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Principles for economic revival

From Saturday's Globe and Mail

It is six weeks since Finance Minister Jim Flaherty presented a fiscal update predicting a small surplus each year over the next five years, with the qualification that the volatile economic situation meant “a deficit cannot be ruled out.” After that, the ugly truth of the recession became plain to all, including the Conservative government. Fanciful assertions about Canada's fiscal position will no longer suffice. It is critical that in its budget-making the government forgo ideological gamesmanship and posturing to act in the interest of all Canadians to arrest the decline of the economy. Properly conceived, it cannot be a conservative budget, but to quote Sir Geoffrey Howe, the British Chancellor of the Exchequer in 1979, it can be an “opportunity budget.” It can lay the foundation for future prosperity.

The government is confronting difficult choices, and the political pressures for quick fixes are real. Canadians are suffering. They are seeing their jobs threatened and their savings eroded. Few are willing to accept the view of some economists that 2009 is already lost to them. But the truth is that the quickest fixes are also the least likely to produce any sustainable benefits, in terms of Canadian competitiveness, productivity and for that matter, jobs. Just as the financial crisis and recession were not a simple failure, but a cumulative public-policy failure abetted by private greed and recklessness, so the solution to it will not be simple or easy. There are, however, some first principles the government should apply to its formidable task of preparing the most important budget in at least 15 years.

* The budget should do no harm. It should not include measures that waste tax money, like the $145-billion stimulus package introduced last year by U.S. President George W. Bush, a public-policy failure that helped empty the treasury yet is estimated to have resulted in only 10 cents of every rebate dollar being spent on domestic purchases. And while the fiscal update's fictional surpluses will of necessity be replaced with substantial deficits, the budget should avoid any measures that would introduce a structural budget deficit.

* The budget should put people first. There is a pressing need to reform Employment Insurance, a system that perpetuates regional inequities among the unemployed. The EI system should be ramped up for more retraining. Infrastructure spending must focus on projects like public transportation, passenger rail upgrades and ports, so as to aid the mobility of people and goods. Tax changes should make use of the machinery of existing programs to benefit lower-income Canadians – getting money into the pockets of those who need it most, and who most need to spend.

*The budget should seek neutrality by avoiding special handouts, both with respect to industries and provinces. Special interests are lobbying for government help, excited by the opportunity of vast public expenditure, but a fundamental lesson of Sir Geoffrey should not be lost even during this time of massive public spending, “it is people and not governments who create prosperity.” Rather than the government identifying prospective beneficiaries, the budget should provide a level playing field.

* The budget must include a plan for the end of deficits and a return to surplus, by setting deadlines on many of its stimulative programs.

* The budget's projects should pursue long-term goals, supplying genuine public goods, not just spending vehicles to give the economy a boost or a jolt.

* Above all, the budget's policies should enhance productivity growth, the key to economic well-being.

Monday: Spending priorities.

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