This week Finance Minister Bill Morneau tabled a very progressive stimulative budget in Parliament that clearly from the outset established the fact that austerity was bad policy which undermined growth, equity and low unemployment. He correctly pointed out that investing in people , in social, educational and physical infrastructure and ensuring that everyone has a fair opportunity to participate in our economy contributing their talents , insights and knowledge to the great Canadian enterprise of nations building was a far more effective strategy than one based on pessimism and narrowly defined budget balancing. The Minister‘s opening remarks were a welcome breath of very fresh air after many decades of fiscal conservatism.
There is however still more work to be done. There are many voices within the Conservative opposition who remain dogmatic opponents of low unemployment and investment in infrastructure and who insist upon discredited sound finance as the only appropriate approach. The monetarist logic upon which they base their arguments was thoroughly discredited by the crash of 2007-09 and the recovery that followed that was based on the creative combination of low interest rates achieved by quantitative easing allied with fiscal stimulus. The monetarists claimed that this would lead to accelerating inflation once the unemployment rate dropped below their mythical natural rate . But no such inflation occurred nor does it seem likely and we are now in 2018 ten years on from the crash. Inflation remains very stable and very low.
Some of the critics of the budget demand to know when the budget will be balanced regardless of the fact that the debt to GDP ratio is falling and will fall further so long as the Bank of Canada does not trigger a recession by prematurely and excessively raising interest rates. The governments planned expenditure increases are in important and very necessary parts of the social and ethical framework of Canadian society. They represent investments in our population and society. They merit support.
When one examines the annexes in the budget which compare the interest rate , inflation and economic growth and unemployment projections of a broad sample of Canadian economists we can see that these analysts expect a slowdown in GDP growth, a slight rise in unemployment and a stubborn Bank of Canada claiming inflationary trends when there are none.
So the budget is a good one but we need to be cautious about the fiscal conservatives reclaiming lost ground when they should not be. The latest GDP data and the emerging protectionist environment in the U.S. are important negative factors that need to be taken into account and countered wherever possible.