Budget good, not visionary
The federal budget announced in early March is generally good. But it's not visionary. Canada will face critical problems in the coming decades that need visionary fiscal leadership, leadership that looks beyond the short-term physical stimulus that this and the previous budget have competently provided.
The sage advice, "don't panic" applies to this budget. Short term, it will serve Canada in a variety of important ways. It is neither blithely delivered nor fundamentally unsound for our moment in economic history. But it has the seeds of future challenges: the investments we've made with our recessionary largess may not be worth what we think they will, the ongoing costs of maintenance are certainly far higher than this budget suggests and the tab is going to be picked up by fewer and fewer of our children.
We looked at this current budget through the lens of three basic questions.
Are we getting what we paid for?
Canada joined a multinational network of states in injecting massive amounts of capital into global markets. The critical question about stimulus spending is whether we have turned our deficit liabilities into assets. It is difficult to imagine another government forging a different track, but did we use this money strategically?
The answer is mixed. Recent projections of federal debt relative to GDP suggest an alarming trend. While Canada's debt to GDP ratio is the lowest in the G7, short-term comparisons do not address what could be a worrisome long-term trend. Moreover, the what of our investment is as important as the how. The federal government's stimulus spending has rightly focused on physical infrastructure, long-term projects that will serve Canada and its future well. The return on these projects is measurable and effective.
Yet, physical infrastructure is only part of the picture of Canada's future. Economic growth depends both on the foresight of physical and social infrastructure to sustain it. This budget does provide $1 billion to support deferred maintenance repair and construction at our colleges and universities. It also invests in ports, bridges, and energy projects.
However, it neglects to sustain our equally vital social architecture. It neglects worrying trends in Canadian culture, like our dwindling civic core, the six per cent of Canadians who volunteer and donate at disproportionate levels. It leaves fundamental questions about looming demographic challenges in health care, elder care, social insurance, labour shortages and more unanswered. Canada may be getting short-term value for its dollars, but in the longterm we may wish we'd diversified our portfolio.
Can we keep up the payments?
The "new population bomb," as Foreign Affairs put it in January, is as global a crisis as the recession. And these phenomena are not disconnected. The proportion of GDP produced by Europe, the United States and Canada fell from 68 per cent in 1950 to 47 per cent in 2003, and is expected to decline further.
The question is not merely can we pay for the stimulus of physical infrastructure, but can we afford not to attend to the looming questions of social architecture? A shrinking charitable core, an aging population, a dwindling labour pool and soaring foreign economies present the challenge not simply of the next fiscal year, but of the coming decades for Canada. Ultimately, the cost of ignoring these demographic swings may prove far higher than the short-term physical stimulus.
Will our income grow enough to sustain this?
It is impossible to say with certainty that government projections for return on investment are either correct or incorrect. However, given what we can expect demographically, it is worth considering whether even our most optimistic projections of GDP growth and economic expansion will be capable of both absorbing this extra burden and bridging the gaps made by strong stimulus spending.
Fiscal sustainability, to say nothing of return on investment, requires looking beyond the medium-term projections of a sitting government's budgetary balance or debt. It is not an academic exercise to plan for a coming demographic shift; it is prudent management.
The government is returning to the Advantage Canada framework relying on tax, fiscal, entrepreneurial, knowledge and infrastructure advantages to position our economy favourably. The missing component in this strategy is building the capacity in non-governmental institutions. While there are various specific measures that, if properly implemented, have merit and will assist particular subsectors of the economy, for the most part this is a "tinkering with the status quo" budget that trusts market forces to solve the problem.
On the one hand, this is commendable: market forces are more reliable innovators than government programs. On the other hand, markets require workers and consumers. Our argument is that the foundation of the Canadian market itself—which depends on the complex system of Canada's social architecture—is facing serious problems that cannot be fixed overnight.
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