Don’t let deeper debt fears derail stimulus: expert

“Canada’s economy is in need of fiscal stimulus. The risk here is too little, too late—not, an overflow of red ink,” says Dr. Sherry Cooper, chief economist for Dominion Lending Centres. “The U.S. made a mistake of insufficient government stimulus in the aftermath of the financial crisis. Canada should not make the same mistake now.”

It was following the 2008 financial crisis that the U.S. housing market collapsed, generating a flurry of foreclosures and a nuclear winter for the American mortgage market.

Federal Finance Minister Bill Morneau told reporters that the budget is “deeper in the red than we were told in the 2015 budget” as the economy’s performance has disappointed, revising downward the government’s outlook for the economy over the next year.

According to the Minister, the federal books are short roughly $3 billion in the current fiscal year and $3.9 billion in 2016-17, with deficits continuing through 2018-19 — a significantly gloomier fiscal picture than was painted by the Conservatives and even by the most recent report of the Parliamentary Budget Committee.

This lower growth forecast adds $1.5 billion to the projected deficit for 2015-16 and $3 billion for each of the five years from 2016-17 onward – with all of these projections excluding the Liberals’ impending budgetary stimulus initiatives.

“We have been hard hit by external forces that have driven down a very important sector of our economy. The hard won gains on the fiscal front give us the bandwidth to now take significant action to reboot economic activity and to improve our productivity and competitiveness over the next decade,” says Dr. Cooper. “We should seize that opportunity, which will no doubt entail running budget deficits in the near term of more than $10 billion.”

When quizzed by reporters, Morneau would not say whether he remained committed to an annual budget deficit of no more than $10 billion over the next three years. He provided no specifics on exactly what the update portends for the upcoming budget — the timing of which was not released — but asserted that the government would stimulate the economy in a prudent manner.

MBN

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