🚀 go-pugleaf

> Second, Canada's current fiscal uncertainty is adding a hefty risk 
> premium to our interest rates. Canada is perceived by the 
> international community as running on an unsustainable debt and 
> deficit path. Furthermore, international commentators and investors 
> are not confident in the Chr�tien government's ability and resolve to 
> deal with the problem.[20] As it becomes apparent that Canadians are 
> serious about dealing with their deficit, investors will regain 
> confidence and interest rate risk premiums would shrink. Lower 
> interest rates would encourage investors to return. This, in turn, 
> would give Canadian businesses confidence to invest in job-creation 
> activities of their own. 
>  
> Third, Canadian consumers would regain confidence in the economy. They 
> would begin to spend more as they would no longer fear future income 
> confiscation in the form of increased taxes precipitated by persistent 
> government deficits. 
>  
> A number of Canadian and international examples demonstrate the 
> relationship between responsible deficit elimination and economic 
> growth. Alberta embarked on a significant reduction in government 
> expenditure, trimming 20 percent of government spending in a 
> relatively short period of time. During this time the Alberta economy 
> experienced one of the strongest growth rates of all Canadian 
> provinces. During the period of fiscal retrenchment, growth was around 
> 4 percent annually, and unemployment fell from 9 percent to 7.4 
> percent.[21] International examples include the Irish and Danish 
> experiences where despite severe reduction in government spending 
> their economies did not slump. Instead they experienced strong 
> economic and employment growth throughout the fiscal contraction.[22] 
>  
> We must look beyond short-term impact to estimate whether medium and 
> long-term gains outweigh short-term costs. We must also cautiously 
> estimate the effects on Canada's entire economy and not limit analysis 
> to particular regions or sectors of the economy. 
>  
> Long-Term Effects 
>  
> Most economic observers agree: Canada's current fiscal path is 
> unsustainable. But which approach is better: quick and decisive 
> elimination of the deficit as proposed by the Reform Party, or the 
> Chr�tien government's current strategy of slow and timid reductions, 
> supplemented by assorted tax increases? 
>  
> Instructive in this regard is a paper prepared using the Bank of 
> Canada's Quarterly Projection Model (QPM) written by Bank of Canada 
> officials Tiff Macklem, David Rose and Robert Tetlow.[23] Their work 
> concludes that the present fiscal path is producing and will continue 
> to produce significant negative effects upon the Canadian economy. Of 
> more importance is their finding that "more ambitious" deficit 
> reduction strategies, while entailing higher short-term costs, would 
> produce permanently higher growth and employment over the medium to 
> long-term compared to the status quo and a slower deficit reduction 
> strategy.[24] 
>  
> These models support what the Reform Party has always maintained. 
> Persistent deficits and increasing debts cause a significant drain on 
> the economy. The sooner they are addressed, the sooner all Canadians 
> will reap the benefits. 
>  
> Summary 
>  
> We must determine whether or not the long-term job gains from deficit 
> elimination outweigh the short-term losses. Under the Chr�tien 
> government's 1994-95 Budget, the short-term employment impact created 
> by government overspending (i.e. on infrastructure programs) are 
> positive but modest. The long-term employment impact is negative and 
> significant. 
>  
> Under the Taxpayers' Budget, the short-term employment impact of 
> spending and deficit reduction is negative but manageable. The 
> long-term employment impact of a balanced budget is positive and 
> significant. 
>  
> The bottom line is that the Taxpayers' Budget will lead to more 
> permanent, positive employment effects than the short-term measures of 
> the current government. 
>  
>     ------------------------------------------------------------------------ 
>  
> Next Section | Back to Contents 
>     ------------------------------------------------------------------------ 
>  
>  
> Footnotes 
>  
> [16] A Financial Post / Compas poll found in December 1994 that nearly 
> 70 percent of Canadians were either "not confident" or "not very 
> confident" that Finance Minister Paul Martin will meet his deficit 
> reduction targets for the coming two years (The Financial Post (10 Jan 
> '95): 43). 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [17] Ernst & Young, Review of the Forecasting Accuracy and Methods of 
> the Department of Finance, September, 1994. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [18] The contingency reserve will remain as predicted in the budget. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [19] See especially William B.P. Robson and William M. Scarth, op cit. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [20] See Editorial, "Bankrupt Canada?" The Wall Street Journal (12 Jan 
> '95): A17. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [21] For an international perspective, see The Wall Street Journal, 
> Ibid. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [22] F. Giavazzi and M. Pogano, op. cit. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [23] T. Macklem, D. Rose and R. Tetlow, "Government Debt and Deficits 
> in Canada: A Macro Simulation Analysis," in W.B.P. Robson and W.M. 
> Scarth (eds.), op cit. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> [24] Other models in this study (Robson and Scarth) find similar 
> results. 
>  
> Return to text 
>     ------------------------------------------------------------------------ 
>  
> Next Section | Back to Contents 
>     ------------------------------------------------------------------------ 
>  
> [Image] hermae@parl.gc.ca