Budget ’09: Stimulus

Stimulus spending is on nearly every government’s agenda these days. The International Monetary Fund has encouraged governments that are able to do so to kick in an extra two per cent of GDP in government spending to cure the economic hangover that’s afflicting markets around the globe. And though Jim Flaherty told Parliament his government’s financial package “exceeds the target recommended” by the IMF, Ottawa’s stimulus spending will come in at 1.9 per cent for 2009 and another 1.4 per cent for 2010. Still, the Conservatives plan to inject nearly $40 billion into the Canadian economy over the next two years, with the provinces expected to contribute another $11.6 billion.

The federal government projects its stimulus package will protect or create 190,000 jobs in Canada. Opposition leaders didn’t dispute the figures on Tuesday, but they did worry Ottawa won’t be able to deliver the funds effectively. “Are they going to get the money out the door?” asked Liberal leader Michael Ignatieff. NDP leader Jack Layton worried the requirement that cash-strapped municipalities match the funds committed by the federal government to infrastructure projects will compromise the program’s success. The budget “requires governments that don’t really have the money to match the funds,” Layton said, “which means those jobs won’t be created and those numbers won’t be reached.”

Infrastructure spending will account for nearly a third of all stimulus spending, totaling $12 billion in all. A quarter of the funds have been earmarked to restore Canada’s aging roads, bridges, and other projects the government considers “shovel-ready.” Projects include an extra $407 million for Via Rail to improve its passenger rail services, $323 million to restore federally-owned buildings, and $212 million for repairs to Montreal’s Champlain Bridge. An additional $2 billion has been committed to long-overdue maintenance projects at colleges and universities. Other measures include a $1 billion fund for green infrastructure projects as well as funding for expanding broadband Internet access.

The $12 billion commitment supplements the previously-announced $33 billion Building Canada Plan, which focuses on longer-term projects. Critics claim the Building Canada Plan has been largely ineffective so far, with few of the funds having been spent since its inception. But Finance Minister Jim Flaherty promised that the newly-announced infrastructure stimulus package would find its way into the economy much quicker. “We must take action now,” Flaherty said, “to reduce red tape and needless duplication.” Budget documents show Ottawa is aiming to break ground on a number of projects within 120 days, or just in time for the upcoming construction season.

However, Toronto Mayor David Miller says Ottawa has done little to lift the restrictions on accessing the infrastructure funds. According to Miller, municipalities will still have to apply to the federal government to finance infrastructure projects, meaning the money won’t flow as quickly as local mayors would have liked. Miller aslo points out there are no guarantees Ottawa and the municipalities will agree on which projects deserve funding. “The projects are the priorities of Ottawa, not the cities or towns,” Miller says.

To revitalize the moribund construction industry, Ottawa has committed a total of $7.8 billion over two years to the housing sector. The most expensive measure, a one-year Home Renovation Tax Credit worth up to $1,350 per home, is expected to cost the government $3 billion in the coming fiscal year. Current home owners also stand to benefit from an extra $300 million allocated to the federal government’s ecoENERGY Retrofit program, which the governments plans to use on 200,000 home retrofits.

However, Ottawa will be looking for the provinces to pick up part of the tab for some of its other large-scale investments in the housing sector. The federal government agreed to commit $1 billion over two years to renovate and increase the energy efficiency of up to 200,000 social housing units, but the program is dependent on the provinces kicking in half the necessary funds. In all, provincial governments are expected to contribute $1.5 billion over two years to the housing sector stimulus plan, bringing its total value to $9.3 billion.

Individual Canadians will be expected to pick up whatever slack left by the investments in housing and infrastructure. To stimulate consumer spending, Ottawa is introducing some $20 billion in tax cuts over the next five years. The most significant measures include a 7.5 per cent increase in the basic personal tax exemption (to $10,320), as well as a corresponding increase to the upper limits of the two lowest tax brackets. Seniors will save up to an extra $150 a year thanks to a $1,000 increase to the Age Credit amount.