{"id":274047,"date":"2020-11-04T05:19:10","date_gmt":"2020-11-04T10:19:10","guid":{"rendered":"https:\/\/canadianinquirer.net\/v1\/?p=274047"},"modified":"2020-11-04T05:19:10","modified_gmt":"2020-11-04T10:19:10","slug":"when-it-comes-to-fiscal-policy-quality-matters-as-much-as-quantity","status":"publish","type":"post","link":"https:\/\/canadianinquirer.net\/v1\/2020\/11\/04\/when-it-comes-to-fiscal-policy-quality-matters-as-much-as-quantity\/","title":{"rendered":"When it comes to fiscal policy, quality matters as much as quantity"},"content":{"rendered":"
\"\"<\/a>
In the span of a few months, the Government of Canada created no fewer than 68 new support programs related to COVID-19 \u2013 76 if you include tax liquidity measures. That includes updated core support plans to replace earlier programs such as the Canada Emergency Recovery Benefit (CERB) and the Canada Emergency Wage Subsidy (CEWS). (File photo: Elton Saadian\u00a0\/Unsplash)<\/figcaption><\/figure>\n

When the COVID-19\u00a0emergency struck\u00a0last March,\u00a0the federal government\u00a0moved naturally to\u00a0get cash into the hands of the newly unemployed,\u00a0opting for speed over perfection in program design.<\/p>\n

Many other countries around the world were doing the same thing, but it turns out Canada\u2019s government was among the most generous. Over the past seven months, the\u00a0federal government has\u00a0spent\u00a0close to\u00a020 per cent of\u00a0Canada\u2019s\u00a0GDP\u00a0on income support for individuals and\u00a0businesses.\u00a0No other G20 country has come even close to that level of\u00a0pandemic\u00a0spending\u00a0relative to the size of\u00a0its\u00a0economy.<\/p>\n

Given the most recent spending commitments made in the recent Speech from the Throne, it is\u00a0not difficult to imagine Canada emerging from the current crisis sometime in 2022 with a federal public debt\u00a0exceeding 100\u00a0per cent\u00a0of GDP, unemployment levels\u00a0two\u00a0percentage points\u00a0above those of February 2020, a weakened outlook for our natural resource sector and a widening trade deficit, all coupled with increased demand for health and long-term care spending.<\/p>\n

In\u00a0the span of\u00a0a few\u00a0months, the\u00a0Government\u00a0of Canada\u00a0created no\u00a0fewer\u00a0than\u00a068\u00a0new support programs<\/strong><\/a>\u00a0related to COVID-19\u00a0\u2013\u00a076\u00a0if you include tax liquidity measures.\u00a0That includes\u00a0updated\u00a0core\u00a0support\u00a0plans to replace\u00a0earlier programs\u00a0such as\u00a0the\u00a0Canada Emergency\u00a0Recovery Benefit\u00a0(CERB) and the Canada Emergency Wage Subsidy (CEWS).<\/p>\n

On top of that,\u00a0the\u00a0recent\u00a0Speech from the Throne\u00a0promised billions of dollars\u00a0in\u00a0new\u00a0spending on\u00a0childcare, pharmacare, a new EI system,\u00a0and\u00a0skills.\u00a0We may get\u00a0a clearer picture of the cost of these commitments\u00a0a few weeks from now when Finance Minister Chrystia Freeland delivers an\u00a0economic\u00a0and fiscal update.<\/p>\n

In this\u00a0increasingly\u00a0polarized\u00a0public opinion\u00a0environment, debates\u00a0over\u00a0fiscal policy and\u00a0the size of the deficit\u00a0descend into stark opposites. Either you are against more spending\u00a0and are thus\u00a0a deficit \u201chawk\u201d,\u00a0or\u00a0you support\u00a0spending\u00a0and\u00a0are\u00a0unconcerned\u00a0about the burden of\u00a0public debt.<\/p>\n

The reality,\u00a0of course,\u00a0is\u00a0that\u00a0there\u00a0is\u00a0an\u00a0ocean\u00a0of\u00a0grey\u00a0between these\u00a0black-and-white\u00a0positions.\u00a0Governments\u00a0do not need to make\u00a0a\u00a0binary choice\u00a0between spending and \u201causterity\u201d.\u00a0 No one serious is\u00a0calling for austerity\u00a0in the midst of an unprecedented health\u00a0and economic\u00a0emergency.\u00a0But\u00a0not all spending is born equal.<\/p>\n

Historically low interest rates\u00a0and\u00a0unprecedented\u00a0quantitative easing by the Bank of Canada\u00a0have\u00a0effectively overshadowed an important debate about the\u00a0quality\u00a0and effectiveness\u00a0of\u00a0deficit-financed COVID-19\u00a0spending.<\/p>\n

According to RBC<\/a><\/strong>,\u00a0the federal government transferred more money\u00a0($56 billion)\u00a0to Canadian households through\u00a0the\u00a0CERB and other\u00a0programs\u00a0in the second quarter\u00a0of 2020\u00a0than they lost in wages and salaries due to the pandemic ($23 billion).\u00a0As a result, net\u00a0household disposable income spiked 11\u00a0per cent.\u00a0To put $23\u00a0billion\u00a0in context, it is equal\u00a0to the amount\u00a0spent\u00a0last year\u00a0on the\u00a0Canada\u00a0Child Benefit\u00a0\u2013\u00a0the\u00a0federal government\u2019s\u00a0biggest direct transfer\u00a0to\u00a0Canadians. \u201cWe have significant fiscal firepower sitting in the chequing accounts of Canadians,\u201d RBC CEO Dave McKay said in a Globe and Mail interview on October 4th.<\/p>\n

The federal government\u2019s\u00a0strong fiscal response to COVID-19\u00a0has\u00a0undoubtedly\u00a0helped\u00a0sustain our\u00a0economy\u00a0through the crisis.\u00a0It would be wrong to leave Canadians on their own devices amidst such a catastrophe. While it\u00a0is\u00a0undeniable a strong fiscal response was warranted, did we have to increase our debt-to-GDP\u00a0ratio\u00a0by 20 per cent\u00a0in only six months?\u00a0With the second wave\u00a0of the virus\u00a0now\u00a0in full force,\u00a0should we not have kept more fiscal firepower dry to ensure the most severely affected\u00a0individuals and businesses\u00a0will\u00a0continue to be supported\u00a0over the long term? And could a larger share of the money have gone to create a more productive economy, such as re-skilling people and targeted R&D investments?<\/p>\n

It\u2019s time for a\u00a0more targeted and qualitative approach.\u00a0As the Governor of the Bank of Canada\u00a0said\u00a0in late October, we are in this for the long haul.\u00a0An effective vaccine may not be widely available until late 2021.\u00a0Policymakers\u00a0must\u00a0be\u00a0laser-focused\u00a0on the qualitative nature of fiscal\u00a0spending.\u00a0\u00a0Furthermore,\u00a0being saved by low interest rates\u00a0is not an economic strategy\u00a0in itself.\u00a0In fact, powering our way out of recession by\u00a0potentially overstimulating housing markets and adding even more leverage to the household sector may create real and lasting\u00a0negative effects.<\/p>\n

With finite\u00a0public resources available, we need to look\u00a0carefully\u00a0at the return on investment of government spending. Some programs\u00a0are more beneficial than others. Some policies will contribute more to economic growth.\u00a0Let\u2019s make sure federal spending is focussed on quality over quantity.<\/p>\n

Trevin Stratton is Chief Economist<\/em>\u00a0and Vice President, Policy,\u00a0at the Canadian Chamber of\u00a0<\/em>Commerce.<\/em>\u00a0Robert Asselin is Senior Vice President, Policy,\u00a0at the Business Council of Canada.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

When the COVID-19\u00a0emergency struck\u00a0last March,\u00a0the federal government\u00a0moved naturally to\u00a0get cash into the hands of the newly unemployed,\u00a0opting for speed over …<\/p>\n","protected":false},"author":33,"featured_media":273328,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[],"class_list":["post-274047","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","mauthors-canadian-chamber-of-commerce"],"_links":{"self":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/274047","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/users\/33"}],"replies":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/comments?post=274047"}],"version-history":[{"count":1,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/274047\/revisions"}],"predecessor-version":[{"id":274053,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/274047\/revisions\/274053"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/media\/273328"}],"wp:attachment":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/media?parent=274047"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/categories?post=274047"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/tags?post=274047"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}