Canada John Ivison: Freeland needs to reset her compass when it comes to Liberal fiscal strategy

01:51  29 october  2020
01:51  29 october  2020 Source:   nationalpost.com

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Share this Story: John Ivison : Free -spending Trudeau government floats into choppy seas without fiscal anchor. Drummond points out that interest rates will rise and the Bank of Canada has pointed to problems with the country’s supply capacity that could depress growth rates for years to come .

Around the mid-point of her virtual speech to the Toronto Global Economic Forum, Chrystia Freeland stopped and said the thinking she had outlined was “entirely uncontroversial.”

Chrystia Freeland standing in front of a curtain: Finance Minister Chrystia Freeland. © Provided by National Post Finance Minister Chrystia Freeland.

The finance minister was right – protecting Canadians’ health, jobs and living standards by using aggressive federal stimulus is an article of faith for politicians across the spectrum.

Nobody believes Ottawa should have watched families and businesses go broke during the pandemic.

But it was the rest of her speech – and what was missing – that is more problematic.

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Fiscal Policy is the sister strategy to monetary policy, through which a central bank influences a nation's money supply. Fiscal policy is the means by which a government adjusts its spending levels and tax rates to monitor and influence a nation's economy.

Freeland said her rural, northern Alberta roots means she is not steeped in the ideas of “helicopter money” but that Canada can afford its current spending spree because interest charges, as a share of GDP, are at 100-year lows.

She said the “terror and triumph” of the debt crisis in the mid-1990s was formative for a generation of Canadians. “But it is a poor general who fights the last war,” she said, implicitly dismissing criticism from those who were in the trenches during those messy battles, people like former Bank of Canada governor David Dodge and ex-TD Bank chief economist, Don Drummond.

Freeland said not one of the factors that drove the fiscal crisis in the 1990s holds true today. “Doing too little is more dangerous and potentially more costly than doing too much.”

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Fiscal policy involves the use of government spending and tax revenue to affect the overall level of aggregate demand in an economy and hence the level of economic activity. Given an independent central bank, monetary policy actions are more likely than fiscal policy actions to be

Fiscal policy design and implementation delegation prevents politically-motivated fiscal policy which results in ever increasing deficit 3) Common Pool The argument for fiscal rules might run as follows. The rule embodies something close to best practice ( it comes close to an optimal policy that would

That is arguable; the fact that budgetary constraints remain an intrinsic foundation of economics is not.

Thankfully, she said she has no truck with Modern Monetary Theory, the idea that deficits don’t matter for governments that issue debts in their own currency.

Freeland said the expansive approach to fighting the pandemic “will not be infinite,” which is a relief.

The government will impose limits upon itself, “rather than waiting for the more brutal external restraints of international capital markets.”

But her boss Justin Trudeau has already revealed there will be no fiscal anchor in the fall update – a sentiment she echoed.

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When I heard Johnson utter those words I thought , ‘where have I heard this stuff before?’ Who needs to meet other human beings? Not that there’d be anywhere to meet, with pubs, cinemas and theatres all closed down due to the never-ending coronavirus restrictions.

Fiscal policy is based on the theories of the British economist John Maynard Keynes, whose Expansionary fiscal policy is used by the government when trying to balance the contraction phase in the When the government runs a budget deficit, funds will need to come from public borrowing (the

Freeland argued against “premature fiscal tightening.”

But that presents a false dichotomy – austerity or remaining adrift without a fiscal anchor.

We have no idea what the government thinks would be a reasonable deficit target going forward (Drummond calculated recently that recurring $100 billion budgetary shortfalls would take the debt to GDP level to 63 per cent and program spending to more than 15 per cent of the economy.)

Nor was there anything in Freeland’s speech to suggest how Canada will lay the foundations for the green, innovative, inclusive economy to which she aspires.

By happy coincidence, the Business Council of Canada released its own economic growth plan on Wednesday, filling in many of the gaps missing in the finance minister’s speech.

The council pointed out that Canada is in far less rosy shape than Freeland would have her audience believe. As a country, what we are producing is not covering what we are consuming, meaning we have a persistent current account deficit, as well as a fiscal deficit. We have an aging population, a problem growing firms to global scale and lagging business investment.

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Only RUB 220.84/month. Econ 201 Chapter 16 Fiscal Policy. STUDY. Flashcards. Expansionary fiscal policy. Government increases spending or decreases taxes to stimulate or expand economy.

Recently there has been so much news about the Global Currency Reset (GCR/RV) being This is the reason why each country needs to use this particular formula to enable the QFS to So when is it going to happen? He says that when the Muller’s report comes out and President Trump is exonerated.

Some of the solutions were in train before the pandemic hit – attracting immigrants with specialized skill sets; retaining international students and increasing the labour force participation of women.

But in other areas, the conditions necessary for a robust recovery are worse than they were just a few years ago.

Canada’s business investment trails the OECD average and is eclipsed by spending in the U.S. “Canada has a reputation (for being) difficult and extremely time-consuming to get large capital projects off the ground,” said the report’s authors.

The latest Bank of Canada monetary report , released Wednesday, offered little comfort on that front. Uncertainty is expected to act as a “significant drag” on investment decisions. The oil and gas sector is not forecast to return to pre-pandemic levels during the projection period – after a 30 per cent contraction in 2020, the Bank expects investment to grow by just two per cent in 2021/22.

Worse, Canadian companies are now expanding outside the country, rather than investing in Canada (direct investment abroad in 2019 outweighed foreign direct investment by $804 billion.)

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Other required fixes are long-standing and well-known – increased spending on broadband coverage, enhanced inter-provincial trade (current restrictions act like a 6.9 per cent tariff), more competitive personal income tax rates and streamlining an inefficient regulatory process.

But for all Freeland’s talk that the government has a plan – “We have a compass. We know how to get to a safe harbour and what to do when we get there” – there was very little on Canada’s approach to the digital economy.

It is a subject on which the Trudeau government has, as is its wont, talked a good game but made little progress.

Investment in intellectual property as a share of the economy has actually declined in Canada since 2005, compared to a sharp rise in the U.S.

Earlier this week, some members of the Council of Canadian Innovators, a business group focused on helping tech firms scale up, complained that innovation has barely been mentioned since the government set up its superclusters initiative.

The CCI and the new Business Council report both recommend that the government tilt the playing field toward fledgling tech companies by favouring home-grown firms in its procurement policies.

The Business Council lamented the number of promising companies leaving Canada. “It’s as though we were training high potential athletes, only to send them abroad to win Olympic medals for other countries,” it said.

The report suggested that individual departments and agencies, including the Canada Space Agency and the Department of National Defence, support procurement-led innovation.

“Government cannot avoid decisions about which market outcomes they prefer…Full market neutrality is not possible,” it concluded.

The Liberal government has never been shy about picking winners and losers. It should have no qualms about an industrial strategy that secures anchor clients offering a steady source of revenue for promising firms.

The post-COVID world promises to be one in which states take a more active role to ensure self-reliance. Canada cannot ignore those sea changes.

To this point, the government has been silent on the world beyond the pandemic, apart from an over-reliance on low interest rates as justification to keep spending.

But that is no substitute for sustained economic growth, about which the finance minister had little to say.

With the deficit on track to reach at least $343 billion this year, the cheery scenario she painted is not borne out by the facts.

Closer to the mark is the Business Council’s conclusion: “Canada’s economy is more fragile now than at any time since the 1930s.”

• Email: jivison@postmedia.com | Twitter: IvisonJ

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