Conservative spending cuts could tip Canada into recession, federal union economists say

OTTAWA — The Conservative government could tip Canada into a recession if it reduces federal spending by up to $8 billion, says an analysis by the union representing government economists and social scientists.

Claude Poirier, president of the Canadian Association of Professional Employees, said that if the Conservatives press ahead with spending reductions of $8 billion by 2014-15, Canada’s gross domestic product will fall by more than $10 billion and draw an embattled economy into a recession.

“Either the government isn’t aware of the impact its expenditure reduction program will have and is prepared to risk plunging the country into recession, or the government has not gauged this impact properly and is tinkering with the Canadian economy to satisfy an ideological imperative,” said Poirier.

The results of the spending and operational spending review that will be announced in the upcoming budget have been kept under wraps under the guise of cabinet secrecy. With few details about the cuts, unions and other organizations have been struggling to estimate the job losses and their ripple effect on the Canadian economy.

Parliamentary Budget Officer Kevin Page said the government has released so few details about the upcoming cuts that it is difficult to come up with much more than rough guess.

“It is unclear to me on how one can do a reasonable job estimating economic and fiscal impacts and public service employment impacts of the government’s austerity package when we have no details,” he said.

CAPE launched its study months ago to get a handle on the economic impact of the government’s spending cuts. It was conducted by economists using data from Statistics Canada, as well as data generated by an economic model used by federal departments and agencies.

The union estimated the reductions could eliminate 116,000 jobs across the country, but it didn’t provide a breakdown of job losses in private and public sectors. It earlier estimated 110,000 jobs could disappear — including 50,000 in the public service — if the government opted for spending reductions of up to $8 billion rather than the $4 billion it was originally targeting. It will be releasing its findings on potential job losses later this month.

The study concluded that any spending reduction will have an immediate impact on Canada’s economic growth and will be felt more strongly in some regions more than in others.

The biggest bite will be in Ontario where the GDP will shrink by $4.5 billion, followed by $1.4 billion in Quebec, $1 billion in the Maritimes and $1 billion in British Columbia. CAPE’s economic model estimates GDP will drop by $1.4 billion for Alberta, Saskatchewan and Manitoba, with Alberta accounting for $786 million of that.

The study also examined the impact of $8-billion reduced spending on GDP by industry. The hardest hit sector is the finance, insurance, real estate, rental and leasing sector, which will lose about $1.2 billion. The retail sector in Ontario could lose more than $161 million, while B.C.’s financial industry could lose $133 million. In manufacturing, Ontario could lose $182 million, with losses of $131 million in Quebec.

Poirier blames the deficit on bad fiscal decision-making. He said the government is pitching the cuts as necessary to eliminate the deficit while glossing over the tax cuts that deprived the government of billions in revenues. Reducing the GST to five per cent cost $13.4 billion in foregone revenue, along with $1.5 billion in reduced corporate taxes.

Those decisions shifted the “burden of fighting the deficit” to Canadian taxpayers who will now be forced to live with fewer services, he said.

Nepean-Carleton MP Pierre Poilievre, who is parliamentary secretary for Transport Minister Denis Lebel, said the study had a clear union bias and questioned whether it reflected the conclusions of federal economists.

Rather than trigger a recession, he said a balanced budget and low taxes will create jobs and “free up capital that would be sucked into the vortex of government borrowing.” The country didn’t fall into a recession after the Liberals’ historic downsizing of the 1990s, which took a much bigger axe to federal spending that the Conservatives are planning. He said the expected spending cuts will simply slow the growth in government spending.

“If government spending was the best way to avoid a recession, then Greece would be the wealthiest country in the world,” he added.

Original Article
Source: ottawa citizen
Author: KATHRYN MAY