Monday, September 14, 2009

The Price of Ending the Recession

Government officials and economic analysts are in common agreement that Canada is headed out of the recession. While there are disagreements as to the exact timeframe, there is a fact that is common to all parties – the price tag.

For a country that proudly presented a balanced budget for twelve consecutive years, Canada had to revise its budget projections for the thirteenth year and for several years to come. Canadian Finance Minister Jim Flaherty recently announced his department's projection of a $50.2 billion deficit for the current fiscal year. He was quick to add, though, that this figure is "consistent" with meeting the deficit target. The government projects that it will present deficit budgets for the next four years, adding nearly $100 billion to the national debt. The current deficit is due primarily to several factors: falling tax revenues, both personal and corporate; a massive 47% increase in unemployment insurance premium payouts; and huge bailouts to the auto industry as well as other business subsidies.

While Mr. Flaherty is holding to his optimistic prediction of returning to a balanced budget in 2013-14, Prime Minister Stephen Harper, and several leading economists are somewhat more realistic in their forecasts. However, both the Prime Minister and the Finance Minister are in agreement that tax increases and major spending cuts are not being considered in order to expedite a balanced budget.

Some analysts have suggested that drastic changes to the budget are not advisable. Rather, once the stimulus programs spending has been depleted, the government should adopt a program to control spending growth. This will enable the government to eliminate the deficit over a period of several years.

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