Canada’s government should set clear goals to eliminate its record deficit and restore “shock absorbers” in the budget for unforeseen events, former Finance Minister Ralph Goodale said.
The current finance minister, Jim Flaherty of the Conservative Party, announced a budget on March 4 that projected a record deficit of C$53.8 billion ($51.7 billion) in the year ended March 31, which is projected to narrow to C$1.8 billion by 2014. The estimates aren’t “credible” and aren’t a commitment to reach pre-established levels, Goodale said.
The Liberals, the biggest opposition party in Parliament, would instead seek to cut the deficit to 1 percent of gross domestic product over two years, and then set targets for moving into surplus, Goodale, 60, said. The budgets would also restore cushions that could cover unexpected changes in revenue or spending, he said.
“That’s one of the problems with Mr. Flaherty’s approach, it’s not clear what the anchor is,” Goodale, now the Liberal Party’s house leader, said during an interview today in Bloomberg’s Ottawa office. “In my reading of it, it’s: ‘Let’s hope for this.’”
Prime Minister Stephen Harper, who will host Group of 20 leaders in Toronto in June, has said Canada will be the first to recover from a global recession and scale back emergency stimulus spending. Harper defeated the Liberals in 2006 and again in 2008 with promises to cut taxes. He’s now moving to lower the corporate rate to the lowest in the Group of Seven to spur investment and employment.
“It’s all going to be borrowed money,” Goodale said of the plans to cut corporate taxes by C$6 billion.
The Liberals would use those funds to bolster productivity through education, “selective tax reductions” on capital allowances and payroll tax cuts for companies that hire young workers, he said.
“It’s a productivity agenda, but if you flip it over to the other side it’s also a families agenda,” Goodale said. “Is it a C$6 billion tax cut on borrowed money, or is it an investment in your sons and daughters being able to go to university this year or have an apprenticeship?”
Lead the G-7
Liberal policy advisers are looking for ways to boost the country’s labor productivity, which Goodale called “horrific.” Bank of Canada Governor Mark Carney has said the country’s potential economic growth rate will slow in the next few years, because productivity has slowed to an average quarterly rate of 0.7 percent in the last decade, half the pace from 1980 to 2000.
For now, Canada’s economy is outpacing its peers. Canada’s economy will lead the G-7 with 3.6 percent growth this year, the Organization for Economic Cooperation and Development predicts. The Bank of Canada on June 1 became the first G-7 central bank to raise interest rates since July 2008.
The economy has benefitted from rising Asian demand for commodities such as crude oil and metals. The Canadian dollar has strengthened 1.1 percent against the U.S. dollar this year, the second best performance after Mexico among the 16 major currencies tracked by Bloomberg.
Harper has resisted opposition calls to defer or cancel the corporate tax cuts, saying they are needed to help the economic recovery.
The Liberals swung the government’s books from a C$38.5 billion budget deficit when they came to power under Jean Chretien in 1993 to nine years of surpluses with Goodale’s last budget in February 2005. The ratio of debt to gross domestic product declined to 35 percent from 67 percent over that time. Flaherty followed with two more surpluses before recording a deficit in the fiscal year that ended March 31, 2009.
“We have the track record,” on fiscal management, Goodale said.
Goodale was finance minister from December 2003 until February 2006, and has also been the minister for natural resources and public works. He was first elected in the Saskatchewan district of Wascana in 1997.