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POSTED AT 8:06 PM EST    Monday, December 10
Business: Economists weigh in on Martin plan
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Globe and Mail Update

The reaction of Canadian economists was mixed Monday as Finance Minister Paul Martin unveiled his first full budget in almost two years.

As expected, Mr. Martin announced increased measures for security as well as more spending to prop up the country's sputtering economy.

Economists were quick to point out the strengths and the shortcomings of Monday's budget.

"The government has not set aside its traditional $3-billion contingency reserve, not only for the current fiscal year but for the fiscal years going ahead," Marc Lévesque, senior economist with Toronto-Dominion Bank, told

The government has earmarked a zero deficit for fiscal year 2002-03, he added, using up the bulk of its surplus to raise spending.

"They are planning for a zero deficit but there is a little bit of a economic twisting here. They have basically done away with part of the cushion they usually have," Mr. Lévesque said.

Nancy Hughes Anthony, president of the Canadian Chamber of Commerce, said her organization applauded the budget because "first of all, it avoids a deficit and secondly, it does address security and border management issues.

"They are also honouring their commitment for the tax reduction plan which is extremely important," she said.

As expected, the centrepiece of the document was $7.7-billion over five years dedicated to air security, the country's military and initiatives designed create a more secure and efficient border in the wake of September's devastating terrorist attacks.

Part of the new security initiatives are being financed by what economists are saying is essentially a new tax on airline travel.

"You can call it a user fee if you like. Nonetheless, it amounts to a tax," said Mr. Lévesque.

"That is a bit regrettable because one would have expected that they could have shuffled around spending priorities to find the money to do that."

Monday's budget committed $7.7-billion in security spending over five years, including $2.2-billion for air security; $1.6-billion for intelligence and policing; $1.2-billion to improve border security and efficiency; $1.2-billion for the Defence Department; and $1-billion for screening entrants to Canada.

Some economists gave the budget a clear thumbs up, congratulating the Liberals for not significantly increasing government spending.

"It is an achievement that even in a recession we've got a balanced budget," said Sherry Cooper, chief economist at BMO Nesbitt Burns.

"It means that even in a recession they made the decision to be very prudent and conservative in their stimulus and that is evident in this budget. In a recession, to have a balanced budget as opposed to a deficit, that's very conservative."

Mr. Martin spent wisely, said John Anania, assistant chief economist at RBC Financial Group.

"If you look at the numbers underlying the budget, we think the budget is very reasonable given the environment we are in."

Other economists criticized the amount of spending dedicated to social programs.

"I see an awful lot of spending in this budget...and we had hoped the government would exercise some discipline in spending at this particularly critical time," Ms. Anthony said.

Prior to the budget, economists said that Ottawa will be facing a deficit next year and the year after unless the federal government curtails spending or does some creative math by spending its reserves or changing its accounting systems.

Retailers were disappointed that the Minister failed to include any new tax- cutting measures to help Canadians weather the effects of the softening economy.

"This is exactly the time when Canadians should be able to look to their government for income support through tax reductions," said Peter Woolford of the Retail Council of Canada.

With a report from Reuters

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