“Budget leaks” on Thursday suggested that Canada is looking at a $60 billion plus deficit over the next two years.

On November 27, 2008 the Honourable James M. Flaherty, Minister of Finance, in his financial update said “private sector forecasters expect real GDP growth of just 0.6 per cent this year and 0.3 per cent next year (2009). The same forecasters are now widely expecting a ‘technical recession’, with negative growth in the first quarter of 2009”.

Mr. Flaherty went on to say in November that “Canadians and Canadian businesses will pay nearly $31 billion less in taxes in the next fiscal year, thanks to his tax reduction measures introduced since 2006. He also said “The next fiscal year will be difficult but Canadians can be fully confident that we will overcome whatever hardships may lie ahead in 2009, and beyond”.

Let’s examine Mr. Flaherty’s statements in the light of a projected two year, $64 billion dollar deficit. Imagine if his $31 billion reduction in tax intake was not in place.

Government rhetoric suggests that stimulus spending should be short term and “shovel-ready”. I agree there needs to be some short-term and immediate stimulus. There also needs to be some long term visionary infrastructure spending. In respect to short term stimulus, we could look at things like deferred maintenance projects that would target universities, colleges, social housing, roads and bridges.

In respect to longer term infrastructure investments, we should be looking at projects that create permanent jobs and deliver lasting economic benefits. We need to provide transfers to individuals who most need assistance – the unemployed, seniors whose pensions have been devastated by the collapse of financial markets and fixed and/or low income groups who need help to get through the recession. I also think we have to acknowledge that it will be our children who will be paying for the huge deficits that are projected by the government. They will be burdened by the stimulus debt so spending investments should produce benefits for them.

Many of the stimulus options being advanced by all parties are based on Keynesian economics and the Great Depression of the 1930s. I’m not convinced that the times or the situations are comparable. We’re much more dependent today on other countries for our goods and vacation services than we were in the 30s. By Keyne’s standards, the state should stimulate economic growth and improve stability in the private sector by lowering interest rates, lowering taxes and investing in public projects.

The Bank of Canada interest rate has already been cut to the bone. I don’t think we should be offering tax breaks. People who would most benefit from tax cuts will either: bank their savings, reduce their debt or buy goods and services that are produced in large part by other countries. Lowering taxes will only increase the deficit and may create permanent structural deficits.

Much of today’s economic problem is driven by collapse of the American financial sector and the psychological impact of that collapse on consumer demand. We have to fix the psychology before we can fix the economic problem. Barack Obama offers hope. That’s step one. If he stumbles, recession will be longer and deeper. If he inspires, we could start climbing out of recession in the next year.

A national infrastructure project such as a railway retrofit that would take trucks off the highway and increase the speed of on-ground transportation that would in turn, produce jobs, green the environment, lower transportation costs and increase the efficiency of our goods-producing economy could be one way to go.

Alternative energy projects (wind, wave, solar, small hydro, geothermal and biomass) and home retrofits to reduce energy demand would create jobs and help reduce carbon emissions. New public housing projects would create construction jobs and help get people off the street.

Financial stimulus might include suspension of the GST for specific demographic groups who have a need to spend (e.g. under 40 couples). Tax suspension could include first time home purchases and new car purchases. If those people had money in their pockets or tax-generated purchasing options, they could help create demand for home construction and auto purchases and with informed purchase information; they could stimulate demand for low carbon (emission) automobiles and more energy efficient automobiles.

Crisis presents an opportunity for change. In my opinion, Tuesday’s Budget should be about much more than economic stimulus. The Budget should be designed to create consumer demand for Canadian made products and services. It should help to reduce the demand for energy in Canada.

It should favour the purchase of greener equipment. It should provide hope and a vision for the future and it should favour the young because they will be paying for the deficit.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

When a successful company invests, it invests in productivity, it invests in new products, it invests in innovation, it invests in growth strategies and it invests in the future. When a struggling company invests, it invests in short-term survival solutions.

The global economy is struggling. Canada’s economy is beginning to struggle. I’m concerned by what I’m hearing from our political leaders. Most are talking about near-term investments (stimulus) in job-creating, “shovel-ready” infrastructure projects, tax cuts, improved EI benefits and job-training programs to ease the pain of job loss or layoff.

In my opinion, it would be more responsible and gutsier to invest in longer term projects that would grow and sustain our economy.

Anyone (who is properly trained) can build a bridge or a highway but not everyone can be inventive. Infrastructure projects do not have to be limited to roads bridges, schools and hospitals. They could be investments in alternative energy projects (wind, tidal, wave, solar, geo-thermal, etc.). They could be investments in new and innovative products.

My point is this. Economic crisis or the imminent threat of crisis demands investment in our social infrastructure but it should also be viewed as an opportunity to invest in long term economic growth.

Based on history, we know the recession won’t last forever. We also know that the world needs more food. The world needs to reduce its carbon emissions. The world needs to house its people. The world needs clean energy. The world also needs more efficient ways to use the energy we already have in our possession. We should be investing in things like land-based aquaculture, greenhouse farms, more fuel-efficient transportation and modular housing.

Many of the stimulus options being advanced today are based on Keynesian economics the ideas of twentieth-century British economist, first published in 1936. By his standards, the state should stimulate economic growth and improve stability in the private sector by lowering interest rates, lowering taxes and investing in public projects.

Over the last eight years, the United States has followed many of these practices and look where it got them. Lower taxes helped to create their huge deficit. Interest rates are near zero but demand for goods and services continues to fall. Public project investments have been confined to bailout of the financial sector and it may require another shot in the arm.

Keynes contended that aggregate demand (the total demand for goods and services in the economy at a given time and price level) is insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing high unemployment and deflation.

Keynes argued that Government investment in infrastructure results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. In other words, the initial stimulation starts a cascade of events, whose total increase in economic activity becomes a multiple of the original investment.

John B. Judis, a senior editor of The New Republic and a visiting scholar at the Carnegie Endowment for International Peace writing in the New Republic says “most economists agree that what finally pulled the U.S. out of the Great Depression was military spending for World War II. Some liberals argue that if the Roosevelt administration had not abandoned a Keynesian stimulus strategy in 1937-38, the U.S. might have gotten out of the depression without a war but in 1936, unemployment was still at 16.9 percent.

By 1942, after two years of war spending, it was 4.7 percent, strongly indicating that it was war spending that did it. I am not suggesting that the United States start a world war in order to solve the world's economic problem.

But I am suggesting a strategy that could be called the fiscal equivalent of war.

It would consist not merely of updating or repairing the nation's infrastructure, but in undertaking massive new investments that would expand the scope of American industry, and address other urgent problems in the process: global warming, over-reliance on petroleum, and the need to revive America's domestic manufacturing capabilities - not just to provide jobs, but also to provide tradable goods that can reduce the country's current account deficit”.

Judis went on to propose a massive investment in high-speed rail. In Western Europe and Japan rail speeds can be up to three times faster than North American trains and many of them run on electricity. They would be the most energy-efficient and quickest means of getting between places like Boston and New York, or Los Angeles and San Francisco.

Investing in high-speed rails would be very expensive but unlike tax cuts (benefits can be siphoned off by the purchase of imported goods) the money spent would go directly to reviving American industry and improving the country's trade balance.

That doesn't just mean jobs creating dedicated tracks or new rail stations. He says “this kind of production could be undertaken by our (U.S.) ailing auto companies or aircraft companies.

Building trains that would run on electricity would also be a paradigmatic example of the "green jobs" that President-elect Obama often touts. I like this man’s thinking.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

Four words marked the first two years of the Graham Government: “self-sufficiency” (and) “transformational change”.

The self-sufficiency objective was noble in intent but a number of mechanical problems appear to have slowed the train.

“Self-sufficiency” was originally defined as the point at which the province would no longer require equalization payments from the federal government. The off-equalization objective failed to excite because it had little or no meaning for most people. They could not see the personal benefit in a fiscally healthier government.

Equal opportunity (in the 1960s) on the other hand had great traction (and granted, much opposition in the early days) because it was about people and the offer of hope that their lives could be improved.

The second challenge to early adoption of self-sufficiency was government decisions to bail out the Caisse Populaire and to increase taxes. Those decisions were counter-intuitive to the idea of self-sufficiency.

The third hurdle was a twenty year time-line. People know intuitively that twenty years is beyond the term of this or virtually any government in a developed society, so there is no accountability in the promise.

Another difficulty with the notion of self-sufficiency is that we live in an interdependent world.

Anyone who doubts this need only consider the domino effects of collapsing oil prices, the near collapse of the U.S. financial system and the subsequent global recession that impacts virtually everyone. As the Governor General said recently a “fend for yourself” mentality has no place in an interdependent world.

The second two words in the equation were “transformational change”. It started with early French immersion. That ran into a brick wall and ended in compromise. Then there was the rationalization of post-secondary education. That also ran into a wall and ended in compromise.

The energy hub in Saint John was supposed to generate transformational change. It may yet do so but recession, tight credit and a downward spiral in oil prices will almost certainly delay this realization for a year or more. Tax reform was a well-intentioned and needed change that will likely be side-swiped by recession.

That brings me to the question of how we deal with recession. There has been much talk about fiscal stimulus. Some suggest tax-cuts to stimulate the economy. Others suggest infrastructure investments and investments in people through Employment Insurance and funding credits for seniors.

Opposition parties say the federal budget must expand employment insurance to put more money into the hands of workers left jobless by the recession. Canada’s auto industry is shedding jobs. Our forest industry is shedding jobs. People without jobs benefit more from Employment Insurance payments than tax cuts. They would also benefit more from the jobs that could be created by an infrastructure program.

While the need for fiscal stimulus has been widely accepted, its exact form remains a subject for debate. For a fiscal stimulus to increase growth quickly, it needs to focus on spending increases and temporary tax rebates for low and moderate-income families who are more likely to spend the money than save it.

An argument put forth in favor of corporate tax cuts is that they will lower the cost of capital and thus provide an incentive to invest. Theoretically, businesses respond to lower costs of capital by increasing their investment outlays.

However, economists have determined that the cost of capital plays a small role in determining investment. The more important factor is projected sales growth. Without real prospects for growth, businesses have little reason to undertake what could be risky investments, regardless of the cost of doing business.

Finance Minister Flaherty has floated the idea of personal income tax cuts as a stimulus. He may be missing the point. Consumers, post-Christmas are beginning to show less interest in spending than in keeping money in their pockets to pay down household debt and save for harder times.

The value of infrastructure spending is that even before shovels hit the ground, the announcement prompts borrowing and lending, a particularly useful result in a credit crunch.
Finance Minister Boudreau, like Mr. Flaherty is facing some tough decisions in the weeks ahead.

He’s already acknowledged the budget will read deficit as a result of stimulus that will be added to the New Brunswick economy. Wise investment in essential infrastructure and business expansion that creates long-term sustainable jobs will go a long way towards reinforcement of the road to a more self-sufficient provincial government but more importantly it will help to create a more sustainable economy.

Barack Obama will lead the parade after January 20th. Mr. Flaherty will show his hand on January 27th. Mr. Boudreau will follow in March. May they all move responsibly towards better times.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com

In her New Year’s Message, Governor General Michaëlle Jean said

“As a New Year dawns, we are filled with a renewed sense of hope. The days, weeks and months ahead may be whatever we imagine them to be and will be whatever we make of them. But let us be realistic: the challenges are considerable and have caused a great deal of anxiety”.

She refers among other things to the global recession and the unprecedented political crisis that shook the country in late November/early December.

The Governor General notes “how important it is for us to work together—nations, governments, societies, businesses, organizations, individuals, side by side”.

She observed that a “fend for yourself’ mentality has no place in an interdependent world… Given the magnitude of the challenges before us, the time has come for us to invent new ways of living together”.

The Times & Transcript proffered a similar Editorial message to support its contention that all Members of parliament should “accept the results of the last election to make the minority Conservative government work”.

Let’s put that into context: only 37.6% of voters in Canada cast their ballots for the Conservative Party in the last election.

Sadly, 9,571,035 people stayed home and did not vote.

The Liberals and the NDP, together gathered support from 44.4% of voters. The Conservatives have 143 of the 308 seats in Parliament. The Liberals and NDP together have 113.

To gain the confidence of the House and pass legislation, either the Conservatives or a Liberal/NDP coalition would require support from the Bloc Quebecois.

This is not to argue for a coalition, only for the legitimacy of a coalition. Contrary to what some would tell you, A Liberal/NDP coalition would have every bit as much a right to govern as does the Reformed Conservative Alliance.

The question facing Parliamentarians later this month will be one of trust. Can they trust the current Prime Minister to work in the cooperative spirit proposed by the Governor General? If the answer is no, could a Liberal/NDP coalition, in the best interests of the country govern in a spirit of true cooperation. If the answer is no, we could be faced with another election in a few weeks.

On the matter of trust, how can we trust a man who legislates “fixed election dates” and then ignores the legislation when it suits his fancy?

How can we trust a man, who promises budget surpluses during the election, then turns on a dime to provide support to Canada’s financial institutions, help bail out the auto industry, finance a spending package and create huge deficits for the next few years?

How can we trust a Prime Minister who presents an “economic update” with promises of legislation that would strip opposition parties of funding, undermine equality of pay for women, remove the fundamental right of federal civil servants to strike, offer no plan to address our economic challenges and then days later withdraws the offending irritants when faced with defeat.

How can we trust a man who is so obsessed with personal power, he asks the Governor General to prorogue Parliament o avoid defeat, a man who makes virtually all issues matters of confidence and then dares the opposition to defeat him?

How can we trust a Prime Minister who when he finds himself in a corner lashes out at the people of Quebec by pejoratively calling their duly elected Bloc Members of Parliament “separatists”?

How can we trust a man who for years campaigned for an elected Senate and then appoints 18 new senators, a man who introduced the notion of Parliamentary review of judicial appointments and then appoints a Supreme Court judge without review? How can we trust a man who would make these appointments while on a sabbatical enabled only by grace of the Governor General?

In a few weeks, three parties, representing 52.8% of voters may choose to deny this man and his party the confidence of the House. In that event, the Governor General would have the option of calling an election or asking the Liberals and the NDP to form a coalition government.

The Harper government and a large segment of the media have already tried to frame such an event as everything from a constitutional crisis to a total breakdown of society that would undermine our economic recovery. In my view, there will only be crisis if the current governing party is allowed to hold Parliament hostage in an attempt to further its personal ideology.

As the Governor General has wisely counseled “the time has come for us to invent new ways of living together”.

Whether by coalition or election, I think that may be possible.

W.E. (Bill) Belliveau is a Shediac resident and Moncton business consultant. He can be contacted at bill.bellstrategic@nb.aibn.com Atlantic Insight is a published Blog inventory of opinion articles published weekly in New Brunswick's print media as written by W.E. (Bill) Belliveau, who is a resident of Shediac, New Brunswick, and small business owner, operating his Moncton-based marketing consultancy, Bell Strategic. He can be reached by e-mail at mailto:bill.bellstrategic@nb.aibn.com