Tuesday, February 26, 2008

Flaherty's got high hopes

If it's a mile wide and an inch deep, as Stéphane Dion insists, why won't he pull the plug and let the people decide on Budget 2008?

If Canada manages to weather the coming recession it'll because of the tough choices made during the mid 1990s, not what Stephen Harper and James Flaherty have done the last two years. There are some good points in the budget including a Canadian version of the Roth IRA as well as more money for students, seniors and some targeted industries.

Even so, the fact that Flaherty is predicting surpluses of only $2.3 billion next year and $1.3 billion the year after that, when we've been averaging about $10 billion per year the last decade, is very disappointing. Using some calculations, we might even run into a deficit which would definitely not be good. One can only hope 2.3 big ones is a worst case scenario.

Nothing about a carbon tax. Nothing about funding for green industries. The only other good positive new thing I see is that unemployment insurance will now be a locked box and not a piggy bank. I would go one step further and have it run by an investment board like the one for the CPP or the Caisse de dépôt for the RRQ. Prudent leveraging, as happens with government pensions on our behalf, would mean more cash in the trust fund. That would help drive down premiums for both employees and employers to a truly break-even level. More money for employees, more employment opportunities on the employer side.

I give this one D+. Thumbs almost all the way down. Don't be surprised if Moody's or Standard and Poors downgrades our debt in the next few months. A downgrade of even one letter grade sub -- a plus to a neutral or neutral to minus -- would mean an average interest rate increase across the board of about a half percent -- which will put a lot of families over the edge. It would also increase interest service costs on the federal debt an addition $800 million to $1 billion per year. The vicious cycle we've worked so hard to eliminate would begin anew.

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1 comment:

Anonymous said...


Very good point. I was just pointing out the same thing to someone just now. It is very troubling that threat of economic slow down has not started yet and we could potentially be in a deficit already.