The budget of Prime Minister Justin Trudeau’s government should be viewed in the context of the great debate about the best fiscal policy for contemporary Canada. Indeed, the Liberals’ fiscal strategy was supported by an overwhelming number of voters in the last federal election.
The great economics debate of this century consists of two warring schools. On one side are the proponents of fiscal austerity and punitive measures to reduce runaway deficits. On the other side are the advocates for economic stimulus, growth and infrastructure investments.
The austerity paradigm rests on the diagnosis that the contemporary economic crisis was caused by consecutive deficits and excessive public debt. A restrictive and contractionary fiscal policy is favoured. Understandably, the economic medicine is hard to swallow but it is presented as the only solution if the patient is to survive.
Those on the other side advocate a growth agenda through a stimulus program of infrastructure renewal, private sector investment and an emphasis on job creation. This focuses on growth as a means of ameliorating the economic malaise following the worldwide Great Recession.
The knee-jerk reaction to our national economic challenges is to slay the dragon of fiscal deficits by slashing government spending. This is short-sighed. Slamming the fiscal brakes too hard will probably send national and provincial economies flying through the windshield.
During a protracted economic malaise, with a fragile recovery and sluggish activity, insisting on harsh austerity is a recipe for decimation.
Now is the time for Ottawa to exercise economic leadership. This policy of purposeful engagement should embrace a strategic plan that supports the private sector and is directed towards growing the national and provincial economies.
The reason for this is eminently clear. Despite unprecedented low interest rates, the private sector is hesitant to expand production or make new investments. As a result, the public sector must pick up the ball and invest in the fundamentals that will create a bigger economic pie and generate employment.
I am a strong proponent of a public sector agenda that embraces internal efficiencies, eliminates duplication, raises productivity, infuses an entrepreneurial mindset, modernizes economic governance and promotes public sector innovation.
In a mixed economy, growth should be collaborative, with an effective partnership between the public and private sectors. Faced with fiscal constraints, the public sector must increasingly rely on the private sector to spearhead investment and job creation. However, in the absence of an optimistic economic outlook from the private sector, the public sector must step up and kick-start the economy.
In particular, the public sector must do a better job in realigning our human resources with the emerging opportunities of the new global economy. At a time when human capital – the education, skills and competencies of our workforce – is our country’s most valuable economic resource, we cannot languish in excessively high rates of unemployment. Unemployment debilitates our potential. It is imperative that we nurture our human assets to best align our youth with the job opportunities of the 21st century global economy.
During tough economic times, fiscal policy should manage the machinery of governance in thriftier, more efficient and effective manner. It should also develop a strategy to grow the economy while creating new employment. The three guiding lights that should inform our economic policy are balance, perspective and vision – in short, a growth-oriented strategy that embraces government spending reforms.
The federal budget has targeted a combination of economic and social policy to infuse the economy and support marginalized groups. The intent is to enhance consumer spending, invest in infrastructure, support the unemployed, improve the lives of the middle class and promote the economic well-being of indigenous peoples.
Dr. Constantine Passaris is a professor of economics at the University of New Brunswick and a national research affiliate of the Prentice Institute for Global Economy and Population at the University of Lethbridge.