Monday, October 12, 2009

A gold star in economics reporting

During the last election, I nominated various Harperphile journalists for for Blue Seater Vest Awards and congratulating those cutting through the Blue Haze for taking baby steps on the path to redemption. After this post, I was thinking it was time to resuscitate the "attaboys".

Well seek and you shall find because The Star had an excellent piece on Conservative Financial Incompetence for people to read on a holiday Monday (MEIB).
Any day now, Prime Minister Stephen Harper's government will acknowledge a grim watershed – last year, for the first time in more than a decade, Ottawa spent more money than it collected from taxpayers and wound up with a budget deficit on its hands.

When the final calculations for 2008 are released, that shortfall is expected to come in at $5.8 billion.

That's nothing, however, compared to the $55.9 billion annual deficit the Conservatives predict for 2009 as they flood the country with money in a bid to offset the impact of the recession.

Presiding over the first deficit since 1996 will be a glaring embarrassment for Harper, who told voters during the election campaign last fall Ottawa's finances were fine.

"We are not running a deficit," he said during a television interview a year ago. Only two months later, a re-elected Harper warned Canadians in a prime-time interview the days of balanced budgets were over....

"The Conservatives ran through the surplus of $13 billion that they inherited before we even got into the recession," said John McCallum, Liberal MP and former chief economist at the Royal Bank.

"We certainly don't object to fiscal stimulus during a recession – that's the appropriate thing. But we do object to the Conservative practice of spending like crazy when times were good," he said....


"They're not just putting their toe in the water, they've leapt in up to their neck," Kevin Gaudet, director of the Canadian Taxpayer Federation, said of the expected deficits.

The Conservatives' Sept. 10 budget update was unable even to say when the fiscal bleeding would stop, indicating only that it would be some time after 2014-15.


In fact, the government's current forecast of Ottawa's deficit financing would be much worse had Flaherty not snuck a hefty payroll tax increase into his calculations. Without fanfare, the Conservatives signalled their intention to raise payroll taxes in 2011-14 to generate $15.5 billion in extra revenue.

So how did Harper, who arrived at 24 Sussex preaching government restraint and blasting the Liberals for their free-spending ways, become Canada's deficit king?

Part of the answer, of course, lies with the unexpectedly deep recession. But it's not that simple. The record shows the Conservatives were flirting with a deficit well before the recession hit. And, by ratcheting up expenses in good times, the Harper regime ensured the size of those deficits would be a lot larger when things went bad.

... Even before this year's economic rescue package, Ottawa was poised to overspend its budget by $15.7 billion, according to Finance Canada documents. So the federal government would have run a hefty deficit in the current 2009-10 fiscal year even without the stimulus spending.

This situation results from the Tories' decisions to sharply reduce sales taxes and lower personal and corporate income taxes while simultaneously allowing a relentless upsurge in Ottawa's spending.


Besides lost GST revenue, the government as of this year is also foregoing $15.3 billion as a result of personal income tax cuts and $7.1 billion from corporate income tax reductions. In all, Conservative tax measures have trimmed Ottawa's revenues this year by $33.9 billion – equal to three-fifths of the expected budget deficit. And, by 2013, Finance Canada says Ottawa's business tax revenues will be reduced cumulatively by $60 billion.

BTW, other bloggers may feel free to make their own "Baby Step" Awards.

Update: Post title added and font fixed.

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