Q: Over the last couple of months, through the formation of the coalition and proroguing of Parliament, what was the experience like for you? What did you learn from all of that?
A: Well, you know, in a sense it hasn’t changed the government’s plans. The plan was to pursue a budget as early as we could, early in January, and that’s what we’re going to do. I can say it’s been an interesting time—obviously there’s been a change in the opposition leadership as a consequence and so, you know, my great hope is it will lead us to some greater knowledge of what it is the opposition’s actually seeking in terms of public policy. We obviously have significant economic challenges in the country, we’re consulting widely on what should be in the budget, and what may be interesting out of all this is if we actually get some idea from the opposition what their economic priorities are.
Q: What are your priorities going into the new year? The campaign platform wasn’t really the same as the Throne Speech which wasn’t really the same as the economic update, and then the economic update was abandoned a couple of days after it was read, and now we’ll probably see something new in the budget.
A: Well, most of the measures in the economic update will be brought forward into the budget, other than a couple where we indicated some modifications, but the budget will once again be different because the reality is that throughout the fall we’ve been facing increasingly changed economic circumstances. We’ve been doing something unprecedented, which is not just consulting private sector forecasters on the economy but consulting them every two to three weeks, and every two to three weeks we have had materially different interpretations of the economic circumstances than we did the time before. So we continue to revise and update our plans to deal with those circumstances. I still think the underlying reality is that Canada enters this recession in a pretty strong position compared to most Western industrialized countries. We’re entering the recession later; all the indications are it will not be as deep here and we should be able to come out of it sooner. If you look around the world at what other countries are now doing, they’re things that Canada did over a year, year and a half ago, particularly some of the big tax reductions they’re talking about in the United States, and the sales tax cuts that Prime Minister Brown has bought in in Britain.
Q: So why do we need all this stimulus spending, and $30-billion deficits, if we’ll be able to ride this out in six months?
A: Well, the reality is that the situation is, notwithstanding all of that, still worse than forecasters were indicating three, four months ago, and we’ve got to make sure we don’t have a deep and prolonged drop in economic activity. So in our judgment, that is going to require fiscal stimulus. Obviously large-scale spending and deficits—even short-term deficits—are not something I particularly relish.
Q: Then why do them?
A: They are what is necessary for the economy now.
Q: You’re a better economist than I am, so I’m sure you’ve seen the studies on stimulus spending, and in almost every case when we have a recession and spend to stimulate the economy, the economy’s usually in recovery by the time the spending actually takes place. Governments just can’t be nimble enough to time the markets.
A: Those are very real risks. What I’ve indicated to the premiers, and what we’ve been indicating in our cross-country budget consultations, is we’ll be looking at short-term spending that will have very quick impacts, short-term budgetary measures that will have quick impacts. At the same time, we will continue to ensure we take measures to make sure that we control longer-term spending and that we’re able to come out of a deficit as quickly as we come out of a recession.
