A Stimulating Summer

The lack of a "fiscal stimulus" is ostensibly the issue over which the Liberals, NDP, and Bloc have decided to oust the Harper minority and form a coalition government. The Conservatives, the coalition partners claim, did not present a sufficiently bold "fiscal stimulus package" in last week's fiscal update. As such, they failed to protect Canadians from the growing global downturn and the coalition partners have decided to step in and do it for them.

There are many things about this situation on which I could comment. But let's ignore for the moment the fact that the update actually did present some useful measures to lubricate the flow of credit and allowed for further fiscal action in the next budget. And that the true catalyst was probably the removal of party subsidies. Let's also ignore the fact that neither the Liberals nor the NDP, who now wish to rule based on their ability to implement a large-scale fiscal stimulus package in the range of $30 billion, ran on non-stimulating platforms that expressly promised to avoid deficit spending. Let's further ignore the fact that the coalition is as vague about how their $30 billion package will be spent as the Conservatives were about possible future expenditures. Let's also ignore the fact that the economic literature is far from conclusive about the benefits of large fiscal stimulus packages to alleviate short run fluctuations in an economy (like Canada) that has not entered a severe recession. In fact, there are already automatic stabilizers (like employment insurance) at work to provide a "stimulative" effect.

Instead, what I want to point out is this: there may have already been a fiscal stimulus in the Canadian economy. See, the thing about government intervention in business cycles is that the timing is very hard to get right. Frankly any action taken by the Conservatives or the Liberals-NDP will probably not have an impact until near the end of the downturn or when the economy has already begun to recover. It takes time for this type of policy to have the right effect. Ideally, a fiscal package (if needed) would have been implemented long before it was needed.

Indeed, this is exactly what the Conservatives argue, referring to their cut to the GST and their planned cuts to the corporate tax rate. I'm not convinced that either of these policies will have a huge impact. But forgive me a quasi-partisan moment and allow me to make the Conservatives' case for them: their pre-election spending spree may actually act as a stimulus for Canada.

I found this list of spending announcements for the summer of 2008 on the Canadian Taxpayers Federation website. They count over $19 billion of new spending. Not all of the money will be spent in 2009, but many of the items fall into the categories that the coalition now says are possible stimulative expenditures. That is, innovation, infrastructure, skills development, and economic development. Here is a list of some of the bigger items.

Innovation & Research

• Asthma/Allergy Research, McMaster 12 mil
• SSHRC, NSERC, and CIHR 10 mil
• Fuel Efficient Auto Technologies, Ford Motor Company 80 mil
• Landing Gear Technology Research, Heroux Devtek Inc. 27 mil
  

Infrastructure

• City of Calgary transportation 34.5mil
• Baie de Beauport park 18.3m
• Queenston Plaza, Niagara-on-the-Lake 62mil
• Canada-BC Municipal Rural Infrastructure Fund 147mil
• Winfield-Oyama Highway Project 33.6mil
• ontario infrastructure 6.2 billion
• Toronto public transit including subway extensions 731.7mil
• Champlain Bridge, Montreal 1.0 billion
• Ports, Rimouski and Baie Comeau 53.3mil
• Infrastructure, Government of Quebec 4.0 billion
• Highway Improvement, Government of Quebec 231mil
• Highways, Government of British Columbia 163.7mil
• Military Base Expansion, CFB Trenton 500mil
• Infrastructure, Government of Manitoba 718mil
• Highways, Government of New Brunswick 68.75mil

Skills Development

• Roadmap for Linguistic Duality in Canada 2008-2013 1.1 billion (not sure what this is exactly)
  
• Retraining, Government of Newfoundland and Labrador 46mil
• Job Training, Government of PEI 39mil
• Aboriginal Skills and Employment Partnership, various 11.4mil
  

Economic Development and Support

• Various Northen Ontario initiatives 23mil
• Bombardier Inc. 350mil
• Tobacco Farmers bailout 300mil
• Joint Strike Fighter Program, Bristol Aerospace 43.4mil
• Ships, Lockheed Martin, Gatineau, QC 2.0 billion
• Settlement Services for Immigrants 22.2mil
• Ship Building, Nordane Shipping 12mil
• Reopening Ford Motor Company factory in Windsor, 80mil
  

The infrastructure spending is especially impressive. A lot of the money has been given to the provinces for specific projects (Quebec and Ontario in particular!). So to a great extent the provinces have a role in accelerating those projects to provide the stimulus.

The NDP and Liberals joined the CTF at the time in criticizing the Conservatives for their handling of what were previously balanced public finances. There were a ton of items on the list (the CTF's document is 19 pages long) and so there is more than a little validity to accusations that the Conservatives were trying to spend their way to a majority.

But the point of this post is that the Conservatives, in spending an incredible amount of money this past summer, may have inadvertently provided some sort of stimulus package during the high-rolling summer. And the summer was exactly the right time for any necessary fiscal action to take place.