Main Street says ‘No Thanks’

No sooner had the wizards in the federal finance department hinted that a balanced budget could actually be coming

by Gregory Thomas, Federal Director


No sooner had the wizards in the federal finance department hinted that a balanced budget could actually be coming this year – 2014, a year ahead of schedule – than Bay Street recoiled in horror.

Chief economists of the big banks – who do a brisk business selling Canadian bonds at a profit – warned that balancing the books could be bad for the economy.

William Scarth, professor of economics at McMaster University and research fellow at the C.D Howe Institute even went so far this week to suggest that the Harper government could trim Canada’s unemployment rate by four tenths of a percentage point by running a modest $10-billion deficit over the next three years, creating 75,000 jobs.

To his credit, federal Finance Minister Joe Oliver has seen this movie before. He rejected the idea out-of-hand.

“Our government will not open the taps on reckless spending,” said Oliver. “We will not go down that well-trod and irresponsible path to economic decline.”

Mr. Oliver knows there’s a problem with the hoary old nostrum – running just a tiny, little deficit in order to ‘create’ thousands of short-term, government- funded jobs.

The best recent example involves his predecessor, Jim Flaherty, and the government’s 2009 stimulus package.

Mr. Flaherty projected a deficit of $34-billion for 2009 and $30-billion for 2010, tapering down to $7.3-billion in 2012, with total federal debt peaking at $542-billion.

In exchange for $84-billion in new debt, Mr. Flaherty’s 2009 budget forecast that 235,000 jobs would be created or maintained.

Mr. Flaherty’s actual deficits ended up being much larger than he expected: $55-billion in 2009, $33-billion in 2010, $26-billion in 2011, $19-billion in 2012, and $12-billion in 2013, adding almost $150-billion to the federal debt – nearly double what was promised.

To be sure, after shedding 417,000 jobs from pre-recession peak to trough, the economy recovered. 540,000 more Canadians were working at the end of 2013 than at the end of 2008.

If we give the federal government credit for every single job created since the worst day of the recession in 2009 (which is ridiculous, but nonetheless), that means we’re carrying about $160,000 in additional federal debt, per job created. And that doesn’t include the mountain of provincial debt borrowed in the past five years, billions paid out in EI or the reality that natural economic recovery/growth would account for the majority of those jobs.

So anybody – not just the C.D. Howe Institute or the bank economists – but anybody who says we can create thousands of jobs by going a few billion deeper in debt has a problem with history.

History teaches us that once the borrowing bandwagon begins to roll, deficits and debt always outrun their forecasts. And the jobs created by debt are created at astronomical costs.

History also teaches us that government fails to deliver on its promises, year in and year out.

Consider just one example of government promised jobs: the federal Skills and Employment program, delivered at a cost of $19-billion by 1,488 government employees. Despite its massive budget, fewer than 40 per cent of Canada’s unemployed are currently receiving EI benefits.

Fewer than half of apprentices graduate with trade’s certification. More than a quarter of unemployed Canadians exhaust their benefits before finding work. Nearly half of the unemployed fail to find a job or return to school after completing one of the lavishly-federally-funded training programs. More than a quarter of EI claimants have collected at least three times in the past five years.

This is only one of more than 700 federal spending programs. Who can seriously argue that we need more?

The C.D. Howe report suggests these 75,000 new jobs should be created through federally-funded infrastructure projects. If providing new infrastructure is a priority of the Harper government, it should be prioritized ahead of other spending in the next federal budget, and not tacked on to the debt as a “make-work” project.

Using low-priority infrastructure as an excuse for creating jobs is also a slippery slope. This was probably best illustrated by the great economist Dr. Milton Friedman. On a trip to India in the 1960s, Mr. Friedman witnessed thousands of workers constructing a canal by hand with shovels rather than modern equipment.

When he questioned the government bureaucrat in charge he was informed it was a “jobs program.” Dr. Friedman reportedly replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”

Mr. Oliver is right to reject calls for further fiscal irresponsibility. Putting Canada back in the black and marching towards a budget that will put more money back into the economy through tax cuts is a much more prudent move.


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