The simple fact is that governments piling up debt and deficits in the name of “stimulus” has huge long-term costs for little to no short-term benefit – with the main beneficiaries being the politicians trawling for votes
More “Stimulus” is Not the Answer
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Storm clouds are forming over Canada’s economy. Largely in part to a dramatic drop in world oil prices, Canada’s economy shrank during the first half of 2015. The drop was small – approximately 0.5 per cent – but a drop nonetheless. And with a federal election call possibly imminent, politicians are naturally looking for ways to convince the voting public that they are “taking action” to “boost” Canada’s economy.
Overlooked in this rush to campaign is the fact that the primary factors causing our current malaise are completely outside the control of any Canadian politician (world oil prices, an exceptionally harsh winter and a slowdown in the US economy are seen as the main culprits). So it is depressing to hear the same old faulty argument that the best action the federal government can take to help the economy is to provide “stimulus spending” in the form of deficits and debt.
We have been here before – and yet during the economic downturn which struck in late 2008, the federal government’s initial response was, wisely, to largely hold the line on spending and not overreact. Unfortunately, soon thereafter, and for largely political rather than economic reasons, the Harper government plunged Canada into a massive $55 billion deficit, egged on aggressively by the opposition parties whose chief complaint was that the government was still not spending enough.
Fast forward to 2015, and it is widely claimed that this spending binge “worked” by turning the economy around. Yet, there’s little empirical evidence to suggest that debt spending caused Canada’s economy to rebound. A study by the Fraser Institute concluded that the economic recovery was already underway by late 2009 – when most “stimulus” funds had not yet been spent. Similarly, in 2010 the Parliamentary Budget Office was unable to conclusively identify how many jobs were created as a direct result of deficit spending.
What we do know for sure is that Canada endured seven years of budget deficits and racked up an additional $150 billion in public debt, bringing the total to $616 billion – or about $17,600 for every single Canadian – and for which we now have the privilege of paying interest on to the tune of nearly $29 billion annually. That’s $29 billion every year that can’t be spent on anything else, from programs for Canadians to further tax relief.
In spite of this policy fiasco, when faced with the prospect of another economic downturn, what are our politicians now proposing? Mercifully, the Harper government has ruled out a return to deficits (although they are now spinning the planned increase in the Universal Child Care Benefit as an “injection” into the economy, which it isn’t; it is simply replacing government spending with individual spending). The opposition parties, in contrast, are in the odd position of simultaneously attacking the Harper record of deficits and debt as a failure, while implying that what is required now is more deficits and debt. And none of the parties have put forward a concrete plan to tackle the $616 billion in debt we already owe.
The simple fact is that governments piling up debt and deficits in the name of “stimulus” has huge long-term costs for little to no short-term benefit – with the main beneficiaries being the politicians trawling for votes. Unfortunately, doling out “stimulus” in exchange for votes is often the most stimulating thing for a politician in an election year.
By Aaron Wudrick, Federal Director, Canadian Taxpayers Federation