Tuesday, July 07, 2009

Structural deficit, or how Harper and Flaherty squandered the sacrifices of the 1990s

Jim Flaherty: Worst finance minister, ever?

OK, a harsh statement to be sure. But I’m really starting to wonder about Jim Flaherty and Stephen “I’m an economist” Harper, and the evidence is adding-up.

Here’s just a few of the headlines the latest report from Parliamentary Budget Officer Kevin Page is generating:

Harper got it all wrong, budget watchdog says
Deficit still looming in 2014, financial watchdog says
Federal deficits to total $156 billion, job losses to mount: budget officer
Raise taxes or cut spending to end deficit: Report

It’s a report that, once again, showcases the utter incompetence of Flaherty and of this government when it comes to budgeting, fiscal forecasting and economic management, and drops one major bombshell: we are now in a structural deficit.

Why is that significant? Everyone (well, nearly) agrees that, in this downturn, a deficit is necessary to help the economy through one-time stimulus spending. This temporary spending will end with the recession, so that, along with economic growth as the economy recovers, we’ll return to surplus in short order without substantial cuts to core services.

A structural deficit, however, is one that is deeper than just short-term stimulus funding. A structural deficit cannot be overcome by the end of stimulus programs and economic growth alone. A structural deficit cannot only be tamed by either program cuts, tax increases, or some combination thereof. And that’s where we now are, thanks to the economic mismanagement of Harper and Flaherty:

In his latest fiscal projections, to be officially released Wednesday but parts of which were obtained by Canwest News Service, budget officer Kevin Page says the deficit will be nearly $156 billion over the next five years, much deeper than the $103.2 billion cumulative deficit that Finance Minister Jim Flaherty's department has predicted.
According to Liberal finance critic John McCallum, Page is forecasting a structural deficit of $17 billion, which means that even with economic growth, even with the end of stimulus, we’ll still be $17 billion in the hole.

It’s not just on the deficit that Page is calling-out Flaherty’s incompetence. It’s also on jobs:
According to sources, the budget officer predicts between 190,000 and 270,000 fewer Canadian jobs this year than estimated in the budget.

For next year, the discrepancy rises to between 200,000 and 500,000 fewer jobs, and even in the years 2011-2014 _ when the recession is expected to be a painful memory _ there are expected to be between 100,000 and 380,000 fewer Canadian jobs each year than the government assumes.
I really have to question if anyone, even Jim Flaherty and Stephen “Want to see my economics degree” Harper can really be this incompetent in their forecasting, of if they really do know better and have just been misleading Canadians. I think it’s some combination of the two.

Look at the track-record. During the last election campaign, the Conservatives repeatedly said if there was going to be a downturn, it’d have happened already. The only way we’ll go into deficit, they said, is if you elect the Liberals. They released a fiscal update in November that ignored the fiscal reality to instead play politics, and laughably insisted there’d be no deficit. When they released their budget in January their overly rosy revenue projections were panned by the experts, until months later Flaherty finally admitted his $50 billion mistake. And as Page’s new report makes clear, that was only the tip of the iceberg that is this government’s incompetence.

One has to wonder though if structural deficits aren’t really part of this government’s plan. What better way to shrink the size of government no matter who is in power (their supposed ideological goal) than sharply choking-off its revenue? That’s what their GST cut was really about: choking off revenue to tie the hands of future governments around program spending.

Whether it was by design or by incompetence though, the structural deficit is now reality. So it’s time for the Harper Conservatives to start being honest with Canadians and tell us how they plan to get us out of this deficit.

Will they raise taxes? If so, which ones, and by how much? Or if, as they insist, they’d never raise taxes ever ever, what program spending will they cut? Where are they going to find at least $17 billion in savings? Which programs, exactly, do you plan to dump over the side?

Or, once again, do they plan to just skulk off into the night and leave the Liberals to clean-up their mess? Whether it’s the federal Conservatives of the early 1990s or the Mike Harris/Jim Flaherty Ontario Conservatives of the early 00s, that does seem to be their pattern.

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sjw said...

And yet just today the CPC receives their best bump in the polls since the spring. I mean, what gives? Are Canadians(Ontarians) really that obtuse?

Gauntlet said...

They may not be able to manage money, but they know how to manage media. Release the really bad news on the day Michael Jackson is being sainted.

Barcs said...

how do you get a structural deficit out of building town halls, upgrading roads or throwing festivals???

There is no maintenence upkeep... let alone 17 B upkeep on 60B debt. That is almost 1/3 structure in a deficit that is supposed to be one time money.

Don't know if it is the budget watchdogs numbers or the governments... but they don't seem to match. Makes me think that atleast the headline is fishy.

crf said...

Shrink the size of government?

Good grief! Go for it!

Harper has expanded the size of government. And he's stultified it with useless rules and vetting supposedly for accountability. In reality, he's trying to emulate a 1980's Eastern-European dictator level of control: all spending power concentrated in his PMO, with no decision too small to worry himself with.