Ignatieff Says It's Too Soon to `Shut the Door' on More Canada Stimulus
Liberal Party Leader Michael Ignatieff
Aaron Harris/Bloomberg
Michael Ignatieff, leader of Canada's opposition Liberal Party, speaks during a campaign stop in Toronto.
Michael Ignatieff, leader of Canada's opposition Liberal Party, speaks during a campaign stop in Toronto. Photographer: Aaron Harris/Bloomberg
Canadian opposition leader Michael Ignatieff said it’s too early to “shut the door” on additional economic stimulus as new spending measures may be needed to fuel the recovery.
Ignatieff, whose Liberal Party holds the balance of power in Parliament, said “very high levels” of consumer debt pose a risk to the recovery by putting a “squeeze on the middle-class family” as interest rates rise.
“We’re not sure the economic recovery is stable,” Ignatieff, 63, said in an interview in Toronto yesterday. “We’re going to have to make judgments about whether stimulus may be necessary” next year.
Prime Minister Stephen Harper’s Conservative government has said it will end a second year of emergency stimulus in March and balance the budget within five years. His party doesn’t have a majority in Parliament and needs the support of at least one of three opposition parties to pass the budget and avoid getting toppled.
The Bank of Canada last week raised the target rate for overnight loans between commercial banks a quarter point to 0.75 percent and cut its growth forecast, citing a “weaker profile” for the global economy and more modest domestic consumption. The bank, which forecast growth of 2.9 percent in 2011 after a 3.5 percent pace this year, anticipates federal and provincial governments will begin to act as a drag on output next year as they rein in spending.
Slower Growth
“Personal debt is a concern because we think it may slow down consumption, it may slow down growth,” said Ignatieff, who is on a nationwide summer bus tour the party has dubbed the “Liberal Express.” “That raises a future issue on which we have not pronounced, which is might we need more stimulation.”
Data show household debt levels nearing those in the U.S, with the ratio of debt to disposable income at 1.46 in the first quarter from 1.09 in 2000. In the U.S., the ratio fell to 1.53 from a peak of 1.66 in 2008.
Bank of Canada Governor Mark Carney said July 22 that the levels of indebtedness in the two countries are starting to “cross over” and he urged Canadians to consider their capacity to service debts as interest rates rise.
Canada’s Liberal lawmakers, who have pledged not to raise taxes if elected, have been pushing the government to cancel a plan to cut corporate income taxes. They say the country can no longer afford the reduction in revenue amid record deficits and growing needs for investments in education and innovation.
More Investments
The Liberals have pledged to move forward on investments in higher education, support for homecare for aging Canadians, and clean energy if they regain power. They plan to finance it by eliminating corporate tax cuts.
Ignatieff said rising debt levels will constrain what the government would be able to do in the future, and said Harper’s tax-cut plan reduces their room to manage any further slowdown.
“Our margins have been shaved away by the Conservatives,” said Ignatieff, adding that he takes the need to reduce debt levels “very seriously.”
“We will look very carefully at the indicators and if we need additional stimulus we will say so, but we will also say where we would target it and where it will come from,” he said, citing his party’s plan to eliminate corporate tax cuts. “I don’t want to shut the door. I don’t think we’re out of the woods. It’s that simple.”
To contact the reporter on this story: Theophilos Argitis in Toronto at targitis@bloomberg.net.
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