The federal government is looking increasingly Pollyannish in the face of bad economic news. Prime Minister Stephen Harper and his crew appear to be hoping the recession away rather than taking additional steps to counter it.
Last week, the Bank of Canada, previously on the optimistic side of economic forecasters, downgraded its growth outlook for this year. Canada's real GDP will shrink 3 per cent this year, not the 1.2 per cent decline the bank forecast in January or the even more modest 0.8 per cent drop foreseen in the federal budget of January. As forecasts go, that is a dramatic shift in just three months.
Explained Bank Governor Mark Carney: "These are difficult economic times with the Canadian economy being buffeted by an intense and synchronized global recession."
But Harper appeared unconvinced that any further response is require from the government. "We are taking the appropriate course of action," the Prime Minister told Parliament last week.
The central bank is doing what it can. Carney last week reduced the bank's benchmark lending rate to a record low 0.25 per cent – it is not possible to go any lower – and said it would remain there into next year. He also said the bank could inject more stimulus by increasing the money supply through a device known as "quantitative easing."
Unfortunately, relying on monetary policy to turn around a slumping economy is like pushing a string: there is no guarantee anything will happen at the other end if the commercial banks are reluctant to lend and consumers are reluctant to spend.
That leaves us with the other option: fiscal policy.
In its January budget, the government used fiscal levers to prime the pump by posting a big deficit and increasing infrastructure spending.
One can argue whether the government went far enough. But inarguably the government is falling short in one area: income support. As has been well documented, due to cutbacks by previous governments, only a minority of working Canadians now qualify for Employment Insurance. By easing the rules, the government could sharply increase the number of beneficiaries. That, in turn, would put more money into the hands of consumers and boost the economy.
But for whatever reasons – ideology, stubbornness – the Conservatives refuse to acknowledge this. Indeed, when asked in Parliament last week about making more workers eligible for EI, Diane Finley, minister of human resources, delivered this astonishing reply: "It is true that not everyone is eligible. Unfortunately, that is the way the system is, and everyone has agreed this is not the time to overhaul it."
Everyone has agreed? We beg to differ. Now is not the time? If not now, when?
1 comment:
they may not be running out to buy big screen TVs or cars, but at least it makes some 'horse sense' to help people who have lost their jobs, not default on their mortgage and car payments, creating even more crisis for the banks to deal with.
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