Thursday, October 23, 2008

Deficit Jim in a quandary

Or should we say, a swamp of his and Economist Harper's own making?
Finance Minister Jim Flaherty says the government is reviewing its spending commitments to determine whether it can afford them in the current economic downturn.

Flaherty said today that Ottawa expects to post a modest surplus when the books are closed on the current fiscal year at the end of March. But all bets are off for the 2009-2010 year that will be the subject of his next budget.

Flaherty told reporters that "this is obviously a serious situation," as "events are unfolding day by day."

He says the government will "have to gauge where we are as we go forward" and he can't be more accurate than that at this stage.

Last week, two prominent economists predicted the government will fall into deficit next year by as much as $10 billion.

Deficits may be unavoidable given the expected fall-off of corporate profits and other revenues form the economic slump, which will likely approach recessionary territory next year. (emphasis added)
$10 billion you say. Item in the news, Monday:
If Prime Minister Stephen Harper had not cut the GST by two percentage points in his first mandate, he would not be starting his second heading into a projected $10-billion deficit for the 2009-2010 fiscal year, but government spending has been on the rise since before the federal Conservatives came to power, says TD Bank Financial's chief economist Don Drummond, considered one of the country's leading economists.

"On the spending side [the Conservatives] just continued a track that was already embedded by the Liberals, spending has been increasing very rapidly since 2000, 2001.... Of course, the Liberals did start tax cuts as well, but the Conservatives no doubt did add to them and they have cut $12-billion out of the GST, so that probably would have been enough to keep them out of deficit," Mr. Drummond told The Hill Times last week.
The economic challenges brought to us via the U.S. sub-prime meltdown, one could argue, might have been weathered by us more readily by a government that put the nation's interests first, not its own political programme. Oh well. What's $10 billion anyway...