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earlier discussion

The budget and the economy


Brace yourself: The federal budget to be delivered Jan. 27 will offer healthy doses of increased spending, higher deficits, and political expediency. In all, economists forecast that Ottawa's plan will total $20-billion to $30-billion, while pushing the deficit to $40-billion.

What does it mean for Canada?

Join Dale Orr, chief economist for Canada with IHS-Global Insight, today from 1-2 p.m. ET to ask your questions and read his analysis.

Mr. Orr has taken a close look at the options faced by the federal government, and assessed their potential impact on the nation's economy.

In his view, the stimulus plan can be expected to include a package of new program spending and tax cuts, accelerated small infrastructure projects this year and funding for new projects for both this year and next.

He also expects additional money for the Employment Insurance and training plans, as well as some tax reductions for individuals and small business.

But he also fears that the package will be too late to prevent a recession through mid-2009.

Is Ottawa too late to make a difference? Can, or should, the country's debt load increase so dramatically? How will budget 2009 affect Canada's economic and fiscal performance in the short and the longer term?

Mr. Orr has expertise in all areas of Canadian economic performance and policy. He has responsibility for Canadian forecasts and analyses, as well as other Canadian macro products for IHS-Global Insight.

Mr. Orr has served in economic leadership positions in private industry and the Canadian government. He holds a Ph.D. from Northwestern University and has taught at the University of British Columbia.

Join the Conversation today at 1 p.m. ET or get a jump on the queue by submitting your question here.

Editor's Note: editors will read and allow or reject each question/comment. Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Eric Atkins,

Hello, Dale Orr. Thank you for joining us today. Let's get right to the questions.

Bob Robert writes:

There are some quick start programs that can target certain sectors. Home renovations could be a quick win in start times, broadly based and perception. Increasing travel vacation coupons can be done quickly to promote summer tourism in Canada. Though small, these types of programs have worked before and are quick to ramp up. Keeping positive and seeing results are important at this time.

Dale Orr

Of the options you mention I would favor the home renovation. In choosing the most effective options for fiscal stimulus we do want to look at the longer term impacts on productivity and or our standard of living. Keeping positive is key - fears of recession can cause recession.

Clinton Orr from Palma Spain writes:

While Canada's proposed stimulus package and debt load seem relatively large in domestic terms, are they in fact enough to keep pace with the various and huge monetary and fiscal boosts which the U.S. and much of Europe and some of Asia have already launched?

Does Canada need to keep pace given that Canadian banks and the economy went into the crisis in comparatively better shape? Thanks

Dale Orr

You are correct that the stimulus package of Canada's upcoming budget will probably be smaller than that of many other countries, particularly the U.S.

I believe this is appropriate since Canada's economic forecast for this year and next is less weak than most other G8 countries, especially the U.S.

Our financial system and institutions are working more effectively and are stronger - and it is a bit more frustrating to try to stimulate the Canadian economy than some others since the leakage thru expenditures on imports is relatively high.

Mark Dip writes:

Mr. Orr, the suggestion of revamping Employment Insurance to make it more fair sounds great, but once done, it would still take another 36 months of payments for the money to be fully paid into consumer hands.

What about retroactive compensation to those who previously had their EI revoked under the old, unfair rules?

Those people are in equal distress. And a full payout could be immediate. For instance, with an unemployment rate four times the national average, the spouses of Canadian government employees serving overseas lose over $1-million per year from being forced to pay for EI overseas while being ineligible for benefits.

The way it goes is that spouses quit their jobs to accompany their partner, but are still forced to pay EI premiums overseas because CRA defines them as "factual residents" due to diplomatic status, but then they later get their EI social benefits revoked afterward because HRSDC says they are not "residents in Canada."

Is there any hope for rectifying old inequities or has the government we served written us off for good?

Dale Orr

I believe the changes in EI which will be part of the stimulus package should focus on making the level of employment higher than otherwise as opposed to compensating for income support and I believe this is what we will see in Budget 2009.

There are many workers who feel the EI system is unfair but I don't believe Budget 2009 is the appropriate time or place to seek this retribution.

I recommend and I expect in Budget 2009 the government will agree to run a deficit on EI over the next few years while unemployment is rising sharply and they will extend the "extended benefits" provisions (maybe not completely) to those regions of relatively low unemployment.

Margaret Nieboer, from Invermere, B.C., writes:

In all due respect to infrastructure spending, which is not necessarily as labour intensive as it once was, and retraining which is easy to say without looking at the logistics of it, what do you think is the solution to providing the most jobs in the short run?

Dale Orr

I understand the difficulties in getting infrastructure spending going quickly. Some of the reasons for delay should be respected (environmental, cost effectiveness).

As well, some required material and machines may be imported. However I still say accelerating small infrastructure projects holds the most promise for meeting the criteria that many economists set for stimulus options - of "timely, temporary, targeted and cost effective".

Claire writes:

With consumer confidence at all time lows, do you think tax cuts will really act as a stimulus, or will they just give people more money to hoard and hide under their mattresses??

Dale Orr

You have identified one of the weaknesses of personal income tax cuts as a form of fiscal stimulus.

When the U.S. sent out rebate checks last year much of the money was used to pay down debt, some was saved, some was spent on imported goods. I believe we would get a similar response from a tax cut in Budget 2009.

The risk of leakage to imports ( eg. our stimulus stimulates the U.S. economy instead of the Canadian economy) is stronger in Canada than in the U.S. Here almost 30% of consumer goods are imported. Lower income people are less likley to save than higher income, favoring tax cuts to lower income, rather than higher income people.

Whether they are more or less likley to pay down debt is debatable.

Eric Atkins,

Before we wrap things up, cast ahead for us, say, five years. What kind of shape will Canada be in as result of the added deficits and spending? What effect will this have on our prospects for future growth?

Dale Orr

When I completed an analysis of the economic and fiscal impacts of the anticipated stimulus package of Budget 2009 the first thing that struck me was how small the impacts were relative to all the other factors which can be expected to influence our economic and fiscal performance over the next several years.

The stimulus package will make the rate of economic growth higher for 2009 and 2010, but it is not expected to have any significant impacts on rates of economic growth after that. To the extent the stimulus package has focused on those options which can increase our productivity (infrastructure spending and training), it can have a small, long lasting impacts on economic growth.

The stimulus package will cause deficits to be significantly higher in 2009/10 and 2010/2011, making the level of debt after recovery (2013) higher than otherwise. Our debt burden (debt/nominal GDP) will probably be about 29% in 2013 instead of about 27% in the absence of a stimulus package. This is a small increase.

Recall the debt burden was 68% in 1996 and was about 30% last year. The stimulus package is expected to have a postive but small impact on our standard of living (real GDP/person) five years from now. What our economic and fiscal situation will be 5 years from now will depend most heavily on the performance of the U.S. economy, the global economy, initiatives and the performance of the Canadian private sector, energy prices and the exchange rate, as it always has.

Eric Atkins,

Thank you very much for this, Mr. Orr.

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