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Glen Hodgson
Senior Vice-President and Chief Economist |
The Conference Board of Canada gave a positive assessment of the recent federal Budget and its stimulus impact. We continue to feel that way, although the depressing job figures last week simply reinforce the urgent need to get the stimulus spending started as soon as possible.
Nevertheless, every budget can be improved, and this one contains some important pieces of unfinished business. So what needs further work? We have identified five priorities.
First, we would like to see a stronger commitment in the next Budget to eliminating fiscal deficits as quickly as possible, to ensure that the return to deficits doesn't become structural. Relying on future economic growth to fix the deficit is a risky strategy -- as shown by our two decades of on-going deficits, from the mid-1970s to the mid-1990s, when governments continually hoped for the deficit to be fixed by growth in the outer years. In our view, work to eliminate the deficit should start as soon as the economy returns to sustained growth at or above potential of 3 per cent. Inevitably, this will mean hard choices between reduced spending relative to the current plan; finding new tax revenues; or some combination.
Next, further steps are needed to reform Employment Insurance (EI), beyond the measures in the Budget, which extended the eligibility period by 5 weeks while freezing EI premiums for individuals. As a starting point, reform of EI should include more balanced access across regions and a shorter waiting period. And ideally, Employment Insurance should be reformed to make EI funding and access more counter-cyclical as an automatic stabilizer. A more counter-cyclical EI program would accumulate surpluses in good times, and run reasonable deficits in hard times (like now). Both EI payments and premiums could be redesigned to follow the same counter-cyclical pattern. On that, EI premiums were frozen in the Budget in part because the government knows that raising EI premiums during a recession simply withdraws stimulus from the economy at the wrong time. To help the government with comprehensive EI reform, a blue ribbon panel could be created to provide specific advice.
Third, the federal and provincial governments should make longer-term funding commitments to infrastructure and social housing, with greater use of P3 structures and innovative financing. Most governments are already heading in that direction and need to go further, faster.
Fourth, once the economy recovers, governments across the country need to return to a comprehensive productivity and innovation agenda. The Conference Board’s research under How Canada Performs shows that Canada has slipped slowly in the global productivity rankings for many years. Our innovation rankings are even more dismal. If those trends are to be reversed, we need to re-double our national commitment to things like investment in human capital, fundamental tax reform and the wide-scale elimination of unnecessary barriers to a more efficient and competitive economy.
And fifth, added steps will be needed to increase the role of environmental sustainability in the stimulus and recovery agenda, as the U.S. is doing under the Obama package. For example, as the auto sector recovers, North American manufacturers should be expected to produce vehicles that are much more fuel efficient; and consumers should be encouraged to buy these more efficient cars and trucks. Indeed, Canadian public policy across the board will increasingly be challenged to keep up with Obama agenda -- or risk getting swept aside competitively.
In sum, the Budget provided necessary and welcome stimulus, which now must be put into place, but it left some important pieces of unfinished business that should be central to the on-going policy and political debate.