The Canadian Federal Government's economic statement or mini budget contains some interesting information. Because it intends to reduce taxes, increase spending and reduce the surplus in the coming year from over 13.6 billion dollars to just 4.6 billion if we include the contigency funds of 3 billion the net effect will be more stimulative or at least less contractionary than would otherwise be the case.
So long as the unemployment rate stays at 6.6% or hopefully drops further and the central bank doesn't raise interest rates the results ought to be positive for growth. What is also revealing about the statement is the enormous size of the surpluses that are going to be available for the forseeable future provided there are no surprises on the revenue front because of a business cycle downturn due to energy shock or central bank shock.
The Government also plans to pay down an additional 31.5 billion dollars in debt reduction in order to reduce the debt to GDP ratio to 25 and then 20 % by far the lowest debt ratio in the G7. Since the debt ratio will drop anyway simply by the growth in the GDP and the ratio is already below 30 % on a national accounts basis there is lots of room for moving some of the funds from debt reduction to program spending investments in health care, education, infrastructure and refurbishing the military over the coming years.
Program spending despite the increase in spending that is announced in the statement of an additional 10 billion dollars is still at the lowest it has been as a share of the GDP since the 1950s. If the Government wanted to lower the unemployment rate further down to below 6 % and repair more of the damage to the health care system and infrastructure the opportunity is definitely there.
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