Fraser Institute pans extended government stimulus

Deficits and debt the result of spending beyond the recession.

February 6, 2014   by PLANT STAFF

VANCOUVER — Stimulus spending and programs created as temporary responses to the 2008-09 recession that remained in place after their planned expiration date produced unnecessary deficits and public debt, says a Fraser Institute study.

The public policy think-tank based in Vancouver notes in Post-Stimulus Spending Trends in Canada that during the global economic decline, employment dropped by 431,000 (or 2.5%) from October 2008 to July 2009, and the overall economy contracted by 3.3%.

Federal and provincial governments fiscal stimulus plans comprised mainly of new infrastructure spending were supposed to be temporary.

“Spending was to be withdrawn after two years and program spending was to be returned to pre-stimulus levels,” said Sean Speer, study co-author and associate director of the Fraser Institute’s Centre for Fiscal Studies.

That didn’t happen. In 2009, the federal government launched its two-year Canada’s Economic Action Plan, which contained $45.4 billion in new spending and tax relief initiatives.

Program spending spiked in 2009-10 by $36.2 billion in year one and remained elevated in year two. This 17.1% increase in program spending was supposed to end after two years, but the Fraser Institute says the Harper government has not yet fully withdrawn this spending, and as a result, produced longer and larger deficits.

The government now estimates it will have accumulated $68.5 billion in deficits from 2011-12 (the first post-stimulus year) to 2015-16, when it expects to balance the budget.

“Had the federal government kept its promise and lowered spending growth beginning in 2011-12 to pre-recession trends, it would have balanced the budget a year earlier and taken on less debt,” Speer said.

The provinces have also maintained stimulus spending-levels despite original plans.

For example, in 2009, the Ontario government launched a two-year fiscal stimulus plan, which included $32.5 billion in infrastructure spending and subsidies. These spending increases were extended. Based on current projections, Ontario will have accumulated $47.8 billion in deficits from 2011-12 to 2017-18, the year it expects to balance the budget.

“Many of these governments blame revenue shortfalls for their deficits, but spending is the real cause of their current deficits and debt accumulation,” Speer said.

Click here for a copy of the study.

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