Guy Lauzon on Canada’s Deficit

May 28, 2009

In recent weeks, the opposition parties, particularly the Liberals, have attacked this government on the budget deficit, arguing that is unacceptable. At the same time, these critics are arguing for massive increases in stimulus spending and expensive changes to the Employment Insurance system among other things. What this contradiction reveals is that the Liberals actually have no plan whatsoever for the economy.

While it is unfortunate that we are currently running a deficit, it is unavoidable given the current economic climate. Indeed, virtually every G7 country is in deficit. On the bright side, thanks to responsible fiscal management, Canada’s deficit is the lowest among G7 countries as measured by percentage of GDP: Canada’s deficit is 5% of GDP while the United States and Japan are well above 10% (source: International Monetary Fund). Furthermore, our deficit is temporary rather than structural, meaning once the recession ends we will return to budget surpluses. This is not the case for most G7 countries.

The current deficit can be attributed to a variety of factors. First, government revenue is dramatically down. As a result of the recession, people have lost their jobs and businesses are taking in less revenue, causing the amount collected in taxes to decrease.  In addition, the government has dramatically increased payouts related to Employment Insurance. Our decision to extend benefits by five weeks in response to the poor economic climate has also increased costs. Finally, and most significantly, the stimulus package announced in our Economic Action Plan has contributed to the deficit.

While the Liberals would have us do otherwise, we will not apologize for the fact that we are in deficit; it was unavoidable and essential to protect jobs and support the unemployed. The stimulus package was necessary to reduce the length and severity of the recession and has near universal support from Canada’s most respected economists.

Unlike the Liberals who make contradictory claims daily, lambasting the government on the deficit one day then arguing for billions more in stimulus the next, this government has the best interests of Canadians at heart and is making the tough decisions. While the times are difficult, at the end of the day it’s important to remember that Canada is better positioned than virtually any other country in the world and will come out of this recession stronger than before.