http://www.montrealgazette.com/story_print.html?id=1202635&sponsor=
Canada's Economy is moving in the wrong direction and our government is forced to announce a costly stimulus package to fight the recession we are now it and we only have to look south of the border to know WHY. Since we are tied to the US economy, note the last paragraph, this just might be why Canadians all Canadian should care about what is happening to the US economy and what the Obama government plans on doing about it. :roll: :roll: :roll:
Federal plans will add $50B to debt: Think-tank
By Eric Beauchesne, Canwest News ServiceJanuary 22, 2009
The federal government will inject $30 billion in stimulus into the economy and run up deficits of $60 billion over the coming two years fighting the recession, an economic think-tank projected Wednesday.
The federal government will launch its war on the recession in next week's budget with tens of billions of dollars of stimulus which will eventually leave it some $50 billion or more deeper in debt, private and public sector analysts estimated Wednesday.
The Jan. 27 budget will inject $30 billion of new spending and tax cuts into the economy over the coming two years, resulting in annual deficits of $30 billion in each of those years, Global Insight, a private sector think tank, projected, adding that the deficits will ease after but not totally disappear for half a decade.
But the Parliamentary Budget Office in a separate report said that even without the stimulus package, the deficit in the coming year would reach $13 billion, and over five years add $46 billion to the roughly $500 billion in existing government debt.
Flaherty confirmed Wednesday that the package will include tax cuts as well as increased spending but reiterated that the budget would also contain a plan to get the government back into the black.
The estimates of the costs and implications of the fight against the recession came amid a continuing flow of evidence of the need for 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.
"Evidence of weakening global demand was seen everywhere," noted TD Securities analyst Charmaine Buskas.
However, a tax watchdog group warned the government against presenting a "chicken little" budget on Tuesday, arguing that the economic "sky is not falling" and urging it to keep its books balanced.
"In fact, it is not even close to falling," the Canadian Taxpayers Federation head, Kevin Gaudet, argued, dismissing as "hysteria" claims that the economy is teetering on the edge of a 1930s-style depression, a time when unemployment hit 27 per cent.
There's not even a 1980s- or 1990s-like recession looming, Gaudet said.
Over the past year unemployment in Canada has grown only slightly to 6.6 per cent from what was a 33-year low of 5.8 per cent and is predicted to top out around eight per cent this year, he noted.
"While clearly this is moving in the wrong direction, it is nothing like the Great Depression," he said. "And while equities have fallen, they have not been wiped out."
Canada's banking system is also stronger than others, and still offers important access to capital for business and individuals, he said, citing Bank of Canada survey results suggesting that less than half of businesses are reporting tighter access to credit.
"Credit access, unemployment, and gross domestic product are all off, but none substantially," he said. "Canada is better off than many other countries and not nearly as vulnerable as too many are suggesting."
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 key trendsetting interest rate further to a 50-year low of one per cent.
The Parliamentary Budget Office said its survey of forecasters suggests an even greater 1.5-per-cent contraction this year, and that the below-potential output of the economy from 2008 to 2013 would amount to "$20,000 per household in foregone income."
Most mainstream economists say there is a need for large amounts of fiscal stimulus in the Jan. 27 budget.
"The forecast for economic growth for 2009 has fallen sharply . . . to worse than negative one per cent," noted Global Insight in its pre-budget analysis by its chief economist Dale Orr. "Canada is now in recession and negative growth will continue for most of 2009."
Global Insight expects the budget's fiscal stimulus plan will include new initiatives costing about $15 billion in both the 2009-10 and 2010-11 fiscal years that result in deficits in the $30-billion range in both years, that will taper off after but not completely disappear until 2015-16.
But that's affordable, the Global Insight report suggests.
"Budget 2009 does raise the level of debt significantly, by about $50 billion by 2013-14, but the impact on our debt burden is not significant and still leaves it well below several years ago," it said. "The most significant cost from the fiscal policy perspective is likely to be the loss in fiscal discipline which will result from this experience."
The fiscal stimulus will be ramped down after two years but not entirely ended, as initiatives targeted at helping the most vulnerable will be very difficult socially and politically to remove when the economy recovers, it said.
It also assumes the stimulus package will include as much acceleration of small infrastructure projects as can effectively be accomplished, some increase in EI spending and increased training, and personal and business tax reductions.
"The fiscal stimulus package of budget 2009 is expected to contribute to our economic performance in a helpful, if not somewhat tardy and perhaps costly manner," it said.
However, it added that Canada's economic performance will continue to depend predominantly on the performance of the U.S. economy, oil prices, the exchange rate, interest rate policy and private sector initiatives and performance.
Canada's Economy is moving in the wrong direction and our government is forced to announce a costly stimulus package to fight the recession we are now it and we only have to look south of the border to know WHY. Since we are tied to the US economy, note the last paragraph, this just might be why Canadians all Canadian should care about what is happening to the US economy and what the Obama government plans on doing about it. :roll: :roll: :roll: