Tag Archives: Federal budget

How hawks and doves circle

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The move was as much symbolic as practical. How better to prove to Canadians that the federal, Tory regime is on the right, fiscally hawkish course than by selling its last, remaining stock in the giant auto company it bailed out when it was on a far more fiscally dovish flight path?

With that, Finance Minister Joe Oliver proclaimed the end of an era this week, authorizing his government’s divestiture of 73 million common shares in General Motors to Goldman, Sachs & Co. “We have eliminated a market exposure for Canadian taxpayers and returned GM to private-sector ownership, having supported its continued contribution to the Canadian economy,” he declared in a statement.

What a difference eight years makes to the leadership sensibilities of the governing classes. We may recall the bad, old days of global, financial collapse in 2008 and the Great Recession that followed, when the still tender-footed Harper majority was, like the normally counterpoised Obama administration, committed to economic stimulus not austerity, spending rather than restraint.

At that time, allowing the big automakers, GM and Chrysler, to fail was unthinkable on either side of the 49th parallel. Indeed, less than a year after Parliament Hill and Queen’s Park banded together to drop a combined $14 billion on the crippled manufacturers, then-federal Industry Minister Tony Clement declared, “This was not a decision we took lightly. But, at the end of the day, we knew that if we did not participate, what was at risk was not just the (direct) jobs but all the other parts manufacturers and other industries that go into having an auto sector in this country, and that has been estimated to be over 400,000 jobs that were at risk.”

He was probably, if frustratingly, correct. Now, it appears, the nation’s economy has recovered well enough to justify liquidating the government’s auto assets (reportedly worth about $3.5 billion) just in time to balance the budget later this month, roughly half-a-year before the next general election.

All of which may only prove that hawks and doves really can occupy the same airspace, depending on which way the political wind blows.

Still, the larger issue that concerns many economists in this country is whether a hell-bent rush to book a balance in the public accounts, come what may, is rational (or even possible) in the medium-to-longterm. The GM cash-out may not be, technically, a windfall, but something about it feels awfully like found money (“Don’t worry, Mabel, we’re saved from perdition; I just found Uncle Harry’s collection of gold nuggets buried in a coffee can down by the river).

Meanwhile, storm clouds are once again gathering in the broader economy – which is expected to grow only fractionally over the next quarter – a point that Bank of Canada Governor Stephen Poloz made clear in an interview with The Financial Times last week. “When the oil shock came, it was clear we would no longer be able to close the output gap by 2016, but by 2017,” he was reported to have said.

“Since we had some firepower, we took some insurance and cut rates. . .The first quarter of 2015 will look atrocious, because the oil shock is a big deal for us. . .

In theory lower oil prices mean (putting) more money in consumers’ pockets, but. . .if an oil company cancels (an investment) project, laying off a worker, that guy will not have the money to buy a new pickup truck.”

A balanced budget is a desirable objective for any lawmaker, but not when there are girders in the economy to support – and certainly not when all such book entries are manufactured for more symbolic than practical reasons.

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Follow the bouncing budgetary balls

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As the Government of Canada coordinates the release of its signature piece of election-year propaganda, the federal budget, provincial finance ministers are scrambling to contain the public relations disasters that are their own annual spending plans.

Rarely in the nation’s history have the fiscal conditions of the regional partners in Confederation contrasted so sharply with that of the national one – a circumstance that does little to inform Canadians about the true state of the union they occupy.

Yesterday, New Brunswick’s fine, young Liberal government brought down its first budget since assuming office last fall, becoming the latest in a string of provinces (Quebec, Saskatchewan, Alberta) to swallow its bitter medicine in one, quick gulp.

Oh to be in British Columbia in the springtime. That province is doing so well these days, it managed to double its forecast budget surplus of more than $400 million in fiscal 2014-15 to nearly a billion bucks ($879 million).

The same cannot be said for Alberta, which has just posted a deficit of $5 billion, despite having raised $1.5 billion in new taxes. According to a CBC report, “The reaction . . .is mixed: relieved that there was no increase in the corporate tax rate, and concern that Albertans will have less disposable income in a time when the economy is weak.”

In Quebec, the preoccupation is with runaway debt. That province’s 2015-16, $100-billion budget is freckled with nips and tucks in almost every department, but especially in the big-ticket portfolios of health care, education and social services. “We are making reforms, we are doing things differently,” the province’s Treasury Board chairman Martin Coiteux told the CBC. “It’s not that we are reducing services. We are looking at ways to live within a budget envelope which is relatively smaller than what we would like, but this is this the required step to rebuild our room to manoeuvre.”

  And, according to a report by The Canadian Press last month, “The Saskatchewan government has brought forward a budget that attempts to put the brakes on spending increases and peels back tax incentives for middle-class families, graduates and the potash industry. . .A global oil downturn is putting the squeeze on the province’s bottom line, but Finance Minister Ken Krawetz noted that there are no new personal income taxes or fee increases.”

Now, stroll down the banks of the Rideau Canal, Blackberry on full news-alert mode from the nation’s capital, and you’ll observe that the fiscal backstory appears altogether different. Canadians aren’t mired in debt. Nay, it’s quite the contrary. Our supremely responsible, circumspect and economically gifted federal government is preparing to bring down a (nearly) balanced budget with about $4.5 billion in goodies for individual voters.

Indeed, from places like New Brunswick, Alberta and Saskatchewan, where the stern warnings of penurious governments bear almost no resemblance to the rosy messaging wafting through Ottawa’s halls of privilege and power, following the bouncing ball from provincial script to federal talking point can give a guy whiplash.

Still, there’s some reason to think that many of the differences between national and provincial bean-counters are illusory. After all, only one pot of sovereign money is  spilled or filled in this country, as circumstances require. What one branch of government giveth, another taketh away just as keenly. The Bank of Montreal has already noted as much in a recent report. As BMO economist Robert Kavcic told the CBC “most of what Ottawa will be returning to one taxpayer’s pocket, the provinces will take out of the other.”

So much, then, for a vote-friendly federal budget.

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