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The parliamentary budget officer, two former Bank of Canada governors and aformer senior Liberal adviser have all criticized the big-spending budget
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The reception that greeted last weeks federal budget from fiscal conservatives was predictable. If you agree with American tax reduction advocate Grover Norquist that government should be shrunk down to a size where it can be drowned in a bathtub, youprobably didnt appreciate a budget that will send federal net debt levels to $1.4 trillion within five years.
The Trudeau government can brush off such criticism as ideological and partisan. It will find it harder to discount the reaction from an officer of Parliament and from respected economists who have been allies and colleagues in the past.
The critique coming fromthe Parliamentary Budget Officer, Yves Giroux; fromtwo former Bank of Canada governors David Dodge and MarkCarney,and fromformer senior Liberal adviser, Robert Asselin,isthat a budget that claims to build prosperity for the future overstates the amount of growth it is likely togenerate.
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Giroux told thefinance committee on Tuesdaythat a chunk of the $101 billion the governmenttouted as economic stimulus was in reality a continuation of existing COVID-19 support measures.
Dodge told the Globe and Mail this week that a budgetwhichpositioned itself as being pro-growth doesnot invest much in growing Canadas economic capacity at all. My policy criticism of the budget is that it really does not focus on growth, he said. To me it wouldnt accord with something thatwas a reasonably prudent fiscal plan, let me put it that way.
He said that of the $100 billion billed as being a catalyst for growth, he estimates that only $25 billionadds to public or private investment, with the rest increasing consumption.
Those will be painful words forChrystiaFreelandto hear, given Dodge has been something of an intellectual godfatherfor the Trudeau Liberals. His endorsement of the use of temporary deficits to finance productivity-enhancing infrastructure investments were emblazoned on the Liberal policy platform in 2015.
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The finance minister might have expected a more ringing endorsementfrom Carney, the godfather to one of her children and someone who appeared at the recent Liberal convention saying he would do what he could to help the party.The former Bank of England governor appearedon the Herle Burly podcast this week,withformer PaulMartinadviser David Herle,and damned the budget with faint praise.
He talked about how COVID has accelerated the digital and sustainable revolutions and how the budget did some things to push the economy in that direction. But its going to take more than one budget.I dont think the government would pretend otherwise that this is job done, he said. In myjudgment, this was a hybrid budget, in that it had to conquer COVID by doing important things on the social sideandtostart growth. What we are seeing in some other jurisdictions is that the focus is more squarely on the growth. And when the focus is more squarely on growth, more and morespending isdirect government investment or the type of taxes and other measures that encourage private investmentto(create) the growth in jobs and income that we need down the road.
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Even with Carneys fancy footwork,its plainhe would have preferred more investment and less spending.
Asselin, a former budget and policy adviser to Trudeaus first finance minister, Bill Morneau, ismorebluntin his assessment. He labelled the short-term stimulus as a political solution in search of an economic problem in an article in The Hub, a new online commentary website.
He pointed out that the budget assumes economic growth of 5.8 per cent this year, four per cent next year, before moderating to two per cent for the rest of the forecast horizon. He criticized the lack of a coherent growth plan, with the bulk of innovation funding going into a Strategic Innovation Fund that has beenneither strategic nor innovative. Does it drive business investment and make our firms more competitive? Nobody has ever tried to answer this question seriously in Ottawa, he said.
Asselin spoke from experience when he said the most likely outcome of the stimulus spending is long queues of ministers and their senior officials in line at Treasury Board meetings with their budget submissions.
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The budget has added layers of duplication and bureaucratic complexity to a system that was not known for its nimbleness and agility, he said.
In addition to the prospect of disappointing growth numbers, all four economists acknowledgedthe inherent risk of soaring debt loads.
Giroux pointed out that, even with a new fiscal anchor thataims to reduce debt to GDP levels from a high of 51.2 per cent, there is no intention toreduce that ratioto pre-pandemic levels in the low-30s. He said the government has decided to effectively stabilizethe federal net debt ratio atahigherlevel through to 2055, with all the implications thatfollow for future fiscal room.
Dodge said that, while the rising debt burden is a concern, it is not yet a problem and wont become one as long as interest rates remain lower than growth.
On the rising debtlevel,Carney said just because something is possible, doesnt mean it is optimal.He pointedout if the growthstrategy is successful, it will force interest rates to rise, which will have a knock-on impacton debt servicing costs. The PBO has estimated that a one per cent rise in interest rates would cost $4.5 billion more in the first year and an increase of$12.8 billionby year five.
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But while most economists agree the debt is manageable, there is a sense of missed opportunity in the budget.Asselin accused the government of contriving a false economic premise to justify spending on unfocused and unimaginative structural spending.
All wouldclearlylike to see more public capital investment, more incentives for private investment or, ideally, both.
Instead, we have a federal government that isfailing tocreate the conditions neededto make Canada the best place in the world to do business.
Just three days after the budget, Canadian chip makerAlphawave decided to move its headquarters to the U.K., and issue shares on the London Stock Exchange to fund a new researchcentre in Cambridge, England.
Thats not Ottawas fault necessarily but it isnt helping.
An additional $12 billion to bolster Old Age Security in the budget isgoodnews for seniors but it does very little tocatalyze long-term growth.
Email: jivison@postmedia.com | Twitter: IvisonJ
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John Ivison: Federal budget criticism that will be hard for the Liberals to brush off - National Post