This week media’s focus is Stephen Harper and Jim Flaherty as they fine tune the most anticipated Canadian budget to attempt saving the nation from ravages of a global recession, but also decide the fate of the Conservative government and political careers of both men.
According to what I have been following in the news the transformation of Harper and Flaherty from anti-spending hawks to purveyors of a massive deficit has been a harsh one.
The Harper government claims to have conducted the most comprehensive and inclusive budget consultations in Canadian history with 46 Muncipalities consulted and 5400 letters, email and submissions from groups and individuals. The list goes on but whether these measures will oil the rusty economy’s wheels is uncertain.
Private-sector markets have broken down “and the only player who can fill that gap is the government,” Flaherty said.
It seems that the Prime Minister is trying to prepare Canadian citizens for bad news. Harper’s office broke the budget secrecy in a pre-budget to reveal the planned deficit would reach $64 billion over two years.
Before Finance Minister Jim Flaherty gets to read the full budget, Conservative John Baird and his cabinet colleagues will have already unveiled billions of dollars in new spending programs, all part of an economic stimulus package to help Canada survive the global financial crisis.
The estimates of the costs and implications of the fight against the recession came amid a continuing flow of evidence for the need of economic stimulus — the latest a steep 1.6-per-cent broadly based drop in Canadian wholesale sales in November and an increase in unsold inventories to a seven-year high.
Harper, Flaherty, and other government officials have avoided referring to tax cuts and have only referred to tax “measures” that will be in the budget. I think the term is ambiguous as it could be a combination of tax credits, grants or other adjustments that may not exactly be a permanent tax cut.
The deficit for 2009-10 will be $34 billion and comes just two years after Ottawa was routinely posting surpluses of $10 billion or more. Canada hasn’t dropped so deeply into the red in one year since the 1994-95 budget. It gets slightly better for 2010-11, when the deficit forecast is for $30 billion.
The Bank of Canada, however, warned this week in a downwardly revised forecast that the economy would contract by 1.2 per cent this year. The warning came as the central bank cut its interest rate further to a 50-year low of one per cent.
Bank of Canada governor Mark Carney said, “the recovery projected by the bank is milder than from an average recession due to muted recoveries expected in other economies around the world.”
“We are comfortable with our forecast,” he told reporters at a news conference in Ottawa.
The latest outlook offered by the central bank marked a significant downgrade from the forecast it presented in October, when the bank projected growth of 0.6 per cent in 2009, and 3.4 per cent in 2010.
All these measures are to pull out the economy from a downward spiral.
But I poise this question: what if the Bank of Canada is wrong? Will it cost Harper and Flaherty their jobs or be their saving grace?