Social Policy in Ontario

Stephen Harper can’t ignore recession out of existence

Posted on July 16, 2015 in Debates

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TheStar.com – Opinion/Commentary – The Harper government may still be in denial, but the evidence of a recession is mounting, and it’s time for Ottawa to change tack on the economy.
Jul 15 2015.   By: Andrew Jackson

The bad economic news from authoritative sources keeps on coming, reinforcing the case for a major change in federal government policy.

Hot on the heels of an International Monetary Fund forecast that growth in Canada would be just 1 per cent over this year, the Bank of Canada said yesterday in its Monetary Policy Report that growth would indeed be that low.

Finance Minister Joe Oliver may still be in denial, but the Bank of Canada thinks that we were in recession in the first half of the year which just ended. A recession is defined as two consecutive three-month periods of falling output.

It was not supposed to be this way. Oliver’s 2015 budget, released on April 21, forecast growth of 2 per cent in 2015 and that view was in line with the IMF and the forecasts of most Canadian bank economists.

The fact that our economy is woefully underperforming even compared to very recent forecasts of subpar performance reflects two key factors.

The negative impact of the collapse in energy and other resource prices has been greater than was expected, and may be just beginning as new investment grinds to a halt. Some big projects are still being completed but further expansions are on hold.

And there are few signs as yet of an expected boost to Canadian manufacturing, tourism and other export industries from a lower Canadian dollar combined with a modest recovery in the United States. Our trade balance hit a near record low in May.

Those economists and policy-makers who underlined the downside of the oil boom and the staples trap have been vindicated. We allowed our economy to become over-specialized in raw resource extraction, and we let the manufacturing sector shrink to the point where there is too little productive capacity left on the ground to take advantage of global export opportunities.

Business investment in new machinery and equipment and in innovation — the key building blocks of a new economy — has failed to recover to pre-recession levels and has shrunk as a share of the economy under the Harper government. Our already low share of high value-added global trade has eroded further as our traditional merchandise trade surplus has disappeared.

To make things worse, we allowed our economy to become too dependent upon the growth of household debt, mainly incurred as mortgages to drive up housing prices. Households have, on average, been spending more than they earn and this continues to be the case.

Very slow growth in 2015 means we will likely experience rising unemployment at a time when good jobs are hard to find, especially for young people and recent immigrants. But this seems to be of less concern to Oliver than balancing the books despite a worsening economy.

Ironically, the government is ignoring the fact that even their own balanced budget bill allows for deficits at a time of recession.

The Bank of Canada may keep the housing market afloat by deciding to cut interest rates twice this year, but we are now as low as we can go and it is surely not desirable that households go even further into debt.

A serious attempt to boost the economy would require measures to boost public investment in infrastructure and in innovation. This is highly affordable at a time of record low interest rates, especially given that many projects will more than pay for themselves over time. Even the International Monetary Fund has said we have room to invest more.

We also need to encourage companies to invest some of their $700 billion in surplus cash in new capacity, innovation and training. Costly across the board corporate tax cuts have clearly failed to do the job, costing us billions in lost revenues which could be more effectively spent on more targeted measures.

We need to ramp up investment tax credits and long-term loan or equity support for major new business investments which replace the capacity we have lost over the past decade and more.

It is true that Canada faces a challenging global economic environment. But simply closing our eyes and hoping that something will turn up hardly counts as an effective economic strategy on the part of the Harper government.

Andrew Jackson is senior policy adviser at the Broadbent Institute.

< http://www.thestar.com/opinion/commentary/2015/07/15/stephen-harper-cant-ignore-recession-out-of-existence.html >

Tags: budget, economy, globalization, ideology

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