Monday, March 28, 2016

2016 BUDGET FISCAL FAILURE

Winston Churchill said “attempting to spend your way out of debt is like standing in a bucket and attempting to pick yourself up”; the Liberal government is in effect attempting to do this very thing.

"With the exception of the Child Subsidy, this budget was FISCAL FAILURE".  



Counter Cyclical spending, the process of government spending to stimulate the economy in the face of a down business cycle needs to have a very sharp pencil. We need to be sure that the money spent generates a sufficient increase in tax revenue to recoup money spent AND cover the cost of money.  Perhaps the most important point in counter cyclical spending is that it has very little stimulative effect, the Canadian economy is approximately $2 trillion, the Federal Government Budget is about 10% of that give or take. So think about how much 1% ($20 Billion) of the total economy is going to do to simulate the economy just in nominal amounts – nothing. Policy that uses the mass of the economy to drive growth, is policy that works – government spending can be directed at facilitating the economy, it will never grow the economy on its own.

The budget the Liberals just brought down, is the kind of budget that brought us down in the 70s and 80s. Less than 20% of the total budget is going to “investment” in capital projects and many of those are nothing new, nothing that is going to do what capital spending is meant to do, help us satisfy Canada's overall mission – they never got to the $10 Billion they promised in “new infrastructure”. This burgeoning deficit is partly the product of reduced resource revenues, but it is also indicative of a bad attitude toward fiscal management – this is like déjà vu la 1970s, the only difference is then we had an expanding tax base to save us, now we are facing some tough demographic realities that will reduce government revenues and increase the cost of government.  We need to invest in our First Nations, the Liberal government has committed to that, yet they have failed to insist the money invested in First Nations is subjected to generally accept accounting principles, by avoiding mandatory reporting as precondition to funding.  

Capital spending when done in business means purchasing assets or developing assets that generate benefit to the company mission; government can do this as well.  Had this government trimmed government operational spending and upped capital spending, I would be praising them right now. The fact is they have done the opposite and in so doing are robbing the next generation to fund nothing of significance now. 

They – this government – will point to all manner of numbers to say what they are doing is okay, they will pull comparative data from Europe, showing Canada’s debt is better than most western economies – none of this has relevance. What is relevant is, are we doing the very best we can with what our country has to offer – we are falling short. With Canada’s wealth, we should be sporting a sovereign wealth fund big enough to choke a horse, instead we are broke. Had we managed our resource wealth properly, we would be funding counter cyclical spending from capital reserves, instead we are spending our children's future.  We need to get serious about fiscal management, this government’s first attempt falls short, very short – they seem to indicate by their actions that they believe there is no bottom line.

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