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Bracing for the new budget

With everyone eager to see the shape of the new coalition-busting budget on January 27, it’s a good time to consider what we’re getting ourselves into...and whether we really need to.

Over at the blog of the Progressive Economics Forum, Marc Lee argues that deficits aren’t really that life-threatening:

We are repeatedly told in the press that getting out of deficit was oh so difficult, and so we need to proceed cautiously down that road in the 2009 budget.

In fact, Paul Martin’s landmark 1995 budget that took aggressive measures (1995/96 fiscal year) turned into a surplus of $3 billion in the 1997/98 fiscal year.

So it took exactly two fiscal years to get out from under the deficits of the early 1990s in the high-$30 billion range. By 1999/2000 the surplus surged above $14 billion and hit almost $20 billion the year after.

...So don’t believe the pundits when they go on about how hard it would be to get out of deficit. Fiscal fortunes can change quickly if the economy is growing.

And the magnitude of today’s proposed deficits ($34 billion in 2009/00) is rather small, about 2% of GDP, compared to the deficits we saw in the 1990s when GDP was much smaller. The largest ever deficit as a share of GDP was 7.9% back in 1983/84, equivalent to some $120 billion were that to be replicated today (and provinces were running deficits back then, too).

A very busy man, Marc Lee is also at the Canadian Centre for Policy Alternatives, proposing an alternative federal budget including five tests:

1. Help the hundreds of thousands of newly unemployed Canadians by increasing Employment Insurance (EI) benefits from 55% to 60% of insured earnings and extending the period for receiving those benefits to 50 weeks.

2. Support those who need it most, such as unemployed, low-income Canadians and hard hit communities, by making a commitment to reduce poverty in Canada by 25% in the next five years.

3. Implement an ambitious social, physical and green public infrastructure program, creating jobs in both male- and female-dominated professions.

4. Support key value-added sectors with restructuring criteria to ensure they become green and sustainable.

5. Emphasize spending over tax cuts.

Crawford Kilian is a contributing editor of The Tyee.

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