The Minister of Finance today revealed that the government will not balance the books in 2014-15 as previously promised, instead that goal will be pushed off by a year. Even in 2015-16 though, the surplus is razor thin. This should come as no surprise to budget watchers. Private sector forecasts have already been revised downward as has the Parliamentary Budget Offices’. Today’s downward revision comes on the heels of disappointing employment figures and a negative quarter of GDP growth. All the while our major trading partners in Europe are in the throes of a sovereign debt crisis as depression level unemployment grips the US.
Under the hood here in Canada, the picture is also grim. The number of Canadians who are unemployed or who have simply stopped looking for a job remains over 1.5 million. The proportion of the working age population with a full time job has remained stuck under 50% since the 2008 recession, prior to which it stood at 52%. CIBC recently announced that the full time jobs that have been created are primarily low paying ones. Unemployment has remained elevated, particularly for young Canadians who face an unemployment rate twice the national average.
At the same time, Canadians remain mired in personal debt that seriously threatens a strong economic recovery, if and when one turns up.
With these sobering details as the backdrop, the Minister of Finance has correctly decided not to balance the budget come hell or high water in 2014-15. In addition, employers will be given some relief from rising EI premiums, a policy move that should be made automatic in a high unemployment environment. While this may help employers, it does nothing to help the actual unemployed, who are half as likely to receive benefits today as they were in the 1990s recession.
Despite not doubling down on deficit reduction, the minister has avoided the elephant in the room: there are dramatic government cutbacks already in the works. These cutbacks, when implemented in 2012 will only act as an additional drag on the economy, putting more people on the unemployment lines. Austerity is not the problem right now, lack of jobs is.
Departments are already planning on cutting 6,000 positions over the next 3 years with another 10,000 to 20,000 more job cuts resulting from Budget 2011. Several European countries are already experiencing austerity-induced recessions. Despite the lessons in Europe, 2012 will likely be the “year of the cut” for Canada despite our weak economic fundamentals.
The irony of the EI premium move is that at the same time the EI section of HRSDC is slashing staff due to budget cuts. This will make it increasingly difficult to even access benefits, while those who used to process EI requests are themselves in the unemployment lines.
My concern is that the global deleveraging crisis has already proved not to be a short term affair; Canada may well be in year 3 of a lost decade without significant pro-active action. Canada’s fiscal position is very strong with the lowest debt burden in the G8. Despite this fact and today’s announcement, the federal government appears to be taking the same measures as other countries through inertia and without consideration for our strong fiscal position.
To combat the threat of a double dip recession the government needs to take leadership through a job creation and public investment plan. While the government is keen to talk about jobs, their only plans involving jobs are cutting them from areas like EI staffing levels. Canada needs to chart a path out of stagnation. The government should target unemployment with a goal of actually decreasing it. It should also set goals in increased public investment.
The economic stagnation and uncertainty we are presently experiencing is not a short term issue and the solution should not be short term either.