Canada urged to join U.S. in creating ‘strong, bold’ stimulus package

By David Akin
November 25, 2008


As the government of its biggest trading partner, the United States, announced a new $800-billion stimulus package, pressure is growing on Canada’s federal government to do something equally dramatic, and to do it quickly.

“Around the world, governments are taking this economic crisis seriously, and they’re taking strong and bold action,” NDP Leader Jack Layton said in the House of Commons on Tuesday. “Economists of virtually all stripes are saying dramatic action is needed, and it’s needed right now.

“We have our government saying they don’t intend to do anything until 2009.”

Finance Minister Jim Flaherty speaks during Question Period in the House of Commons on Parliament Hill in Ottawa on Tuesday.

Finance Minister Jim Flaherty will present the annual fall fiscal and economic update Thursday in the House of Commons. He has already said there will be no significant spending or tax initiatives in that update. Those, he’s said several times over the last few days, will have to wait for the 2009 budget, which will likely be presented in February.

But Jayson Myers, an economist and the chief executive of the lobby group Canadian Manufacturers and Exporters, says his members are in urgent need of help.

“One thing I would like to see in the update is a sense of urgency, some sense of the importance of dealing, especially, with the credit problems before they have a major impact on industry,” Myers said. “I’m really afraid we’ll see this financial meltdown translating into an industrial meltdown, and it’ll be too late to respond after we get official statistics from Stats Canada.”

Canadian government officials, though, are still trying to determine how to get the biggest bang for their buck, and trying to do that amid one of the most rapidly deteriorating economic environments ever.

So when and if Flaherty does get around to it, what will it look like?

Experts are largely unanimous on one point: In order to have the desired effect, the stimulus package will have to be massive.

How massive?

Consider this: The sum total of all economic activity in Canada – our gross domestic product, or GDP – is about $1.6 trillion. When the G20 leaders met in Washington earlier this month, they agreed that each one would come up with a stimulus plan worth about two per cent of their country’s GDP. In Canada’s case, that would be about $32 billion.

It’s not clear though if, when Harper committed that two per cent target, he would count the stimulus his government already provided earlier this year in the form of tax cuts, or whether this would all be new money.

“I don’t think you can do $32 billion of temporary stimulus and ever get back out of the thing,” said Don Drummond, TD Bank’s chief economist. Drummond, who was once a top federal Finance Department bureaucrat in charge of preparing budgets, says a stimulus package of $32 billion would mean deficits for a generation.

At a meeting last weekend of Pacific Rim leaders in Peru, Harper declined, when asked, to specify what kind of stimulus plans he was considering.

That’s why some observers are betting Harper will count previous tax cuts as part of the package. Flaherty certainly seemed to suggest, in his response to Layton in the Commons, that the government had already provided some stimulus.

“The GST reduction is permanent. The income tax reductions are permanent. The business tax reductions are permanent. Some more tax reductions come into force next year in 2009. This is a permanent stimulus to the Canadian economy,” Flaherty said.

But experts ranging from the Paris-based Organization of Economic Co-operation and Development (OECD) to the left-leaning Canadian Council on Policy Alternatives (CCPA) say Canada is uniquely placed among its peers in that it can likely afford to do more.

“Canada is in an excellent position to do its share and engage a bold fiscal stimulus package, consisting of infrastructure and other public spending,” wrote CCPA economist Marc Lee in a report released Tuesday. “Not only should the federal government accommodate a deficit that arises from worsening economic conditions, it should stand prepared to increase operating and capital expenditures in order to lean against adverse economic winds.”

The CCPA says that, among other things, Ottawa ought to shore up the Employment Insurance program, increasing the number of weeks a worker can receive benefits and boosting the maximum weekly benefit to $600 from $435.

“EI benefits are a highly effective stimulus as they quickly replace income for recently unemployed workers, who are very likely to spend the proceeds,” Lee said.

Other income support programs operated by Ottawa, such as the Guaranteed Income Supplement for seniors and the Canada Child Tax Benefit, could also be strengthened.

But Drummond says those initiatives would become permanent and don’t necessarily help the country boost its productivity.


They should also urge provinces to raise welfare rates, “putting back that 20% cut”.

Many more are have to turn to it as a last resort but the benefits are so minuscule that persons, single or with a family can and do end up homeless very quickly.

This should also be done in other countries as well.

Unfortunately because of job losses and the Financial Crisis many around the world use welfare as a last resort. Raising the Employment Insurance rates people receive is a good for those who can access it but not all can. Part time workers will benefit little from it.

Those with lower paying jobs also will not receive as much on Employment insurance either.

Those making minimum wage now only get 55% of their wage which is not enough to live on.

Raising that back to it’s former 75% would be beneficial to many.

Many who make minimum wage are also, the working homeless.

Raising the Employment insurance rates and welfare rates are a necessity at this point in time.

Prevention should be a priority.

Following the US is not necessarily a good ice when it comes to many things. The Financial Crisis began there and it is obvious their ideas, may not be so good.

Their “Financial Wizards” are not “Wizards” after all now are they?

Taking their advise could mean “Doom”.

Maybe the US should be taking advise from others instead.

Published in: on November 26, 2008 at 12:53 am  Comments Off on Canada urged to join U.S. in creating ‘strong, bold’ stimulus package  
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