Tuesday, January 27, 2009

Budget 2009 Reaction: Do You Think It Is Easy To Make Priorities?

(updated at bottom)

We'll need to wait until Ignatieff speaks tomorrow to answer most of the questions I posed this morning, but the initial reaction seems to be one of reluctant acceptance. The economists on Don Newman's show both gave it a "B-", and all the provincial governments I've seen reaction from like it (more so than they liked Flaherty's 2007 budget, which ended the era of provincial bickering, anyways) . Hell, even Dwight Duncan was saying nice things about Jim Flaherty.

Personally, I'd give it a C. It's satisfactory. There's nothing in here that Liberals should have huge ideological problems with and I have a hard time seeing how a Michael Ignatieff budget would have been significantly different. But, despite that, it feels like a lot of recent Alberta budgets - a missed opportunity.

The electorate gave the political green light for wild deficit spending. This budget could therefore have launched a bold national project, modernized our economy, made our post-secondary institutions and research centres world class, or forged ahead with green initiatives. Instead, Jim Flaherty drove around town throwing twenties out his window to every group or industry that wanted them. As a stimulus budget, that's not an awful strategy, as bold projects often take time, but this budget could have been so much more.

I'm sympathetic to the political realities of the situation. But I can't help but think that the lack of focus stems from this government's refusal to recognize the problems we were facing until a month ago, and their refusal to accept that government can actually be a force of good in shaping the future of a country.


A few other random thoughts:

1. Ottawa will be moving ahead and creating a national securities regulator, which is long overdue.


2. On the flip side, Flaherty standing by his FU plan to scrap pay equity rules was completely unnecessary, and gives anyone who wants to oppose this budget an obvious target. [note: I'm trying to find online confirmation of this somewhere, although I'm seen it mentioned on a few pundit shows]


3. Also stupid, but more far more politically sell-able are 20 billion dollars in permanent tax cuts over 6 years. Tax cuts are great...when you can afford them. And you can't afford them, when you're staring down a 34 billion dollar deficit.

It will take time for the tax cuts to impact consumer behaviour and, when they do, most of it will just go into savings. So it won't do a thing to stimulate the economy. It's even a tough one to figure out politically, since it will receive scant attention amidst billions in spending promises.


4. I do like that the budget is short term in scope. 18B in stimulus spending this year, 15.5B next, then under 5B by 2011-2012. The key is obviously making sure the money gets spent quickly - given many of the projects involve three levels of government, and municipal governments are short on cash, that's going to be a challenge.

The plan is to balance the books by 2012, but knowing this government's track record on predicting surpluses, I wouldn't bet the house on it.


5. I can, however, renovate the house on it. Not a bad stimulus plan, but I would have liked to see it tied to environmentally-friendly renovations.


6. Andrew Coyne has his annual "this budget means the death of conservatism" post up and it's a doozy!


And when they decide to put an end to conservatism in Canada — as a philosophy, as a movement—they go out with a bang.


7. Man, all the hard right fiscal Conservatives are going to need some state-paid heart medication after reading this budget. Joining Andrew in the depths of despair is Gerry Nicholls:

The Conservative Party is conservative in name only. Makes me yearn for the days when we had relatively fiscally conservative leaders, like Jean Chretien.



UPDATE: The Liberals will reportedly move forward amendments to the budget. I really like this approach. It's a bit ballsier than just letting the budget through, and it lets Ignatieff claim victory for an issue like extending EI benefits in that same annoying way Jack Layton always took credit for every penny he shook Paul Martin down for in the 2005 budget.

And it's not like Harper can say no ("sorry we don't have the money for it. ha ha ha!"), without looking completely ridiculous in the process.


UPDATE2: Here are Iggy's demands, as per CTV. Fairly tame stuff.

1. The Tories make amendments that include improvements in employment insurance and infrastructure but without adding more to the deficit.

2. The Tories issue an update three times a year on the types of progress being made in terms of the deficit, infrastructure, creating jobs, and regional fairness.


UPDATE3: The Liberals who have allowed every Conservative confidence vote during the past two years to pass are now putting the Tories on "probation". This time we mean it!

Truth be told, the tactic isn't that bad, if only because it sets up convenient election triggers when these accountability reports come in. Of course, that's assuming this ammendment gets passed, and that's not guaranteed given that the jilted coalition brides will likely vote against it.

Labels:

38 Comments:

  • (3) "It will take time for the tax cuts to impact consumer behaviour and, when they do, most of it will just go into savings."
    Really? I know this has been a popular canard to chirp out, but really? Do you put your money into savings because you get a few dollars more from your employer? Seems to me you'll spend that pretty quick, maybe without even noticing you spent it - or ever even had the money.

    But add it all up, and it's into the billions of spending all across the country.

    It's almost like some Party Leaders who have said that now is not the time to help big business. Now is the time to help the Forestry companies, the Auto manufacturing companies and their suppliers. Time to give a break to every part of the Canadian economy, but certainly not to big business.

    By Blogger paul.obeda@, at 7:24 PM  

  • My husband who is a renovator hasn't had a decent (more than a day)job in four months. When he came home today I told him about the renovation tax break and I was sure he'd get some fence jobs at least. He wasn't home 10 minutes before he had a call to do, guess what...a fence and deck. Funnier still, it was from a CBC pundit who shall remain nameless. Heck, it hasn't even been voted on..ciao

    By Blogger Rositta, at 7:34 PM  

  • Good analysis CG. This is the first year I'll actually feel the impact of a tax cut, and I definitely plan to use the savings to pay down some of my student debt. I imagine a lot of those in my position will do the same. Rather than spend it on something insubstantial.

    By Anonymous eh, at 7:41 PM  

  • The electorate gave the political green light for wild deficit spending. This budget could therefore have launched a bold national project, modernized our economy, made our post-secondary institutions and research centres world class, or forged ahead with green initiatives. Instead, Jim Flaherty drove around town throwing twenties out his window to every group or industry that wanted them. As a stimulus budget, that's not an awful strategy, as bold projects often take time, but this budget could have been so much more.

    Tell me again why you are supporting this turkey?

    By Blogger Greg, at 7:50 PM  

  • PAy equity is on pg 211

    The existing complaint-based pay equity regime is a lengthy, costly and adversarial process that does not serve employees or employers well. Legislation to modernize the pay equity regime for federal public sector employees will be introduced. The new regime reflects the Government’s commitment to pay equity. It will ensure that the employer and bargaining agents are jointly responsible and accountable for negotiating salaries that are fair and equitable to all employees.

    By Blogger Andrew P., at 8:11 PM  

  • "This budget could therefore have launched a bold national project, modernized our economy, made our post-secondary institutions and research centres world class, or forged ahead with green initiatives."

    1. The budget included substantial increases in R&D funding (plus corporate tax cuts, part of which fund research).

    2. People are having fewer and fewer kids - the demands for post-secondary education are going to start going down, not up (we need better schools not more space). Moreover, that market does not create a lot of jobs.

    3. Green initiatives might be nice, but again, not the ideal way to get a short term stimulus. On the one hand you are complaining that the deficit might be permanent, and on the other, you are urging the government to build lasting institutions. There is a logical tension there - infrastructure is great because it gives a short burst. Creating a green economy is probably not (particularly for an oil-exporting economy).

    4. As to making tax cuts permanent - that is 20 billion over 6 years. One of the problems with cutting taxes in a recession is that people may presume that the government is just going to raise taxes again, once the recession is over. However, this budget emphasizes the permanence of the cuts, while they take place alongside a plan for tackling what is a fairly small deficit as a % of GDP (2.5%). By contrast, America's deficit may approach 10% of GDP.

    By Blogger hosertohoosier, at 8:32 PM  

  • Good analysis CG. This is the first year I'll actually feel the impact of a tax cut, and I definitely plan to use the savings to pay down some of my student debt. I imagine a lot of those in my position will do the same. Rather than spend it on something insubstantial.

    Well, lucky for you - this budget provided nothing for students except crowing about the "modernized" Canada Student Loan program. (And, no, more CGS awards does little more than provide grad students who already enjoyed some funding with... more funding.) I certainly don't feel reassured that my debts won't increase in real terms thanks to deflation.

    1. The budget included substantial increases in R&D funding (plus corporate tax cuts, part of which fund research).

    And these increases apply to what...?

    I can find little to no reference to substantial increases in funding to the granting agencies - spending money on fancy new buildings for universities is pointless if researchers lack grant money in the first place. This budget does not address CIHR funding in the slightest.

    By Blogger Josh, at 8:56 PM  

  • Greg - I don't think I am supporting any Conservative turkeys...

    paul; As for tax cuts, I think most economists would agree that they're not a great ways to stimulate the economy. That's not to say it's not a good policy, and that it won't help the long term economic health of the country (since they're permanent). But if, maybe, 25% of the tax cuts get funneled back into the economy, that's less that putting 100% of a spending project back into the economy.

    By Blogger calgarygrit, at 9:10 PM  

  • If interim leader Ignatieff feels he can't do better, he should vote for it. But please Ignatieff, do not try to say you could have done better in the next election, because I will not be buying it.

    If interim leader Ignatieff or any other Liberal MP feels that they could do better, they should vote against it. You will have my support in the next election or leadership race.

    How many real jobs were created today?

    Will this drunken sailor's budget help families in crisis?

    You and I, and our children and possibly our children's children, will be paying for this misdirected budget that creates far too few real jobs and fails to help families in crisis.

    By Blogger MississaugaPeter, at 9:12 PM  

  • This budget is a joke, start to finish. $80+ billion spent on nothing which will stimulate the Canadian economy, at least in the short term.
    And the result? Canada's back the days of deficits, living beyond our means like many of the households south of the border.
    Will the Liberals have the guts to say "no thanks" to this farce?

    By Anonymous Anonymous, at 9:51 PM  

  • "I think most economists would agree that they're not a great ways to stimulate the economy"

    If by "most economists" you mean, Don Drummond, I'd agree with that.

    By Blogger Chuckercanuck, at 11:13 PM  

  • Tories showing they've learned a lot from watching the Liberals

    James Travers
    OTTAWA

    So now you know, Conservatives do have a secret agenda: They're closet Liberals.

    After weeks of leaks more specific than even Paul Martin's, Stephen Harper unveils a budget today that will make liars of ministers, not to mention yesterday's wispy throne speech, if it isn't a kilometre wide in politics and a centimetre deep in policy. Conservatives, like Liberals before them, won't let a single outstretched palm leave empty-handed – as long as it's connected to an arm that can swing a few votes.

    How pragmatic are once dogmatic Conservatives now? Blue-collar workers and white-knuckled mayors, farmers, seniors, students, aboriginal people and even artists are being promised a lot or a little as the Prime Minister tries to rescue the country from recession, and his government from defeat.

    Never mind that Finance Minister Jim Flaherty was talking about surpluses as recently as November or that Harper campaigned in September and October on the fantasy that Canada would escape global financial chaos. Forget, too, that balanced budgets were central to the Reform party and that Tories promised, hearts crossed, to never, ever fall back on bad habits.

    Constrained by the opposition majority, and confronting his government's mortality, Harper is contradicting Conservative values. Suddenly, and for partisan advantage, he is willing to dump a debt load on coming generations, starting with a $34 billion deficit in the fiscal year beginning April 1, followed by another $30 billion the year after.

    What that buys beyond the government's widely anticipated survival remains vague. Harper is counting on taxpayers and, should it come to an election, voters to confuse spending with a solution. Even after all the budget leaks, it remains only a smiley-face assumption that Canadians will be better off, more domestically productive and internationally competitive, when the worst still to come is finally over.

    By Blogger JimTan, at 11:57 PM  

  • "...and all the provincial governments I've seen reaction from like it"

    You clearly haven't seen Mr. Hissyfit in St. John's tonight, have you?

    By Blogger Mark, at 12:05 AM  

  • Wow you give the budget a C (which is pretty bad) and you don't think Ignatieff would have done signifcantly better?

    OUCH!

    By Anonymous Anonymous, at 12:08 AM  

  • This budget is Bushian Baby Boomer economics-finance their fuckups on the backs of future generations and barely a nod to the environment. Absolutely no vision, just costly pandering. If the Liberals support this, they should STFU about 'change'

    By Anonymous Anonymous, at 12:27 AM  

  • Anon - I'd expect a "B" from Michael. He's new on the job after all ;-)

    By Blogger calgarygrit, at 9:18 AM  

  • The $500 example provided by Flaherty during the speech yesterday is helpful if you look at it as a lump sum chunk of change magically appearing. Over the longer haul, it's $10 a week. It'll be helpful on a very short-term basis for some people; for others, it'll amount to little more than business-as-usual plus an extra trip to Subway.

    A "C" grade sounds appropriate. The work itself is adequate, but the preparation and background research limit its effectiveness greatly.

    By Blogger RGM, at 9:23 AM  

  • $12 Billion to cardealers? We have far too many cars, has been like this for decades. Meanwhile, lasy year we spent $189 Billion on infratructure costs to support the use and ofcourse abuse of automobiles.
    Health Canada needs to speak up about these toxic items.
    Tax the rich. This will create better wage equity.
    Cut the Senate salaries. Fat seniors donot need fat salaries and extravagant expense accounts.
    Cut all governmental officials expense accounts. What workers in Canada get free food, free hotels, free airfare and a free auto.?
    Rich seniors and rich families are still getting government handouts. They DON"T need them.

    By Blogger Oemissions, at 10:06 AM  

  • The Tories make amendments that include improvements in employment insurance and infrastructure but without adding more to the deficit.

    The second part is hilarious. Harper won't withdraw any of the budget measures to pay for it, so what's next? Iggy tries to do a coalition and brings foward a Layton-Duceppe budget that adds an extra $10B+ a year to the deficit?

    More seriously that leaves program expenditure reductions. Less seriously isn't there a funding program for political parties that could be added to the kill list?

    By Anonymous Anonymous, at 11:29 AM  

  • Stephane Ignatieff rolls over and takes it from Harper.

    The more things change,

    By Anonymous Deb, at 11:58 AM  

  • "Stephane Ignatieff rolls over and takes it from Harper."

    Deb,

    I thought that it was harper that rolled over and became a pseudo-Liberal?

    By Blogger JimTan, at 12:21 PM  

  • I like the budget, and it's Mr. Ignatieff that is rightly on probation until the leadership convention, NO?

    All this is, is drama Canada doesn't need right now. Ignatieff is proving himself just as irrelevant as Dion was. Here's hoping the grassroot support liberals have a choice come convention time.

    Seriously dudes - Ignatieff's too rich and too smart for the ordinary Canadian.

    Cal

    By Anonymous Anonymous, at 12:26 PM  

  • Truth be told, the tactic isn't that bad, if only because it sets up convenient election triggers when these accountability reports come in

    Oh. Great. Three more self inflicted opportunities to Roll Over. Again. Again. Again.

    By Anonymous Anonymous, at 12:56 PM  

  • Deb,

    I thought that it was harper that rolled over and became a pseudo-Liberal?


    Oh, so its Liberal philosophy to drown us in debt with barely a nod to the environment or future generations?

    I am with Deb, this was very reminiscet of Dion...have fun swalloing hard!!

    By Anonymous Anonymous, at 1:04 PM  

  • What happens if Ignatieff introduces his amendment and the Conservatives and Bloc or NDP vote it down?

    What do the Liberals do then?

    According to Duceppe, Coderre told him the Coalition is dead. Harper now knows that. Ignatieff just ended the leverage Liberals had.

    If the Liberals don't support the Conservative's Budget, don't we get the election that Canadians don't need "like a hole in the head", since the Liberals with only 25% of the seats in the House of Commons could not be expected to be able to form a government.

    Harper feared the Coalition. Harper does not fear another election.

    By Blogger MississaugaPeter, at 1:14 PM  

  • Sadly, no surprise. Iggy will continue to prop up the Harper Tories on this budget. Iggy didn't even ask for much in return.
    All the Tories have to do is give quarterly reports and we all know that Jim Flaherty is the king of cooking the books. My question is, how is this any different than when Dion was propping up the Tories. Now the Block and NDP will call Iggy a liar because he didn't follow through on the coalition and as soon as the budget is passed, the Tories will launch a multi-million dollar tv ad campaign saying Iggy is a weak leader who's not up to the job.
    It's very clear now that changing leaders didn't mean an end to the Liberal Party of Canada proping up the most right wing government in the history of this country. Shame.

    By Blogger RGM, at 1:19 PM  

  • Two years of Stephanie and now Michelle propping up Harper and yet the Libs don't even get to run a single cabinet post, and people said the NDP were selling themselves cheap...

    By Anonymous Anonymous, at 1:53 PM  

  • MP - I was trying to figure out the same thing too. The Tories could vote against Ignatieff's ammendment, which would defeat it. But that would probably cause the Liberals to vote against the budget. Which would trigger an election.

    I'd like to think Harper will just bend a little and accept the ammendment but, yes, we could be back to a game of chicken.

    By Blogger calgarygrit, at 2:03 PM  

  • It is hard to like any budget that misses out in $15B+/yr in cap auction or carbon tax revenues. If AB cities weren't short money and AB itself ($35B?) with a Norway sized ($100B) windfall trust.
    I expected there to be rich-people tax breaks that weren't in there. The home weathering programme is nice. I'm only on page 30 of a 343 pg skim. How can Iggy even cooment on this already?

    By Anonymous Phillip Huggan, at 2:38 PM  

  • The "Ignatieff on the Budget-Pro/Con" bit at the end of the globe and mail article is hilarious. This just proves my theory that Dion's incoherent messaging was only slightly a result of his poor communication skills. The Liberals just can't help talking out of both sides of their mouth, the party is severely schizophrenic, I really don't get why it still exists in Canada to the extent it does. I think we are witnessing a paradigm shift in Canadian politics, been reading 'The Strange Death of Liberal England' and I am increasingly optimistic that we are seeing a similar process unfold here. The Liberal Party of Canada just isn't a viable choice for anyone that actually believes in anything.

    By Anonymous Anonymous, at 2:39 PM  

  • I'm curious ... if Igntieff had said he wouldn't support the budget, how many comments would there be saying he just handed the Cons a majority with no appetite for another election out there.

    Surprisingly little commentary here on what the Liberals response should have been.

    By Anonymous Anonymous, at 3:35 PM  

  • I can appreciate the views of the economists wrt tax cuts and stimulus under normal conditions, but these are not normal conditions.

    And my concern is with applying "normal condition conclusions" onto abnormal conditions, without repeating the analysis.

    In this case, the analysis would suggest that if you give 5000 people, the vast majority of whom have stable jobs and little debt an extra $10 a week, you'll find that some will spend it all and some will report an "extra" $250 or $500 in their savings account - that it didn't all go to spending ("stimulus").

    But the economists are also telling us that we currently have an excessive debt burden and an unstable jobs outlook. In effect, this changes the equations and we should expect that whether people have that extra $10/week or not, they're in a mode of retrenching and withdrawing from the economy.

    So giving them that extra $10/week should be expected to cap the retrenching (an uncertain psychological hypothesis) and shake loose additional spending. Certainly it can be expected to have a magnified effect versus "normal" times. And quite possibly it can shake loose additional spending by giving additional confidence to consumers that their taxes will stay low for time to come - that they can afford to spend because their future has some security.

    By Blogger paul.obeda@, at 5:41 PM  

  • Infrastructure preferred way to create jobs: CIBC

    TAVIA GRANT
    Monday, January 26, 2009
    Infrastructure spending, not tax cuts, is a more effective way to create jobs and boost economic growth, according to an economic report released on the eve of the release of Canada's federal budget.

    The infrastructure economic “multiplier” is significant, Canadian Imperial Bank of Commerce economist Benjamin Tal said. He estimated every $10-billion of spending on infrastructure can potentially create about 115,000 Canadian jobs and lift economic growth by almost 1.5 percentage points.

    That's “well above the stimulus effect of a tax cut of a similar size,” he said. Personal tax cuts of a comparable $10-billion would create half the number of jobs – 57,000 – and boost GDP by just 0.8 percentage points.

    By Blogger JimTan, at 5:45 PM  

  • Continuing the analysis (rather than reading a textbook written for a different scenario), we must consider why economists generally consider savings to not be stimulative.

    Under normal conditions, banks are not limited by their reserve provisions. That is, the ratio of loans outstanding to savings held is healthy. Economists promise us that this is not the case currently - that bad loans provisions have prevented banks from being able to write new loans without violating regulatory conditions.

    Which means that under normal conditions, additional savings don't increase the availability of loans. But that under current conditions, additional savings have a strong potential to increase the availability of loans.

    Loans that businesses need to expand (including expansion relative to status quo plans for contraction), and which give the "multiplier" effect some refer to.

    Which suggests again that even "savings" today (including debt reduction) can have a more positive effect than under healthier economic conditions.

    By Blogger paul.obeda@, at 6:40 PM  

  • Is it possible that we are opposing the national securities regulator? Keep hearing rumours. It can't be, right?

    By Blogger SteelCityGrit, at 7:22 PM  

  • Federal debt interest savings and household finance savings and corporate profit/investment and bank reserve ratio requirement are very different definitions of savings.
    Loaning the banks money to top up their reserve ratios won't work because these banks have bad assets that might as well be represented as subtracted from the bank reserve requirements. If a $100B bank has $1T in bad debt and $200B in good loans, it can't be saved with tax cuts.
    I like savings. But as stimulus when the problem will be job cuts, you almost need a job to aggregate savings. The real "savings" two years ago would've been to raise not lower the highest income and corporate tax rates, and pay down federal debt for a time like soon.
    Conservatives are aggressively cutting taxes in good times and cutting a tiny bit in turmoil. Oh well. I hope the Dion scheme of matching and exceeding all Conservative tax cuts all the way to Libertopia, is over for the Liberals.

    By Anonymous Phillip Huggan, at 7:30 PM  

  • The Conservatives have no vision or even a sense for the future. This budget could have been so much more. I am very disappointed but not surprised.

    "When small men attempt great enterprises, they always end by reducing them to the level of their mediocrity."
    --Napoleon I

    By Blogger cms@ADMS.ca, at 10:54 PM  

  • Very effective material, thanks so much for this post.

    By Anonymous www.albacete-3d.com, at 8:54 AM  

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