How last week’s political malarkey affects your economic future

By Dian Cohen

Bill Morneau resigned as finance minister on a boat load of hogwash – it doesn’t matter that it was all distraction – he’s gone. When Parliament reconvenes near the end of September, the Prime Minister will lay out an economic recovery plan. The Opposition parties get to vote confidence or not – they could bring the Liberals down on the Throne Speech. Then we’ll go to the polls. If that happens, politics will take time away from conquering the virus and keeping the economy as steady as is possible – something that’s top of mind for me right now. If the government survives, the new Finance Minister will present a budget to detail how the economic recovery plan will be paid for. The Opposition can bring the government down on that as well.
By now it should be clear that the only thing that has kept the economy from complete collapse has been massive government intervention – low interest rates and “printing money” to support businesses and individuals who cannot yet stand on their own feet. Sustained economic growth is a core driver of human development. The evidence is overwhelming that growth is the most effective way to lift people out of poverty and improve their quality of life.
The budget for 2020-2021 was derailed by COVID-19, and a fiscal “snapshot” last month estimated that the feds would spend $343.2 billion more in 2020-21 than they would receive in revenue – without question the largest budget deficit ever. [Just a reminder of why so much more spending: 5.5 million jobs vanished between February and April; 8 million Canadians applied for the Canada Emergency Response Benefit; 600,000 students applied for the Canada Emergency Student Benefit; direct federal aid to individuals and businesses as a result of COVID-19: $212 billion.]
This support needs to continue. It’s conceivable that the deficit could be higher even than the humongous $343 billion – and that is the sticking point for the many people who worry about excessive debt and borrowing. Canada cannot borrow excessively with no repercussions. We learned that in the 1990s when our international credit rating was downgraded, investment dollars fled the country and we were closer to a currency crisis than one would want. We’ve had a taste of the same when the World Economic Forum spotlighted our pre-COVID-19 deficit and in June 2020 one of the three international credit rating agencies downgraded Canada as a place to invest.
Without question Canadian policy makers are in a difficult position. The plan for economic recovery, as the Howe Institute says, “must make clear to Canadians how the government will re-calibrate and eventually remove the temporary fiscal programs currently in place, as part of a transparent plan to stabilize public finances over the medium term.” In other words, what’s the plan to contain deficits and look forward to more balanced budgets when the COVID crisis abates? It’s not going to be easy but neither is it impossible.
That same World Economic Forum that highlighted our federal deficit also put us in the top ten of 141 countries it analysed for the following characteristics that are essential for economic growth, equality and wealth production: very stable macro-economic conditions, a sound financial system, good educational institutions and well-developed human capital. What we need to work on according to WEF: Information and communications technology as well as innovation capability, further improvements in mobile broadband infrastructure and usage, greater investments in research and development and collaboration between companies, universities and research centres. Sounds like a place to start.
Dian Cohen is an economist and a founding organizer of the Massawippi Valley Health Centre.

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