Tuesday, January 27, 2009

Falling short

The contents of the Cons' budget are now public. And the most striking news is the fact that the three largest programs - representing roughly half of the Cons' planned stimulus - all feature glaring weaknesses.

The largest dollar figure of $12 billion is attached to infrastructure spending. But that comes with a major caveat:
Nearly $12-billion federal dollars will be made available for “shovel-ready” public works projects across Canada that can be commenced quickly, but there's a catch. Provinces and municipalities will have to contribute nearly $9-billion more in order to get the roads, bridges and sewer upgrade work started.
The Conservatives warn however they will withdraw offered funding if there's not a speedy pickup by provincial and municipal governments “The government is expecting all partners in this stimulus plan to act with urgency and will reinforce this with a strong, consistent, ‘use it or lose it' theme,” the budget said.
In other words, much of the supposedly budgeted money won't flow if municipalities and provinces don't put their own money on the table first. And with some municipalities in particular already signalling that they can't afford to have stimulus costs foisted on them by the federal government, it looks like a certainty that at least some of the money nominally allocated to infrastructure won't actually be spent.

Next up is the Cons' tinkering with the income tax system, which would cost the federal treasury roughly $2 billion per year (so $4 billion over the 2-year stimulus period). But with the Libs and others having already raised justifiable concerns about the ineffectiveness of tax cuts as stimulus, it's hard to see that as a positive sign.

And it only gets worse when one gets to the next program on the list, being the Cons' home renovation tax credit. While the Cons budget a whopping $2.5 billion, the terms surrounding the credit make it another pool of money which is likely to have little if any effect on actual economic activity.

After all, the credit doesn't even come into play unless a homeowner has a spare $1000-plus lying around to invest in renovations. And even above that level, the 15% credit doesn't look like a meaningful incentive to spend money which wouldn't otherwise be spent - particularly when the Cons' noises about an impending depression figure to make Canadians more cautious in handling their money.

I'm sure the smaller initiatives will be dealt with before too long as well. But the top three on the list - which again include half of the supposed stimulus amount - are enough on their own to tell the story of a budget which is designed for failure. Which means that the Libs should have an easier time than expected concluding that it's time for a change in government.

(Edit: fixed typo.)

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