Kevin Page on the new normal

What our in-house guest expert had to say about the 2014 budget

by Kevin Page

Chris Wattie/Reuters

Chris Wattie/Reuters

In 2006, Finance Minister Jim Flaherty inherited a fiscal surplus and an economy operating on all cylinders—strong growth and a relatively low unemployment rate. If budget 2014 turns out as a planned, we will find ourselves in a similar situation. Ten years later we could find ourselves back in surplus with an economy operating near its potential.

It has been a difficult road for the Government of Canada. There were a number of obstacles. Some of these obstacles were largely forced upon the Canadian economy, including the 2008 world financial crisis. Others, it can be argued, were self-created. Deep tax cuts to the GST and corporate income taxes and the launch of a large number of tax expenditures have come back to haunt the government. To get back to balance before the next election in 2015, the government must cut program spending while the economy continues to operate below potential.

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Budget 2014 has been carefully crafted. Minister Flaherty has stayed his course. His planned commitment to get the government back to balance is still intact. There are lots of small measures to help a sluggish economy: to help raise our employment rate; to support growth; and to help Canadian families, including those that face difficult challenges. The fiscal impact of these new measures has been offset by additional fiscal restraint, largely on the backs of public servants and delayed military procurement, and from re-allocation of spending. It is the new normal: try to do a lot with a little.

I wish the government well in achieving its balanced budget objectives. I agree with Minister Flaherty that fiscal discipline has its benefits. Lower debt relative to the size of the economy will give our country fiscal room to manoeuvre. We needed that fiscal room to manoeuvre in 2009 when our Canadian economy was in recession. Fiscal stimulus helped when we needed it.

As with any budget, there is opportunity to debate strategy. Setting a fiscal target of balanced budget in 2015 is a political choice. Fiscal balance is given a higher priority over the short term than additional support for economic growth. By the government’s own estimate, about $19 billion of annual savings in 2015-16 have been implemented since the 2010 budget. This represents more than one per cent of GDP. It is a significant amount of savings for an economy that is operating well below its potential. While some of these saving have been redirected to new government programs, most have gone to reduce a small structural deficit that the government created earlier in its mandate.

What if the government redirected all the savings since budget 2010 to nurture the recovery and support longer-term reforms? Economic growth in Canada has trended down since 2010. We had less than two per cent growth in 2013. It is very difficult to lower the unemployment rate with growth this weak. Our employment rate, the level of employment divided by population, is down two percentage points from pre-recession levels. If we had a similar employment rate, the level of employment would be some 500,000 jobs more. Weak investment and exports have been unfortunate hallmarks of the Canadian recovery, compared to earlier experiences in the 1990s and 1980s. What if further investments were made to training, research and development, and infrastructure? Did we lose an opportunity? There is a price to fiscal discipline while the economy is operating below its potential.

Budget 2014 is an austerity budget. Program spending will decline in 2014-15. This is a rare event. Some tough political choices have been made. We are now headed for planning surpluses in 2015 and beyond. We have come full circle. There will be room to manoeuvre, at least at the federal level. Next year, 2015, is going to be very interesting. There will be a budget and then an election. Next year’s budget will lay claim to fiscal surpluses. There will be many claims on that surplus—new programs to boost productivity, deal with aging demographics, address increasing gaps in income inequality and on the environment. Let the policy debate begin. There is no shortage of longer-term challenges.




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Kevin Page on the new normal

  1. Mmm It’s taken them 8 years so far to try and get back to where they started.

    Canada’s just speeding ahead in the global economy. [rolls eyes]

    • If it was so easy, why hasn’t any other Country sped ahead, then?

      • They have.

    • Canada wasn’t responsible for the global economic crisis. The United States was.

      Canada is the only G7 economic off of alternative non-standard central bank monetary policies. i.e. Japan, the United States, Britain, and Europe are still using artificial stimulants to prop up their economies.

      Getting off the juice as quickly as possible is a good thing. It means we have cushion for the crisis aftershock that is coming soon.

      Too bad Ontario and Quebec have not been so diligent.

      • The US wasn’t responsible for the global economic crisis either. A global crisis is…..global

        And we are propping up our economy big-time.

        There is no crisis ‘aftershock’…..we are still in crisis.

        Alberta can’t even give away it’s oil….and oil is all Alberta has.

        • You really are clueless about how economies work, aren’t you?

          It was a global crisis not because of global policies but because of American policies. That reflects how big the American house of cards really is. Key financial concerns in countries such as Spain invested heavily in American securities derivatively based on unstable/unsustainable mortgages sold to people who couldn’t afford to pay them. When the collapsing started it took down Trillions of wealth that had been based on thin air due to three things done by Bill Clinton.

          We were wisely insulated from the worst of it by our federal government directly and by their conservative regulation of our banks, which had not overly gambled in the American housing casino. Clinton, in signing bills in 1999 and 2000 which de-regulated financial services and allowed combinations of financial giants in a way that had been blocked since 1933, and in his ardent push for greater home ownership, particularly among minorities (basing financial policies by race is always foolish), set the risk in motion for the 2008 crash. The Democrats (chairs Barney Frank and Chris Dodd) resisted the Bush White House’s warnings in 2007 about the financial tremors they were detecting — they wanted to use the financial situation for political purposes, and then-Sen. Dodd was running for President.

          But we’ve all seen you don’t learn when things are explained to you. And continually make dumb statements such as oil can’t be given away. Perhaps you’ll some day learn the difference between it’s, its and its’ and their appropriate use, but I doubt it…

          • 200 countries, 200 sets of regulations and standards, huge amounts of money….all trying to do business together under an old sovereign nationalist mindset. Money goes missing, money gets blown, money gets hidden….creeping chaos. And things start to fall apart.

            Hence 2008. Hence Basel III.

            And if we don’t get a move on, 2008 will seem like a walk in the park.

            I’m not interested in your partisanship….or your English class.

            Ciao.

          • And you don’t understand what happened, and why some countries were better insulated. But you don’t wanna know. Your comfort zone doesn’t allow for it.

          • This comment was deleted.

          • This comment was deleted.

          • Canada bailed out the banks to the tune of 100
            + mill$.

  2. great read!!! im excited for the future. i thought mr. page would be more anti-harper, i was surprised not gonna lie

    • Page was a Harper appointee; it shouldn’t surprise anyone that he would be in general agreement with the direction of government. The problem between Page and the Harperites was that they forgot to tell him when he was hired that he was window dressing; the whole accountability thing was a ruse. Turned out he actually expected to do the job he was hired to do – and it was that principled commitment to the job, rather than being a party Yes man, that caused them to label him a lackey of the Opposition.

      • What he has reflected here is that there are choices, and calculations of both an economic and political nature. In his previous life he was black and white. Now he understands that, in retrospect, no government choices can entirely anticipate the future but must operate within an envelope of flexibility, weighing all the variables. The challenge after employing Keynesian spending is always how to withdraw from it. Trudeau never figured that out and mired Canada in a structural malaise still painful 3 decades later. Now we’ve seen how to do it. Steady hand on the tiller, ratcheting back unneeded costs, delaying optional spending, putting current spending into jobs and infrastructure that ensures jobs. When the story is written, it will provide a blueprint. Page’s reflection offers some useful input into the understanding.

        • You and Harper need to get a room after that drivel

  3. Mr Page… Kevin, just how you still manage to employ grace and civility, with Comrade Harper’s mention in the same paragraph, amazes me. I have to hand it to Harper; he continues to turn up the heat on the ole simmering pot in our ever expanding corptocracy, whilst laying waste to our environment and the scientific base that would document his evil work.

  4. This is confusing. Page always proclaimed there would never be a surplus.

    • No, he always proclaimed he didn’t know, because the government wasn’t giving him numbers.

      He’s still not saying he knows, just now he’s saying that, based on the budget, it looks like they might.

        • My apologies. I thought you were speaking of something since our last election. We’ve had one since then, you realize?

          At any rate, since you seem to have had your head shoved somewhere dark in the meantime, I’ll point out that after that election, the CPC made an announcement that they would be putting more of the burden in health care increases on to the provinces. This *change*, caused Mr. Page to adjust his prognosis on the government’s fiscal sustainability track ( http://www.cbc.ca/news/politics/health-funding-formula-helps-ottawa-burdens-provinces-1.1168232 ) which is in direct accordance with what he says in the article you provide: His advice to government: “Deal with it now when it’s still a small problem.”

          To their credit, they listened. Albeit at the provinces expense.

          • My apologies, I forgot I was talking to someone who talks out of his a** and makes things up more often than he tells the truth.
            I won’t make that mistake again.
            Nothing you just said has any relation whatsoever to what I said.

          • You know the blue words are links right? If you click on them with your mouse, it’ll take you to a news site that confirms what I said.

  5. The Americans were the crisis so we had to sell em Stelco to US Steel companies are leaving Canada and of course the budget will cost us money nice try mister finance minister you’re only fooling yourself the citizens are tired of it the plane boss the plane

  6. except the only ones top benefit from a surplus are the rich with tax breaks and income splitting. As a single person on a fixed income I will remained screwed living on less and less.

    • Single people tend to have a lower voter turnout than married individuals, so it is not surprising.

      • Voting makes no difference, but keeps the delusion that we did this to ourselves.

        • That attitude is what makes no difference, and it is the delusion.

          • This attitude has freed me. Coupled with a very liberating apathy & lack of expectations, I am a happy dude.

          • Thanks.. for doing your part to make things no better for anybody else. Very cool of you, dude.

            But hey.. at least you’re happy, right?

          • I never claimed to be happy, just free from self-delusion.
            Keep on getting sheared, sucker.

    • Income splitting doesn’t just benefit the wealthy.

      • Even Flaherty does not believe that. That is why he is rethinking it.

      • Well, it’s a boutique tax credit. The benefits flow overwhelmingly to single-income families with a stay-at-home spouse and children, at the expense of everyone else. By and large, families in this situation are quite wealthy–poorer families generally can’t afford to have a stay-at-home spouse. If you’re in a two-income family, it’s pretty unlikely that you’ll see any benefits from this at all. And, of course, if you’re single, or don’t have children, you obviously won’t get any benefits from this. It’s a direct wealth transfer from poor to rich.

        • It is not a boutique tax credit, in fact not a credit at all. It is moving income from on return to another. It shows up as income on one return, and a deduction on the other. And if fixes a glaring inequity in the income tax system. And any two income family where incomes are in different tax brackets will realize a benefit.

      • Actually, it mostly benefits the non-wealthy. Wealthy people cannot split much of their income into lower tax brackets.
        However, I’ve never liked the fact that income splitting does benefit couples as opposed to single people, regardless of whether couples have children or not.

  7. It’s quite weird that flaherty boasted about saving money by not spending any, then declaring he will have money to spend next year. Well, if he has money next year, it’s because he did not spend it last year. Why all the cuddle cuddle about deficit and surplus? Money management or money miser?

    • …and no I don’t get “economics”.

  8. Thank you for these comments, Dr. Page. I am glad to see someone bring up the austerity angle. We have had several years of federal austerity budgets now, and the impact on the economy can be seen in weak GDP and employment numbers. The government is fortunate that its neighbour is growing (albeit slowly) rather than contracting, or it would find itself in the UK’s situation. Since unemployment is far worse than slightly higher future taxes, this austerity is disastrous policy, doing real harm to people across the country. Economists should be shouting this from the rooftops. Sadly, Canada has no Paul Krugmans or Joe Stiglitzes.

    • Dear Leader is punishing us.

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