Will Canada have a structural deficit?

[dcbogey]

The PBO certainly seems to think so. I know both sides are making big assumptions about the future rates of growth for Canada, but Flaherty's record at making these assumptions/projections doesn't exactly instill a great deal of confidence in me. The "promise" both the Libs and CPOC have made not to raise taxes to deal with the deficit is, IMHO, moronic.

http://www.theglobeandmail.com/news...uctural-deficit-watchdog-says/article1429569/

 

[landscaper]

the idea of a politician promising not to raise taxes is novel.

A structural deficiet is one of those interesting things that has never really been defined. The end result is everybody can claim not to have a structural deficiet by simply redefining the concept.

Now as to wether or not we will need to raise taxes will depend entirly on the state of the american economy. If it comes back to life reasonably quickly and if the government can control the growth in spending and actually cut some costs in places we MIGHT NOT NEED TO RAISE TAXES.

But there are a whole load of buts in that statement. One of the cost cuts at this point is the conclusion to the Afghan mission, if it stops and if everybody comes home or even a large part of everybody comes home a large, largly unfunded bill will end , again there are more buts there than at the TERB christmas party however there are cost savings if the troops are not there.

 

[fuji]

Flaherty was incompetent when he was the Ontario finance minister and he's just as incompetent now.

If the Parliamentary Budget Officer is correct sooner or later there will either have to be a tax rise, or a massive, massive cut in spending. The current situation is obviously unsustainable.

I trust the PBO far more than I trust Flaherty, given Flaherty's history of bumbling and fumbling things.

Landscaper: The report says that the deficit will NOT recover even if the American economy comes back to life, that Flaherty's predictions that it will are unrealistic--even in the best case of a full economic recovery we will still run large deficits, is what he is saying in that report.

 

[landscaper]

well the PBO is entitled to his opinions as is everybody else.

I don't know what methodology he uses for his forcast, if he is using GAAP to formulate it that could be a difference, govts don't have to use that standard.( i have complained about that in the past). The other thing is he has absolutly no idea of what cuts the budget will bring, granted the govt has said that there will be no major program cuts but they never said just what a major program was. There is any amount of spending that can be cut back or eliminated to contain costs. When the economy does recover and it will eventually recover the additional tax increases from existing tax programs should be enough to cover the deficiet.

All that said the future is just that the future by definition it is not something that is definabe. The PBO could be correct, the Minister of Finance could be correct nobody knows.

 

[fuji]

well the PBO is entitled to his opinions as is everybody else.

He being the expert hired for that express purpose, his opinion carries a little bit more weight than most. However I agree, even the biggest fool is entitled to an opinion, Flaherty being no exception to that rule.

The other thing is he has absolutly no idea of what cuts the budget will bring, granted the govt has said that there will be no major program cuts but they never said just what a major program was.

From what you just wrote, I would conclude that the government is either incompetent, or lying. Given Flaherty's track record, I'll be charitable and go with incompetent. My grandmother always told me never to attribute to malice that which can be attributed to stupidity.

When the economy does recover and it will eventually recover the additional tax increases from existing tax programs should be enough to cover the deficiet.

Again, the PBO has directly contradicted that claim in his report. That is Flaherty's claim, and the PBO is saying that Flaherty is wrong.

Specifically one of the following two actions will have to be undertaken to restore fiscal balance:

1. Raise taxes, by a lot

2. Cut spending, by a lot

Flaherty's claim that minor adjustments in spending and an economic recovery will smooth everything out are just plain wrong, just as he was plain wrong when he was Ontario's finance minister, just as he fumbled the income trust file, just as he bumbled his original response to the economic crisis.

I have no idea why Stephen Harper keeps Flaherty in that job--maybe he's one of those leaders, like China's Mao, or Russia's Stalin, who feels more secure in his job by surrounding himself with fools and incompetents. That way there are no credible contenders for his job.

 

[dcbogey]

For those that care - here's the full report

http://www2.parl.gc.ca/Sites/PBO-DPB/documents/Potential_CABB_EN.pdf

 

[someone]

A structural deficiet is one of those interesting things that has never really been defined. The end result is everybody can claim not to have a structural deficiet by simply redefining the concept.

Actually, I think just about any first year economics textbook would define it somewhere (often in a chapter on the national debt which is rarely covered in most courses). Basically, the idea is whether with current tax and expenditures policies you would have a deficit if the economy was at the full employment level of GDP. Of course, actually coming up with a good estimate of the full employment level of GDP is a very tricky matter. However, the idea of a structual deficit is that tax revenues automatically decrease and expenditures on things like EI automatically increase during recessions. If a return to normal growth eliminates the deficit, it is not a major concern.

A better point to make would be that the government has stated that they will not keep current policies in place indefinitely. Thus, to some extent the government has implicitly recognized that there is a structural deficit but is arguing it is not relevant as they don’t intend to keep current spending policies for long (you sort of make this point in another post but this point of yours distracts from it).

 

[landscaper]

Actually, I think just about any first year economics textbook would define it somewhere (often in a chapter on the national debt which is rarely covered in most courses). Basically, the idea is whether with current tax and expenditures policies you would have a deficit if the economy was at full employment. Of course, actually coming up with a good estimate of full employment is a very tricky matter. However, the idea of a structual deficit is that tax revenues automatically decrease and expenditures on things like EI automatically increase during recessions. If a return to normal growth eliminates the deficit, it is not a major concern.

A better point to make would be that the government has stated that they will not keep current policies in place indefinitely. Thus, to some extent the government has implicitly recognized that there is a structural deficit but is arguing it is not relevant as they don’t intent to keep current spending policies for long (you sort of make that point in another post but this point of yours distracts from it).

I agree with the definition, the thing is the govt may not so a structural deficiet for you might be a surplus for me,( metaphorically speaking). I am not really sure where the concept suddenly appeared from during the budget panic last year. Regardless a plan to reduce and eventually cancel out the thing that is stuck to until completion is needed.

As to Fuji's comment about the PBO again I have to return to it is his opinion and what that opinion is based on is not known, he could be right then again the track record of most anylists is somewhat...... spotty to say the least. Until we see the budget and the background details and the assumptions that were made what ever we say is so much vapourware.

The PBO also has an axe to grind with the govt just as much as the govt has an axe to grind with him, that is the big reason to see the assumptions that his report is based on. It could be Nobel Prize material it could also be gornsht.

Time will tell

 

[fuji]

As to Fuji's comment about the PBO again I have to return to it is his opinion and what that opinion is based on is not known

What his opinion is based on is well known, and documented in excruciating detail in his report. Have a look at it.