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Borrowing From the Future to Maintain the Ways of the Past

January 1, 2009 - Ray Pennings

We knew that their hands were tied, but the blindfold came as a real surprise.

In the midst of the world’s first truly global recession, the Government of Canada handed down the country’s first deficit budget in eleven years on Tuesday, January 27th. Political realities had already in large part limited the Conservatives’ options.  Needing to please at least one of the opposition parties in order to survive, the question had become not “stimulus or no stimulus,” but how much money to spend and how to prevent Canada from sliding back into a 1980s-style permanent deficit.

Pressures came from outside our borders as well. The G20 countries, Canada included, in November covenanted to spend the world’s leading industrial and emerging market economies out of recession. The Hon. Finance Minister Jim Flaherty came into budget day, then, with many decisions already predetermined.

Yet let the government not be absolved of its accountability, limitations or no. Let me sketch the three most worrisome problems with this budget.

First, our financial crisis is accompanied in the Western world by a demographic crisis as well, in which Canada’s reproductive rate of 1.7 children per female will very soon mean we have more workers retiring than young people entering the workforce. Rather than a structural response to this looming problem—such as tax incentives like income splitting to reward having children—the government chose to continue ignoring it.

Secondly, this budget will do little to correct Canadians’ over-reliance on government to save us from our credit-happy ways. Indeed, as an increasing number of us live leveraged financial lives—optimistic of our future capacity to earn and pay back—to whom should we look for a better example? Our government is behaving in the exact same way. They promise that such deficit measures are time-limited and will bring us back into the black by 2013-2014, but given the past accuracy of such forecasts, how long will we borrow from the future to pay for today?

And thirdly, how long-term is our government’s thinking? The budget proposes a $12B investment in Canada’s physical infrastructure, which is a good thing. But again, a significant hitch: the government promises to spend that money in just 120 days, which means the winning projects will not be the most strategically valuable, or the most forward-thinking. The money will reinforce old and existing patterns, instead of new and innovative infrastructure.

The budget will rightly help individual Canadians upgrade their skills in a knowledge economy, but ignored are the community groups, labour groups and industry associations which provide front-line programs and services. The budget’s initiatives reflect a continued over-reliance on government, rather than sound strategies for what Cardus calls our social architecture. In this vein, prior to the budget Cardus and a half-dozen other major organizations proposed charitable stimulus options, yet this budget paid very little attention to the sector as a whole, despite its increasing importance to the vulnerable in a recession.

The challenges facing Canada are fundamentally about how we organize society and what we expect from life. In this special edition of Cardus, Policy in Public you’ll find our full budget lock-up analysis from January 27. In addition we have included a Canada-wide index of think tanks, advocacy groups and associations with their take on the federal budget from the last 24 hours after its release.

In the final analysis the challenges facing Canada are fundamentally about how we organize society and what we expect from our common life together. This budget may have bought us a few more years to struggle for answers to these questions - but on whose tab?

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This Article Belongs To ...

  1. January 2009: 2009 Budget Edition
    CPIP - 2009 Budget Edition

    The 2009 Special Budget Edition of CPiP features Cardus' Federal budget analysis, political responses to the budget, and a special Canadian Think Tank Index summarizing the views of the Canadian policy landscape 72 hours after the budget.

    Download the PDF.