This is a perfect example of why the majority of parliamentarians are correct to have no confidence in Harper's regime. Flaherty's fiscal update was flawed and misleading. The CPOC spending cuts were greater than the stimulus due to tax cuts for 2009-10. Flaherty should be stimulating the economy but he choked and now it will be late January before they even start talking about it again. Meanwhile the coalition proposals appear to be the correct approach but we need to jump on this now to avoid a deeper recession.
http://www.theglobeandmail.com/servlet/story/RTGAM.20081204.wparlfinance04/BNStory/politics/home
Flaherty's plan prolongs the pain, forecaster says
Report alleges minister's math is flawed
HEATHER SCOFFIELD
From Thursday's Globe and Mail
December 4, 2008 at 5:07 AM EST
One of the key forecasters that the federal government depends on to crunch its budget numbers says Finance Minister Jim Flaherty's update last week would extend the country's recession and exacerbate the threat of deflation.
In last week's fiscal update, Mr. Flaherty argued that his previous tax cuts are stimulating the Canadian economy by about $31-billion - and that's why he didn't have to take additional measures right away, even though his own forecasts show the economy is set to contract this quarter and the first quarter of next year.
That's faulty math, counters the Centre for Spatial Economics, one of four firms the Department of Finance depends on to provide thorough economic forecasts upon which the government's budget track is based.
"This is a fantasy," said Robert Fairholm, the centre's director of economic forecasting. "Most of the short-term stimulus from these measures have already boosted economic activity, and so will not continue to provide [a] short-term jolt to growth."
The overall stimulus from tax cuts amounts to $2.5-billion in 2009-10, or less than 0.2 per cent of the country's economy. It's also less than the $4.3-billion in spending cuts announced by Mr. Flaherty, so the net effect is contractive, Mr. Fairholm explained.
He has taken the Conservatives' proposals, recalculated the growth of Canada's economy in 2009 to include their measures and found that instead of the 0.3-per-cent growth for the year assumed by Mr. Flaherty, the Canadian economy would shrink 0.1 per cent.
"It is enough to push the economy into negative territory," he said in an interview. "Economically speaking, it doesn't make sense in terms of fiscal policy."
Economists have widely panned the federal government's update last week for presenting unrealistic forecasts of small surpluses next year and the year after.
The lack of stimulus in the Conservatives' plan risks pushing Canada into a dangerous deflationary spiral, Mr. Fairholm warns. That's because credit is not flowing properly, and even deep interest-rate cuts by the central bank are not having the desired effect of inspiring borrowers and lenders to jump back into the fray, he explained.
The only way to break the credit logjam is for fiscal policy to leap into action, and boost the economy, he said - an analysis that is shared by the International Monetary Fund and was signed on to by leaders at the Group of 20 summit in Washington last month, including Prime Minister Stephen Harper.
Mr. Fairholm tried to assess the impact of measures proposed by the coalition. He figures that a $15-billion stimulus in 2009 would add 1.4 percentage points to growth next year, for a total of 1.6-per-cent growth - as long as the measures hit the economy early.
Regardless, both plans would see Ottawa running a deficit, Mr. Fairholm said
http://www.theglobeandmail.com/servlet/story/RTGAM.20081204.wparlfinance04/BNStory/politics/home
Flaherty's plan prolongs the pain, forecaster says
Report alleges minister's math is flawed
HEATHER SCOFFIELD
From Thursday's Globe and Mail
December 4, 2008 at 5:07 AM EST
One of the key forecasters that the federal government depends on to crunch its budget numbers says Finance Minister Jim Flaherty's update last week would extend the country's recession and exacerbate the threat of deflation.
In last week's fiscal update, Mr. Flaherty argued that his previous tax cuts are stimulating the Canadian economy by about $31-billion - and that's why he didn't have to take additional measures right away, even though his own forecasts show the economy is set to contract this quarter and the first quarter of next year.
That's faulty math, counters the Centre for Spatial Economics, one of four firms the Department of Finance depends on to provide thorough economic forecasts upon which the government's budget track is based.
"This is a fantasy," said Robert Fairholm, the centre's director of economic forecasting. "Most of the short-term stimulus from these measures have already boosted economic activity, and so will not continue to provide [a] short-term jolt to growth."
The overall stimulus from tax cuts amounts to $2.5-billion in 2009-10, or less than 0.2 per cent of the country's economy. It's also less than the $4.3-billion in spending cuts announced by Mr. Flaherty, so the net effect is contractive, Mr. Fairholm explained.
He has taken the Conservatives' proposals, recalculated the growth of Canada's economy in 2009 to include their measures and found that instead of the 0.3-per-cent growth for the year assumed by Mr. Flaherty, the Canadian economy would shrink 0.1 per cent.
"It is enough to push the economy into negative territory," he said in an interview. "Economically speaking, it doesn't make sense in terms of fiscal policy."
Economists have widely panned the federal government's update last week for presenting unrealistic forecasts of small surpluses next year and the year after.
The lack of stimulus in the Conservatives' plan risks pushing Canada into a dangerous deflationary spiral, Mr. Fairholm warns. That's because credit is not flowing properly, and even deep interest-rate cuts by the central bank are not having the desired effect of inspiring borrowers and lenders to jump back into the fray, he explained.
The only way to break the credit logjam is for fiscal policy to leap into action, and boost the economy, he said - an analysis that is shared by the International Monetary Fund and was signed on to by leaders at the Group of 20 summit in Washington last month, including Prime Minister Stephen Harper.
Mr. Fairholm tried to assess the impact of measures proposed by the coalition. He figures that a $15-billion stimulus in 2009 would add 1.4 percentage points to growth next year, for a total of 1.6-per-cent growth - as long as the measures hit the economy early.
Regardless, both plans would see Ottawa running a deficit, Mr. Fairholm said
