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Canadian provinces' budget gaps at 'tipping point'

 

Paul Vieira, Financial Post · Mar. 16, 2011 | Last Updated: Mar. 16, 2011 6:24 PM ET

 

OTTAWA — Canadian legislators heard stern warnings Wednesday that public finances are in need of an overhaul, with small-business owners saying budget shortfalls are at a “tipping point” while a bond rater maintained its negative outlook for the provinces and mused policymakers may lack the will to implement spending cuts.

 

The federal government and some provinces are putting the final touches on their 2011 budgets, with Quebec set to deliver its fiscal and economic plan Thursday. But reports released Wednesday were clear that these much-awaited documents have to address how much politicians are prepared to pare back program spending — which increased robustly before the recession, and is now at unsustainable levels as economic growth moderates and the labour force ages.

 

“The downturn simply made a bad situation even worse,” said the Canadian Federation of Independent Business in its overview of public finances. “Caught with their fiscal pants down, most provinces and the federal government are now swimming in more red ink than was otherwise necessary.”

 

“Despite Canada faring better than most other developed countries through the recession, our state of government fiscal affairs is dangerously near the tipping point. Strong and committed action is needed now to prevent the kinds of fiscal catastrophes seen around the world.”

 

Much of the attention is on the federal budget, to be tabled next Tuesday, as it could trigger an election campaign. The federal government could see its budget deficit fall to roughly $40-billion in 2010-11, from $56-billion in the previous year, on an improving economic outlook.

 

The Conservatives have pledged to return to a balanced budget in 2015 through holding back program spending in key areas. The CFIB report suggested the target could be achieved a year earlier if Ottawa restricted spending growth to no more than the inflation rate, or 2%.

 

Instead, most of the CFIB’s concern is targeted at the provinces, especially Ontario, New Brunswick, Quebec and Nova Scotia — all of which are categorized as the “ugly” ducklings among provinces.

 

In Ontario and New Brunswick, which collectively are set to record a $26-billion budget shortfall in 2010-11, the CFIB warned drastic measures are in the offing if those provinces want to restore fiscal order.

 

“The situation in New Brunswick and Ontario is so dire that limiting spending is not enough to balance their budgets before the end of the decade,” it said. “[And] even in the case of an absolute spending freeze, it will take to the end of the decade to see net debt levels recede to pre-recession levels.”

 

Moody’s Investors Service, the credit rating agency, suggested the provinces have the fiscal flexibility to reverse the recent deterioration in their public finances. Nevertheless, Moody’s said the worry is the politicians lack the will to implement spending cuts, especially with as many as seven provinces possibly holding elections this year.

 

“Given the magnitude of the task … we believe there is a risk that some governments will not display sufficient fiscal resolve,” Moody’s said. “A failure to communicate and implement clear, realistic and effective fiscal consolidation plans could lead to downward rating pressure for certain provinces.”

 

Ted Mallett, chief economist at CFIB, said the tendency among governments is to spend any extra revenue they earned which was above budget expectations. That behaviour has to change, he warned, otherwise Canadian governments could face the same fallout some U.S. states and European countries are now struggling with.

 

“They felt they could get away with this,” he said, “but the rules of the game have changed.”

 

The recession has put the provinces in a bigger fiscal hole. Compounding matters is an aging population whose need for provincially funded health-care services will increase. Provinces rely on transfer payments from the federal government to help finance health care, and the present deal — which guarantees annual increases of 6% — is up for renewal in 2014. Some experts warn the next federal-provincial transfer deal won’t be as rich.

 

Financial Post

 

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Canadian provinces' budget gaps at 'tipping point'

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Yeah we're screwed!

 

The worst fact is that nobody seems really interested in doing anything to fix that. The Ontario PC's are saying they are going to avoid any cuts to sacred cows and "we won't be like Harris", etc etc. Alberta's government is on track to blow out almost every penny in their sustainability fund, that like 2 years ago was worth 17 billion dollars. Alberta is getting a new premier soon, as Stelmach is stepping down and an election is in 2012 (?). The new PC leader might try and fix things or stay the course, either way I don't see much of a Klein moment with them. Their opposition party, the Wildrose Alliance is at least friggin pissed and they will fix budget problems if they win in 2012, which, for the first time since say '93 is relatively likely. For us, the ADQ is saying some kind of wishy washy workforce reductions but the ADQ doesn't have that momentum they did in '07.

 

Federally I think Harper's assumptions about deficits magically going away are weak and not very likely.

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Mike Harris was the best thing to ever happen to Ontario. Tim Hudak is a bit of a lightweight, IMO.

 

Good riddance to Stelmach.. He'd surely be considered quite right wing here though. Wildrose Alliance all the way (who says I always toe the party line?). Danielle Smith is speaking in Montreal at the RLQ convention on April 16! Should be interesting! I'm really thinking of going!

 

The ADQ is Quebec's only hope... We'd better hope they pick up steam, or we're doomed!

 

Harper believes in a little too much Keynesian economics, IMO, but he's still the Prime Minister who has understood the economy the best in a very long time!

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That's the thing. Harper a Keynesian? WTF he spent decades ranting about how it was BS, then as soon as he is elected, boom giant stimulus for everyone! It is like Preston Manning becoming prime minister and putting out 5 dollar a day daycare for everyone. Head asplode!

 

It is kind of how one gets the feeling that Iggy is way more conservative than he is trying to pretend he is to get votes, but Harper, he too is doing the same! It is like everyone is right wing when the lights are turned down :D

 

Speaking of Alberta I just love this stuff... sure beats the crap out of silly federal attack ads:

 

http://www.youtube.com/watch?v=vOntJSN_MnI&NR=1

 

LOL and from the Alberta NDP with the Wildrose people present:

 

I want to see some pequiste country music videos :D

Edited by Cyrus
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Harper believes in a little too much Keynesian economics, IMO, but he's still the Prime Minister who has understood the economy the best in a very long time!

 

:-) That's a funny one. What exactly has the Harper government done right in the economic domain?

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:-) That's a funny one. What exactly has the Harper government done right in the economic domain?

 

IMO it is more of a "hasn't fucked it up as some others", compared to various other countries in the current era and various other Canadian governments in the past...

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