It's hard to get excited about Thursday's federal budget. All signs point to an "austerity" budget, even though that approach has failed so spectacularly wherever it has been tried. Austerity is one of those zombie ideas that cannot be killed, roaming rampantly across the pages and screens of the mainstream media. The 2012 federal budget already took a big step down the path of austerity with major public sector cuts, largely focused on direct federal program spending with cuts around 7% (transfers to provinces and individuals, a large part of the federal budget, have largely been spared). About 19,000 federal public service jobs were cut in the 2012 budget, bringing the total to over 35,000 going back to previous rounds of cuts.
Austerity hurts more than just laid off civil servants, but the whole economy. The Parliamentary Budget Officer, whose budget is being cut, estimated last year that the 2012 federal budget would be a drag on economic performance, lopping 0.7% off 2013's GDP and a total employment impact of 69,000 jobs. If the feds want to understand lacklustre economic performance, a look in the mirror is in order.
For the Harper Government, the optics of tabling a balanced budget by 2015, in time for the next election, seem to trump the reality of unemployed Canadians right now. While the unemployment rate, at 7%, is not dreadful, a closer look shows that Canada's labour market remains weak: labour force participation is down; the percentage of employed as a share of the population is down a couple points from pre-recession levels; about a quarter of those working part-time would really like to working full time; there is more precarious employment; and fewer unemployed Canadians are covered by Employment Insurance, a situation that will worsen as workers run out their benefits. On top of this are recent data that show household debt pushing new record highs of more than 160% of income, a level that is now higher than in the US before the housing bubble burst – households piling on debt make a sluggish economy appear to be doing better than it really is.
Given these conditions, the top priority of the federal government should be getting Canadians back to work now, not what year the budget will be balanced or what the debt-to-GDP ratio will be in 2022. It's dangerous for people to think of the federal government as a household that needs to tighten its belt when times are tough – doing so only further undercuts the economy. The weak performance of the economy in the second half of 2012 should prompt a rethink of this strategy. And it's not like the federal deficit is all that large anyway, about 1.5% of GDP and in the context of a manageable debt load by historical standards. The key for right now is to maintain and even increase public spending to support effective demand in the economy -- the resulting deficit can be reduced by raising taxes on millionaires and large corporations (who are sitting on about $600 billion in cash reserves).
The feds' lack of action stands in contrast to the slick Economic Action Plan marketing campaign. Clearly, this has been good for the advertising industry, and seems to be supporting professional hockey (that's where I see all the ads, anyway), but Canadians are thankfully growing cynical about those ads.
So Canada needs a real plan not a deceptive ad campaign. It's worth remembering that budgets are about the choices we make as a society and what investments we make for the future. Cities like Vancouver, Toronto and Ottawa need major new investments in public transit to support the mobility of citizens. The country is short on affordable housing stock because the current building boom is more interested in selling speculative investment properties to non-residents. We need to shift our energy investments away from bitumen mining and gas fracking to clean alternatives. We need to invest in children and early learning system, which basically pays for itself once labour force participation of women is accounted for.
These investments cost money and would push up the deficit but they are needed to set the table for future prosperity. The CCPA's Alternative Federal Budget costs out these options and more within its fiscal framework. And you can have your own try at it this year, with the AFB's Build a Better Budget module online.
Final thought: some noise has been made about cracking down on offshore tax havens, a move that would be welcome. A Canada Revenue Agency document estimated that a $30 million investment in enforcement would yield a $2.5 billion gain to the federal treasury, and research by Canadians for Tax Fairness estimated that we are losing up to $8 billion per year due to tax havens.