VANCOUVER, BC- Today's federal budget turns back the clock
on Canada's past sound fiscal management and sets the nation
back down the path of massive deficits and increased debt, said
Niels Veldhuis, Fraser Institute senior economist.
"This budget is simply irresponsible given Canada's current
economic climate. Massive increases in government spending and
$85 billion in deficits over the next five years will do
little, if anything, to boost economic activity and instead
will saddle Canadians with higher taxes in the future,"
"The government has caved in to the special interest groups
lining up in Ottawa with their hands out for federal cash. This
budget will do little in the way of improving the economy and
sends a negative signal to the real generators of economic
activity: skilled and talented Canadians, entrepreneurs and
From 1997/98, the year the federal government balanced its
budget, to 2007/08, the federal government ran budget surpluses
and reduced its debt by $105 billion.
"Canadians are still paying for the legacy of past federal
deficits with 13 cents of every dollar in revenue still going
to pay interest on the existing debt. With a nearly $85 billion
increase in debt proposed in this budget and interest rates
that are likely to rise, this budget will significantly
increase the debt burden for the next generation," Veldhuis
"Stimulus" Spending Doesn't Work
The 2009 budget contained a massive, $28 billion increase in
government spending over the next two years (2009/10 and
2010/11) to "stimulate" the economy. The increase in spending
is an attempt to appease nearly all special interests including
seniors, aboriginals, farmers, the auto industry, forestry,
tourism, arts and culture.
To finance this spending, the government must borrow nearly
$85 billion, meaning the government will take money from some
Canadians (those buying government bonds) who will have less to
spend and/or invest in the private market. The end result is
the government merely shuffles money around from one group of
Canadians to another, rather than increasing overall economic
"With these spending initiatives, the government is merely
transferring money from some Canadians to special interest
groups. This will not increase economic activity," Veldhuis
One of the budget's major disappointments is the lack of
permanent broad-based relief, Veldhuis said.
"Of the $11.9 billion provided in tax relief over the next
two years, only $3.8 billion is permanent and broad-based. This
is in comparison to the total stimulus package of $39.9
billion, a meagre 10 to one ratio."
The majority of the tax relief offered mirrors the spending
increases by targeting select groups and preferred industries.
It includes a host of new or expanded tax credits such as the
new Home Renovation Tax Credit, a First-Time Home Buyers' Tax
Credit, an extended Mineral Exploration Tax Credit and an
increased Age Credit.
"Unfortunately, $3.8 billion in permanent broad-based
personal income tax changes (including the small increase in
the basic personal exemption and the increase in the threshold
for the bottom two personal income tax rates) will do almost
nothing to help the economy," Veldhuis said.
"The government could have achieved better economic results
by dropping middle and upper personal income tax rates which
would have reduced the burden on highly skilled, talented and
creative people and improved the incentives for increased work
effort, investment and entrepreneurial risk taking."
The centre piece of the government's "stimulus" package is
the $11.8 billion in new infrastructure spending over the next
two years, including a $4 billion Infrastructure Stimulus Fund
for provinces and municipalities, $2 billion to support repairs
and maintenance and accelerated construction at colleges and
universities, $515 million for First Nations Infrastructure,
$500 million for recreation facilities, $500 million for
projects in small communities, and $400 million for
the Green Infrastructure Fund.
"While Canada's infrastructure certainly needs improvement,
increased infrastructure spending will do little to stimulate
the economy. Infrastructure initiatives are rarely "shovel
ready" and those that are, aren't necessarily the ones that
will provide the greatest economic return," Veldhuis said.
Regional Economic Development and Bailouts
The budget also contained billions of dollars for specific
regions and industries including:
- $4 billion for the previously announced bailout for the
- $1 billion Community Adjustment Fund for rural towns
- $335 million for culture and arts
- $140 million for tourism
- $500 million for agricultural
- $170 million for the forestry sector
- $1.0 billion for a new southern Ontario development
- $1.0 billion to support clean energy technology
"Yet again, the federal government is relying on failed
activist economic policies that will only delay the day of
reckoning for these troubled industries. The government should
have used these resources to create the right investment
climate and environment for all businesses to succeed,"
"All in all, this entire budget was an enormous missed
opportunity. If Finance Minister Jim Flaherty truly wanted to
have a positive impact on the Canadian economy, he should have
reduced government spending, eliminated the capital gains tax,
and aggressively decreased personal income and business