Analysts on Canada's budget: ‘Deficit paranoia is mind-bogglingly stupid’
Awaiting the budget
Canada’s new government is expected this week to unveil a stimulus budget with a deficit in the area of $30-billion.
That would count as bad news for some who crave balance. But for others, it may not be enough given the sluggish economy and unemployment that refuses to drop below 7 per cent.
Finance Minister Bill Morneau has already adjusted the outlook amid the oil shock, projecting a deficit of $18.4-billion in the 2016-17 fiscal year, not including the Liberal government’s promised spending initiative. When you add it all together, it’s looking like about $30-billion.
Besides infrastructure spending, Canadians can expect to see a new child benefit, changes to the jobless benefits program and a tweak to tax rules governing stock options.
Economists aren’t waving red flags over what they expect to see, and some observers would like even greater stimulus spending than Mr. Morneau will probably unveil.
They’re not suggesting throwing caution to the wind, but they do note that Canada is able to handle what’s expected.
Here’s what some observers say:
“Deficit paranoia is mind-bogglingly stupid. … Even a $50-billion deficit wouldn’t endanger the long-term outlook for the public finances, however. The bigger risk is that if fiscal policy doesn’t take up the slack, the economy could slip into a prolonged downturn. It would be a tragedy if, after watching Europe nearly destroy itself, Canada made the same mistake.” Paul Ashworth, Capital Economics
“Expect the outcome of the next budget on March 22 to show cumulative deficits over the next two years well above $50-billion (roughly 1.3 per cent of GDP) if the stimulus promised during the election campaign is implemented. That should hardly scare off foreign investors. Even with such deficits, the debt-to-GDP ratio should remain low relative to other OECD economies. In our view the government has the flexibility to provide fiscal stimulus to a Canadian economy that badly needs it.” Marc Pinsonneault, National Bank Financial
“Timely, targeted and temporary fiscal initiatives will provide a much-needed filip for the economy over the near term while potentially also improving long-term growth prospects. … In periods of weak growth, fiscal deficits have a role to play in lessening the damage to the economy. However, prudent fiscal management requires that initiatives provide clear benefit to growth in the short and long term. As well, the funds spent will need to eventually be repaid with the upcoming budget expected to provide a game plan as to how the federal government plans to return to fiscal balance.” Craig Wright and Laura Cooper, Royal Bank of Canada
“Our Canadian [economic growth] forecast incorporates our recommendation for federal fiscal stimulus of $20-billion, equivalent to 1 per cent of GDP, implemented during the second half of 2016 and the first half of 2017. This stimulus would be over and above the deficit resulting from weaker economic conditions. … The stimulus should be designed to: deliver a rapid economic impact; raise Canada’s economic capacity and thus our longer-term growth prospects; and, facilitate adjustments in the provinces most affected by weak commodity prices.” Aron Gampel, Bank of Nova Scotia
Analysts on Canada's budget: ‘Deficit paranoia is mind-bogglingly stupid’ - The Globe and Mail
Lorrie Goldstein Verified account @sunlorrie 
