adequately spend to stimulate the economy. Not only [is there] no expert consensus as to what projects are necessary and where, but by the time projects are underway, recovery is in the works,” explained Derek Fildebrandt, the national research director of the Canadian Taxpayer’s Federation.

Federal deficit
The combination of falling revenues and increased spending due to Canada’s Economic Action Plan has left the federal government in deficit.

In 2010, this deficit is projected to fall to $49 billion from $56 billion, and is expected to be reduced to $1.8 billion by 2015.

In the short term, this deficit is structural, as rebounding revenues are not enough to close the deficit due to spending increases.

The 2010 budget projects $17.5 billion in savings over five years by slowing planned spending in areas such as defence. Even with a timeline set to remove the deficit, it has not satisfied all Conservatives.

“I wish that the federal government would spend more time handling issues of the deficit, etc., rather than focusing so much on symbolic measures such as making the national anthem gender-neutral,” said Arbutina in reference to the government’s pledge to review the lyrics of the national anthem in the Speech from the Throne.

Opposition parties and other critics claim that much of the current deficit could have been avoided, noting that the 2006 GST reduction was reckless and a drain in revenue.

“We question the competency of the government as well with its spending before the recession; if you are going to spend, you have to be able to pay for it. Massive tax cuts and spending increases are a recipe for disaster,” said Gibson.

Critics have also questioned the legitimacy of the government’s economic forecasts and deficit predictions. In the last budget, the federal deficit was pegged at $33.4 billion for the 2009 year.

This was deemed far too optimistic by the Parliamentary Budget Office, which is tasked to review government forecasts.

The final deficit ended up being $56 billion, causing embarrassment to the government.

“Even in the fifth year of the plan there is a deficit under pristine economic conditions,” remarked Fildebrandt. “Normally, as children we are told to plan for the worst. This is planning for the absolute best. Even with a so called restraint in spending in the future we have no details of how that will be accomplished.”

Effect on students
Conservatives point to an important investment to ease youth unemployment, which has spiked in the midst of the recession. Arbutina noted that “the one-year $30 million increase for the Career Focus program that helps support the hiring of university and college graduates is something that our graduates can look forward to to help ease youth unemployment.”

Liberals were pleased that transfers to the provinces were not restricted, which could affect areas such as post-secondary education.

However, they were critical of the lack of a plan to get out of deficit.

“We believe that the government has an obligation to present a credible plan to deal with the deficit [so] that our generation is not saddled with the costs for policies that we were not the beneficiaries of,” said Gibson.

Fildebrant echoed Gibson’s concerns that our generation will shoulder the burden of spending at the present.

“Right now, each taxpayer shoulders over $15,000 in federal debt alone….There will be a certainty of large tax hikes on our generation in the future unless we fundamentally restructure the role of government in society.”

With the deficit projected to exist beyond 2015, there is no doubt that this debate will continue to rage on into the foreseeable future.

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