Budget advanced to deal with deteriorating economy
The Canadian Press
Published Tuesday, November 25, 2008 6:53AM EST
OTTAWA - Finance Minister Jim Flaherty plans to move up the tabling of the next federal budget in order to introduce a package of infrastructure spending and other measures to stimulate the sagging economy as soon as possible.
The economy is slackening at a quickening pace that is dictating government action before the usual March budget date, Flaherty said in a Monday evening speech.
Earlier in Toronto, Flaherty had said there would be no fiscal stimulus in Thursday's economic update, but officials said one option being considered is to announce measures to get the economy moving before the next budget.
Flaherty said any package would be included in the budget, but that the timing of the budget is being advanced, although he did not give a specific date.
The finance minister underlined the urgency of acting soon at a news conference in Toronto, after he gave a speech to a conference on public-private partnerships.
"This needs to happen as soon as possible," he said. "We are working with the provinces, the territories, the municipalities, to accelerate our infrastructure investments."
Flaherty said he met with leaders of Canadian municipalities along with Prime Minister Stephen Harper and Transport Minister John Baird and asked them bluntly to give Ottawa a list of construction projects "that are environmentally approved that can go now, that can put a shovel on the ground now."
Flaherty's comments Monday came as a new survey suggested that Canadian consumers feel as pessimistic as they did before the last two major recessions -- in the early 1980s and 1990s -- as they cope with battered markets, increasing job insecurity and worries about how governments will deal with a spreading global recession.
The United States and Britain are further ahead than Canada in efforts to stimulate their economies. Washington has already committed $700 billion, with another $500 billion expected for the banking and other sectors, while Britain announced a series of measures Monday that included a cut in consumer taxes.
Government sources say other countries may be ahead of Canada in announcing plans partly because their economies are in worse shape and partly because last month's federal election delayed planning here.
But there is no doubt the government is taking the economic slowdown seriously, said Bank of Montreal economist Michael Gregory.
"I think there's a realization there," he said, noting the darker tones in recent statements by Harper, Flaherty and the Bank of Canada.
"We have seen economies in the entire G7, Japan, United States unravel awfully quickly, so the sooner (Canada acts) the better. We are in unprecedented times so it may call for unprecedented ways of doing things."
Flaherty said Thursday's update will primarily deal with projections for the federal budget and the economy, but suggested it will also include plans to slow down growth in public service compensation, as well as equalization payments to provinces.
He is also expected to announce efforts to ease pension requirements for cash-strapped corporations and give seniors additional flexibility on when they must draw down from their registered retirement plans.
Although the government is headed for the first budget deficit in more than a dozen years, Flaherty relegated that concern behind the need to boost economic activity.
"Our job is to act responsibly, to be steady, stable, protect Canadian families and investments," he said.
"Canada goes into this economic slowdown in the best position of the major industrialized countries in the world ... so we are in a position to take various actions, we have lots of leeway to act."
Parliamentary budget officer Kevin Page reported last week that the government could suffer a shortfall of anywhere from $4 billion to $14 billion next year even if it does not increase spending.
Private sector economists lined up Monday to urge the government to move swiftly on stimulus spending, saying actions so far by the Bank of Canada and the government to inject liquidity into money markets have only partially worked to boost growth.
Overwhelming, the major recommendation of the economists is speeding up spending for roads, bridges and other types of infrastructure. The government has already set aside $33 billion for infrastructure spending, but few projects have been announced and even fewer are ready to go.
The difficulty is that it can take many months to issue bids and sign contracts with engineering and construction firms, says economist Avery Shenfeld, so the sooner Ottawa acts the better.
Scotia Capital economist Derek Holt agrees, adding that infrastructure spending is better than tax cuts at this time because given the growing fears of a recession, many Canadians would likely save the extra cash rather than spend it.
The economy has been slowing to a standstill for much of the year, with falling commodity prices, stock market turmoil and the slump in manufacturing taking a toll on consumers and businesses in all parts of the country.
On Monday, a new Conference Board survey suggested that consumers are indeed spooked by the mounting negative news.
The think-tank's November poll found consumer confidence drooping 2.9 points to levels not seen since the intense recession of the early 1980s, when the jobless rate soared to 13 per cent, more than twice the current level.
A major reason for the loss of confidence is the tumble in the stock market, which fell to barely half its summer peak, and growing fears that Canada is following the U.S. into bleak economic times.
After reflexively recoiling from the R-word for most of the year, Harper and Flaherty have been regularly conceding that Canada is indeed headed for recession.
"We are not in a recession right now. (But) going forward it's reasonable that we will have a technical recession, that is this quarter and next quarter," Flaherty said. A technical recession is defined as two consecutive quarters of gross domestic product contraction.