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consulting with Canadians

December 18, 2008

Cover, Fiscal Stimulus, budget 2009 consultations, Government of Canada.

Do you have an opinion about what should be in the next federal budget? If you want to have your say, now is the time to share your views and priorities with the government.

The government of Canada says it wants to make sure it has the right balance in its stimulus plan. So, it is consulting “broadly with Canadians, with the provinces and territories, stakeholders and political parties over the coming weeks with a view to introducing a budget on January 27th 2009.” The Department of Finance is asking for people’s priorities and ideas here:

Consulting with Canadians, Department of Finance Canada

According to the government’s supporting document Fiscal Stimulus – Budget 2009 Consultations:

  • Economic growth in Canada has slowed.
  • Fiscal and monetary policy can play important roles in supporting a recovery.
  • The key challenge is choosing timely and well-targeted stimulus.

For more of the government’s point of view about the recession, and some facts and figures, visit:

Fiscal Stimulus – Budget 2009 Consultations, Department of Finance Canada

The following gives some sense of how the budget will be shaped. You might want to keep the following in mind with any suggestions you make. You might also want to spell out how important it is to consider who benefits from various measures, and how it will benefit the country to make sure efforts are spread fairly.

Fiscal stimulus can take the form of tax reductions and government spending. But what is required for an effective fiscal stimulus plan?

It should boost the economy when needed, not when it has already recovered.

Each dollar of stimulus should deliver the maximum impact here in Canada.

If the recession is longer or deeper than anticipated, the stimulus will need to be larger and longer in duration.

An effective stimulus should also balance our short term needs with our long term economic plan for prosperity.

Timely fiscal measures stimulate new spending quickly so businesses do not have to cut back as much on production or lay off as many workers due to weak demand.

This ensures the benefit occurs in the short term, when the economy needs it.

Although infrastructure projects, such as roads and bridges, can take a long time to get started, some projects can be brought ahead in time for the coming construction season.

Projects that are ready to go can be expedited, while repairs and necessary maintenance can be performed on existing infrastructure.

Canada is committed to the global effort to provide fiscal economic stimulus. But we should ensure our actions have the maximum impact here in Canada.

This impact is lost when fiscal stimulus is not spent (i.e. it is saved or used to pay down debt) or is used to buy imported goods and services.

For example, only about 30 per cent of the U.S. tax rebate cheques mailed out in 2008 were spent by U.S. consumers.

Canada is a major importer of goods. In total, we import 27 per cent of goods we consume. This rises to 50 per cent for durable goods.

In contrast, only 20 per cent of investment in residential and non-residential buildings is imported through such inputs as building materials.

Consequently, stimulus directed at domestic activities, like construction, is more effective in boosting growth here in Canada.

Given the current uncertainty with respect to the extent and duration of the global slowdown and its impact on Canada, an important consideration is the size and duration of the stimulus.

While the fiscal actions must stimulate the economy through the coming difficult period, they should not burden Canada with a structural deficit that hampers growth in the years ahead.

Canada’s long-term economic plan is to improve productivity through education and skill development, investment in new capital and technologies, and innovation.

An important consideration in designing effective stimulus policies is balancing these long-term goals with our short-term needs.

Certain policies that boost long-term growth will have a smaller impact in the short run, and vice versa.

However, some fiscal actions can stimulate growth in the short and long term.

For example, investments in infrastructure and training will boost economic activity in Canada next year and contribute to long-term growth in productivity and living standards.

Canada needs a well-designed fiscal stimulus plan that boosts the economy now, but will not burden Canada with a structural deficit that hampers growth in the years ahead.

To ensure maximum impact, it will be important that all provinces and territories, Canada’s G20 partners and other countries also stimulate their economies.

The following four criteria are important considerations in designing effective stimulus policies:

  • Timely – stimulus when it’s needed.
  • Maximum impact – stimulus that delivers.
  • Flexible in size and duration – smart stimulus.
  • Consistent with Canada’s long-term economic goals – stimulus that fits the plan.

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