Economy & Trade, Financial Crisis, Headlines, Labour, North America

ECONOMY-CANADA: Conservatives’ Budget Skimps on Stimulus

Paul Weinberg

TORONTO, Feb 4 2009 (IPS) - Canada’s reluctance to institute a full stimulus package in the recent federal government budget has international parallels, says Armine Yalnizyan, a senior economist at the Canadian Centre for Policy Alternatives.

“Many of the governments that were very quick to act to restore credit to the system have been much slower to roll out money to respond to the need to replace the jobs that are being shed,” she told IPS.

The longer time that governments take to implement a full stimulus package to create jobs and encourage citizens to spend money in their respective countries, the greater the likelihood of “something that is far worse than it needs to be” in the world economy, Yalnizyan said.

She observed that it is hard for most national governments, including Canada’s right-leaning Conservative-led minority administration in Ottawa, to wean themselves from the philosophical path known as the Washington Consensus.

“It is very difficult to turn that around because government has been perceived for almost 30 years now as the problem and the market as the solution. And it is very difficult to change a very firm mindset among the governing elites that it is not serving people very well,” she said.

Nevertheless, Tuesday’s passage of the budget in the House of Commons in a 214 to 84 vote with the reluctant support of the Liberals, the major opposition party, was inevitable, given the promised spending of 28.3 billion dollars over two years on everything from income tax cuts and help for home renovations to enhanced jobless benefits and funds for urban reconstruction.

Given the weariness of the Canadian public towards the notion of another federal election – Prime Minister Stephen Harper’s Conservatives were just reelected with an increased minority government last October – there was little appetite for having the federal budget, albeit not entirely perfect, turned down and forcing a national vote in the process, says Chantal Herbert in a column for the Toronto Star.

“In their quest for parliamentary survival, the Conservatives have cut and pasted a lot of old-style Liberal spending initiatives and spread them pretty much across the board. It is hard to think of a constituency, friendly or hostile to the Conservatives, that will not get a piece of the multibillion-dollar stimulus package the government has cobbled together,” Herbert said, adding, “Environmentalists are the possible exception. True to Conservative form, the notion of adjusting Canada’s economy to the realities of climate change comes across as an afterthought.”

The Conservatives were almost ousted last November when they introduced an economic statement that contained no stimulus package and also included measures to reduce election financing for political parties, which particularly threatened the defeated Liberals – in debt from the last election.

Herbert adds that Harper and his government appeared to have learned their lesson this time and introduced a budget minus the noxious measure that was designed to win the support of the bruised Liberals, ill-prepared to fight another election so soon under a new leader.

Nevertheless, the Liberals could have legally helped to defeat the Conservative minority government under Canadian parliamentary rules and taken over the country with the support of two other opposition parties in some form of coalition, commented Nelson Wiseman, a University of Toronto political scientist.

But with no political precedent of that ever happening before in Canadian history, this was not a real option, given the regional divisions that might have resulted – with the Conservatives strong in western Canada and the Liberals more of a force in the east, he continued.

“The coalition idea however has now taken root and I expect it to sprout,” Wiseman told IPS.

A formal coalition led by the Liberals joined to the hip with the social democratic NDP is not ruled out by Wiseman down the road with minority governments becoming the norm in a four-party Canadian parliament.

“As the economy continues to weaken,” added Wiseman, “[Canadians] will be more disenchanted with whoever is in charge, and that happens to be the Conservatives and Harper.”

One of the concerns of the mayors of Canada’s major cities is that much of the promised 3.2 billion dollars in urban infrastructure spending under the Building Canada Fund will be held up by regulation and that little of the funds will flow immediately to needy areas such as public transit.

Toronto Mayor David Miller has complained of delays in the past in the availability of previously promised financial assistance by the same government. “Placing rigid requirements on funds like this does not work. The dollars need to be invested, not written down on paper. This is full of red tape,” he told reporters.

Insufficient infrastructure spending to spur new jobs and the resistance by the current Conservative government in its latest budget to ease up on the tight regulations to access jobless benefits could prove disastrous in the coming months when six out of 10 Canadians will find themselves ineligible for income support and be forced to live on their savings instead, warns Yalniziyan.

“Far more serious and far more grave is the fact that this government is looking at the hundreds of thousands of jobs that were lost in the last few months and full knowledge that many more hundreds of thousands will be lost in the coming year,” she said.

Leo Panitch, a Canada research chair of comparative political economy at York University, observes that Canada’s economic stimulus package amounts to only one percent of gross national product, compared to the five percent about to be invested in comparable moves in the U.S. by the administration of Barack Obama.

He also noted that the Canadian government’s “rosy” predictions of 2.4 percent initial growth followed by a further advance have been contradicted by the International Monetary Fund – which forecast a mere 1.6 percent growth for Canada.

Panitch is not sure that the Canadian strategy of maintaining a tightly regulated banking system, a reliance on the high demand for its commodities, particularly oil, and economic integration with the U.S. will save this country from the economic downturn.

“People had been saying that Canada will suffer least from this recession because at least we were doing very well in commodity prices. But now commodity prices and oil prices have tanked,” he said.