| |
Is the cupboard really bare?
By Hugh Mackenzie [article
in ISARC e-newsletter, February 2010]
Hugh Mackenzie is a respected Toronto-based economist who has worked for over 30 years on public policy issues with the trade union movement, the private sector, and government. Hugh is also the co-chair and principal analyst for the Ontario Alternative Budget project of the Canadian Centre for Policy Alternatives.
 To listen to some of the commentary leading up to the Ontario and federal budgets, you would think our governments were foundering in bankruptcy with no hope of recovery without draconian cuts and widespread belt-tightening.
And of course, according to conservative commentary, it goes without saying that policy luxuries like poverty reduction have to be taken off the table.
Maybe a dose of perspective is in order.
To begin with, we’re not dealing with some unprecedented calamity here. Canada and Ontario have been through deep recessions before. Our governments have operated with deep deficits before. And budget balances have recovered before. The fact that fiscal balances have recovered before is not of any particular relevance to the situation we face today. What’s interesting is how our fiscal balances recovered.
When you look back at the recessions Ontario has been through in the past 30 years, what is striking is that the size of our economy has grown back to its long-term trend line within 4-6 years of the bottom of our deepest recessions. In other words, within 4-6 years, our economy is ticking along as if the recession had never happened. And because government revenue is tied closely to the size of the economy that means our fiscal capacity – our ability to raise revenue from current taxes at current rates – is back to where it would have been without a recession.
What that means is that conservative hysteria is mounting over a fiscal squeeze that will go away by itself as the economy recovers to its potential – a fact that conservatives could figure out for themselves.
If that’s the case, why the hysteria? The answer is to be found in the tried and true “solutions” to our “deficit crisis” that have been put back on the table. It goes without saying that the draconian cuts that are being promoted are focused on conservatives’ pet political peeves. Public employees’ wages and pensions. Programs that support the disadvantaged.
And the belt-tightening that’s going to have to happen?
Not the kinds of belts that hold up Armani suits, that’s for sure. No suggestion that the tiny minority of high-income Canadians whose incomes have stayed in the stratosphere throughout the recession might pay a bit more in taxes. No suggestion that profitable corporations – right now, mostly banks and energy companies – might forego the huge tax cuts they’ve been gifted by Ottawa and Queen’s Park in the interests of addressing the “crisis”.
But more to the point, all of these cuts and all of this belt-tightening threatens to derail our economic recovery before it really gets rolling. Far from being the wrong time to address the gaps in the EI program and to address issues of poverty, it is absolutely the right time. Because the additional stimulus from poverty reduction is exactly what we need to help us out of the recession now and make it easier to manage the next one, when it happens.
Ontario does have a fiscal capacity problem. The Harris government’s tax cuts have left Ontario short of the revenue it requires to meet the needs of its citizens. And as the economy recovers, we’ll have to address that problem.
But right now, the biggest problem we face is not the recession. It is the politically self-serving panic about the fiscal implications of the recession being promoted by conservatives.
|
