Premiers encourage deficit spending

[d_rawk]

Deficits okay, PM told

MONTREAL–Canada's provincial and territorial leaders appear poised to give Prime Minister Stephen Harper the green light to run a deficit.

As the premiers gathered here for a half-day meeting this morning to discuss the global financial crisis, several of them implored Harper to shake his previously iron-clad resistance to running a budget deficit.

Ontario Premier Dalton McGuinty, whose government is expected to disclose in Wednesday's fall economic statement that the province is in deficit, welcomed the Prime Minister's softening stance on balancing the books.

"We've got some positive signals that have emerged lately. I was a little surprised by those signals frankly, but I welcome them," McGuinty told reporters on his way into the meeting.

"I hope that collectively we'll be able to suggest to the Prime Minister that he not balance the budgets, not pursue through some ideological ... slavishness a balanced budget agenda that has at the same time a real impact, hurting Canadians," he said.

"The first principle should be 'do no harm.' Infrastructure projects are important to us, continuing to fund health care and post-secondary education, those are important to us."

Asked if running a deficit was an unpalatable political option, McGuinty shook his head: "I don't think so."

"Folks want us to ... act as intelligently as we can, as thoughtfully and responsibly as we can. I'm not sure I've heard an economist lately – these are economists, not politicians – who are saying that they are adamantly opposed to running a temporary cyclical deficit," the Ontario premier said.

"You don't have a lot of choices. You can raise taxes, that's a non-starter, you can cut public services and I think we've got to be really careful. I think there's some room to make some modest constraints there and you can run a deficit. Those are the options."

Manitoba Premier Gary Doer said he doesn't want a reprise of what former prime minister Jean Chrétien and finance minister Paul Martin did in the mid-1990's.

"Everybody understands that what happened in '95 is the deficit was moved from the federal government to the provinces and from the provinces to the municipalities and we still have potholes in our country from what happened in '95. We still have a deficit in infrastructure, which is just as important for a country," said Doer.

"We don't want to see a situation where (student places in) medical schools are reduced and we still have a shortage of doctors," he said, adding that investing in infrastructure in tough economic time is prudent."If a country stands still in crisis, when the crisis is over, the world has passed them by."

Quebec Premier Jean Charest spoke from personal experience when asked about Ottawa's response to the slowdown of the early 1990's.

"The financial situation of the federal government is very different today than what it was in 1995 and 1996. I know that very well, I was there in the House of Commons in those years," said Charest, a former federal Progressive Conservative leader.

Emphasizing that he assured Harper over the weekend that the premiers would emerge from today's session eager to work seriously at a planned first ministers' meeting on the economy later this fall.

"I said to Mr. Harper, what I'm going to seek from my colleagues is a commitment from them to work with the federal government to prepare a federal-provincial meeting that will be substantive," said Charest.

"It's not even an issue of a common front, we're all facing a common problem."

But not all premiers are eager to see the nation awash – even temporarily – in red ink.

British Columbia Premier Gordon Campbell, acknowledging that "these are completely different times than we're used to," said the provinces shouldn't be advocating deficits.

"We have to recognize that it took us a generation to get out of deficits," said Campbell.

"I'm not one of the people that's going to be advocating that we go to deficit. It's like an addiction. Once you're there it's very hard to get off it," he said.

Nova Scotia Rodney MacDonald agreed – to a point.

"I don't believe in deficits. We should remain financially strong as a country and that's what we're going to do as a province in Nova Scotia," said MacDonald.

"What we shouldn't see is for a problem – if there does end up being a problem at the federal level – become 13 problems. The last thing we should see is downloading on the territories and provinces. That does not solve the problems that we see in each individual province," he said.

"The last thing we want to do is panic."

The premiers are to hold a joint closing news conference this afternoon.

[Biggest Fan]

There is nothing like a shot in the arm of the good old Regan economics, i.e. short term gain for long term pain. It gets me a little upset that there seems to be a line of thought today that there should never be any economic 'pain'.

Edited October 21, 2008 by Guest

[phishtaper]

when you lose your job because of slumping auto sales or a closed government office, come back and tell us about economic pain.

[Birdy]

BF - we had something similar to Regan here in Ontario - Mike Harris.

[d_rawk]

It gets me a little upset that there seems to be a line of thought today that there should never be any economic 'pain'.

I think I hear ya. Particularly from the US perspective, I could see being alarmed by all the bending over backwards to try to dodge the lull part of economic cyclicality by throwing money after money at it. Healthy economies have downturns and cleaning out periods and some of that is ultimately beneficial even if it stops the party for awhile. And you are carrying an enormous amount of debt.

In the Canadian context, I think what the premiers of the provinces are saying is worth heeding. Balanced budgets have been worshiped almost religiously here since the mid 1990's, but modest and responsible borrowing to smooth out the spotty times - while being fully cognizant that what you are doing is borrowing from future times of surplus - can make good sense, so long as we don't fall back into the idea that it is ok to constantly live beyond our means with no expectation or plan to pay that debt off.

The alternative to is to dismantle the infrastructure and then pay as much or more later on to try to rebuild it. If I couldn't make a couple mortgage payments because I'd fallen ill and wasn't able to work, it might make good sense to borrow to make those payments and repay that debt when I am fully employed again rather than hand the house over to the bank and start all over from scratch.

The partially obscured context is that our Prime Minister is viewed - rightly or wrongly - as someone who might relish the opportunity to brandish a tight economy as a weapon against public programs for ideological reasons, and this is an early attempt to disarm him.

[Biggest Fan]

d_j pretty good article in that it sums up the challenges todays politicians face. I think you nailed it when you stated: "can make good sense, so long as we don't fall back into the idea that it is ok to constantly live beyond our means with no expectation or plan to pay that debt off." I guess after our experience (USA) it seems that once you go down that path you have a difficult time with turning around from it.

-n- yes it is very easy to talk about 'pain' when you yourself are not experiencing it but it seems that we will all (USA) be experiencing a lot of it as a result of this policy in the not so distant future.

Edited October 22, 2008 by Guest