I was surprised not to see a thread dedicated to the budget itself. While I have not written here for a bit I figured this might be worth de-lurking. Since the Conservatives are the authors of the budget let's consider their objectives.
In the long run they believe in smaller government. To assume that they have seen the light and are now adopting Keynsian economics is naive. To assume that this budget does not serve a neo-conservative purpose, that they have somehow given up, is dangerous thinking. So what then is the end game?
This budget is Act 1 of a two Act play. In the long run even if the stimulus works there will be a political cost for it. The government may be able to say, once the spending spree is over and people start looking at the deficit, that it is the opposition parties that made them do it. They will reach out and take credit if it works and pass it off if it does not. But that is not the extent of the possibilities available.
The real plan, I believe, has its roots in the long-term planning of the government. The government does not believe in stimulus for the economy and this has not changed. The objective over the long run is to reduce the size of government and the role it plays in the economy-- not for the purpose of paying down national debt but for ideological reasons. In that context it serves the government's purpose well to shoot the budget bolt now when there is cover to do so and then pull up the reins sharply later.
Indeed you could argue that there could be a neo-con version of Keynesian economics. In standard Keynsian economics you spend enough to keep the economy afloat in the bad times and pull back a little in the better times -- all the while making sure there is stable funding for key public sector activities. A perverted neo-con Keynsian plan would be to overspend so much in the bad times, with cover of opposition approval, then use that as cover to deny stable funding for the public sector activities later. The result to the public sector is ironically similar if the government overspent than if it underspent right now-- at least in certain areas. By underspending now those key sectors can fold under the weight of the current demand for support during hard times but to overspend now gives the excuse for the deficit fighting that can do much more damage if the government gets its way a couple years from now.
Conservatives always say they do not want what they call structural deficits but in fact that is precisely what they need. They need to always have a deficit to fight in order to justify saying no to the things they do not believe in or want government to do. It is no accident that it is governments that want to deliver on a social agenda that tend to balance budgets in order to be able to do so and ones that always talk about the danger of deficits that keep bringing them in.
A large stimulus budget is perfect cover for Act 2 which is the deficit cutting that comes later-- that is the part when we will be told that we cannot afford public education, culture and health care. (National security bleatings will defend the law and order and military budgets.)
In this context you will see the explanation for what the government will do today. It is not their main purpose to stimulate the economy because while they would like to see the economy do better they do not believe this can be done or that this is the proper role of government. The purpose will be to shovel out the money to diminish the government capacity over the long term. Giving it to the provinces would allow the provinces room to do all those things the government does not want to do and sets up more stable funding over time for programs they do not believe in so expect provincial transfers to be highly targeted.
Instead look for tax cuts as the Conservatives keep advocating, even while they know better, that tax cuts will stimulate the economy. They have been told by economists that in difficult times people will save the tax cuts not spend. But tax cuts are the most efficient way of reducing the size of government over the long term- there is a lot of resistance to tax increases so they are largely irreversible. Ideally, I expect the government would have preferred just to empty the government capacity with significant tax cuts and spending cuts but right now there has been so much discussion of this that the public knows better and wants direct spending. In this budget period, the government can only do this in a limited way. Look for as much of this as possible however. even though the tax cuts will represent a small proportion of the deficit now, because they are permanent they will help guarantee that the government finances will not pay down the debt too quickly allowing for continuation of current government programs.
Tax cuts now will be measured in billions-- this is important because at the bottom of a recession the money given up will look small as the tax base is at its smallest. But these cuts will be worth far more when the economy recovers. In other words a 2 billion dollar tax cut today might be worth, with no changes, 4 billion two or five years from now once the economy recovers.
The second best way to shovel out the money creating stimulus noise now but limiting government later is through P3s. P3s are a combination of up-front government activity with long-term privatization and additional public expense down the road. The government can use billions of public money now to effectively turn over key institutions and activities to the private sector leaving the government with a bill that will serve the purpose of continuing the process later under cover of deficit fighting.
The third way is to use the excuse of the need to move quickly to sidestep government regulation and oversight. This is an opportunity to remove substantial public control over government spending and allow private industry the ability to avoid such concerns like the environment, Canadian content and labour considerations.
The fourth way you can use spending to transform government into a Conservative ideal is to distort priorities in the spending envelopes of each department. If you increase in one area you can cut in another while claiming you have made no overall cuts. For example- if you spend in one area of the arts it can sound like an increase but it can be used as justification of cuts to an area you want reduced while still allowing you the ability to say you have not cut arts spending.
Then what would you expect not to see in neo-con perverted Keynsian economics? You will not see significant transfers to provinces for them to spend money on programs without government control. You will also see the government try to avoid equity positions. It will not want to enter into any situation where the government might actually make money over the long term- the money that will be made will have to be in the private sector. You won't see the government spend much where there will be a significant federal asset or income when this is all done unless it is one that can be readily sold.
What ought to be done in a good budget is to solidify key public sectors, bolster the ability to look after the vulnerable through enhanced EI and make significant investment into public assets including those that will save or make money down the road as well as the infrastructure that both the public and the private sector rely on. I expect the government will pay lip service to most of this while really delivering the money to the private sector.
Look for all of these before you judge if the government has really brought in a budget that will serve anything other than long-term neo con interests. One thing you have to recognize with this particular group of neo-con operatives. They are patient and look into the long term implications of what theya re doing. It is important that critics also spend time considering what happens over the long term.
Unfortunately the government could announce the money but save the method of delivery (P3 and privatization initiatives) for later so we might be impressed with the money being spent on public needs now only to be disappointed later when we see that this could end up being a massive subsidization of privatization initiatives. (it would not be the first time a Conservative government pays the private sector to take valuable public assets of its hands.)
There is my guide to interpretting the budget.
Finance Minister Jim Flaherty gestures during his post-budget speech at the Whitby Chamber of Commerce brunch in Whitby on Wednesday.
