Canada finance minister: We'll control what we can, and that is spending

Canada finance minister: We'll control what we can, and that is spending

Ottawa : Canada | Oct 31, 2012 at 4:10 AM PDT
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Bank of Canada Governor Mark Carney (L) and Canada's Minister of Finance, Jim Flaherty

While Canada's economy is forecast to continue to grow at 2 percent through to 2017, the governments revenue is expected to be lower due to falling commodity prices. Regardless, the government does not intend to introduce another stimulus program but says it will control what it can and according to Finance Minister Jim Flaherty, that is spending.

"We remain committed to returning to balanced budgets in the medium term. We continue to control the growth in government spending."

The situation in Canada

After the financial crash in 2008, the global economy took a nosedive, with massive unemployment, tightening of financial markets and a collapse of the housing sector in the United States. Canada weathered the crisis better than most, due to tight banking regulations and a healthy real estate market.

Due to the bailout of Chrysler and GM, Canada's government operated at a budget deficit of $55 billion. While the $16 trillion deficit is seldom criticized in the US, Canada's opposition parties were quick to criticized the government for the budget deficit, despite the auto industry bailout.

In its omnibus budget bill, last spring, the government started to slash spending by cutting the federal government by 10 percent and making reforms to the Canada pension plan (CPP). The CPP is similar to Social Security, and is funded by payroll deductions. The change raises the eligibility age from 65 to 67 for those 55 and younger. No changes have been made for those over 55. Federal transfer payment for health care, which were growing at 6 percent annually, will be cut back to growth plus 1 percent.

Tackling pension reform, cutting back on government services and the new federal transfer formula for funding health care have not received widespread approval. Canadians demanded that the gold plated pensions for Members of Parliament (MPs) also be reformed. MPs received those pensions at age 55 and after only six years in parliament. The public funded the majority of the premiums for those pensions.

In its budget, introduced this fall, the government had included the MP pension reform, as a gimmick to force the opposition parties to quickly pass the budget. It backfired and the government was forced to separate the bill and passed with a unaminous vote.

The Canadian government has enjoyed a majority in the House of Commons, and it goes without saying that without a majority these reforms would probably never have been possible.

While the government has not met its deficit reduction targets, it nevertheless has reduced it to $25 billion. With the winding down of the war in Afghanistan, the Department of National Defence is charged with reducing its budget and cut spending. The F35 acquisition has become a major embarassment for the government. Will that program be cut? Watch and shoot.

The Debt Crisis in the US

The US has a accumulated a debt of $16 trillion and projected deficits of $1.1 trillion for the next four years. It is obvious that something has to give sooner or later. About 40 cents of every dollar is consumed to service the debt.

There seems to be consensus by both political parties, both sides have a different approach to the problem. President Obama and Democrats believe that the problem can be solved by taxing the rich, those making more than $250,000 (Obama's plan) and investing in new technology, while Republicans reject that idea and propose tax and regulation cuts across the board, which they contend would free capital and stimulate hiring by private industry, in turne creating tax revenue by a larger workforce. Mitt Romney suggests that his five-point plan would create 12 million jobs in four years.

In the meantime, sequestration looms on the Jan. 1, which most economists describe as a fiscal cliff that would hurt the economy and cause further unemployment. The president, although he signed sequestration into law, suggested during the third presidential debate that it would not happen.

Tax reform and budgets

The debt has to be dealt with and changes will not occur overnight. Comprehensive tax reform is at the base of solving the revenue problem by eliminating loop holes to special interests. Another method to curtail spending would be the elimination of ear marks, which seem to be included in almost every piece of legislation leaving Congress. These earmarks are directed at special interests, lobbies and also as an aid for members of Congress to gain favour with their constituents.

Regardless of your political leanings, it should be clear that a good start is tax reform and ending earmarks. The rest of the ideological noise is up for debate.

Source: Canada Says GDP growth holding but tax revenues off. Yahoo Canada

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Bank of Canada Governor Mark Carney (L) and Canada's Minister of Finance, Jim Flaherty
Bank of Canada Governor Mark Carney (L) and Canada's Minister of Finance, Jim Flaherty
Karl Gotthardt is based in Edmonton, Alberta, Canada, and is an Anchor on Allvoices.
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