The Reminder is making its archives back to 2003 available on our website. Please note that, due to technical limitations, archive articles are presented without the usual formatting.
Well, the deficit cat is out of the bag as the federal government announced in the Throne Speech that Òit would be misguided to commit to a balanced budget in the short term at any cost.Ó This willingness to entertain deficits is in sharp contrast to the previous commitment to balance the books. It is clear, however, that when Canadians confront all the things to worry about with the current financial situation, deficit spending is well down the list. Holding firm with a commitment to balanced budgets has little appeal in the face of deeply worrying economic conditions. The Throne Speech has got it right. Nonetheless, it is important to note that provincial governments in Western Canada do not anticipate deficits in the short term. All have been generating significant surpluses, and all have enough financial cushions in place to absorb the first round of global shocks. They should also be able to afford short-term stimulus packages. Whether they will be able to avoid deficits next year depends on just how long, deep and broad the recession will be, all questions for which we are not even close to answers. It is also important that at this time no governments are entertaining structural deficits in which routine sources of revenue are unable to sustain routine spending on public services, the very deficits that got the country into so much trouble in the 1980s. Deficits today are seen as a source of economic stimulus. What remains to be seen is whether structural deficits can be avoided in the years ahead as tax revenues fall. Again, it all depends on the very uncertain course of the recession. However, even if we can avoid structural deficits, there are still some significant challenges to come. For a start, the economic stimuli that are on the table, including financial aid to the auto and aerospace sectors, may not work. They may lead to demands for additional aid as firms continue to confront stiff international competition. It is difficult to determine when short-term stimuli shade into ongoing subsidization. If the case for aid to the auto sector is compelling today, there is no reason to expect that it will become less compelling over time. Whatever stimulus packages we put together may also pale beside those put together south of the border. In the battle to retain jobs in the auto sector, our efforts in Canada may be outbid by aid packages designed to keep jobs in the United States. American leaders, unlike their counterparts in Canada, appear to be completely indifferent about the size of the federal deficit. Still, as the global economy slides into the troubled waters of recession, we have to cut our governments some slack as they struggle to keep the Canadian ship afloat.
