The Fraser Institute

The Fraser Institute

March 04, 2010 18:21 ET

No Balance in Sight, Spending Spree Continues; Fraser Institute Responds to 2010 Federal Budget

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 4, 2010) - Fraser Institute senior economist Niels Veldhuis had harsh words for today's federal budget, saying the $105 billion in budget deficits over the next five years will prevent the government from making improvements in competitiveness that would lead to a stronger economy.

"The 2010 federal budget does little to strengthen the Canadian economy. By putting off balancing the books for at least five years, the federal government is sacrificing Canadian competitiveness," Veldhuis said.

"With revenues expected to rebound this coming year, the government could have balanced the budget within two years. Instead, Finance Minister Flaherty has chosen to keep the spending taps open and saddle Canadians with $104.6 billion in deficits over the next five years."

Continued government spending the source of deficits

Government revenues are expected to increase by $17.4 billion (8.1 per cent) to $231.3 billion in this coming year (2010/11) and continue to grow at a robust average rate of 6.4 per cent until 2014/15.

Spending will increase by $12.8 billion in 2010/11, after increasing by $28.9 billion this year (2009/10), as the government implements the second year of its stimulus plan. While the government plans to decrease spending slightly (1.4 per cent) in 2011/12, it will follow that up with further increases over the final three years of its budget plan (2012/13 to 2014/15).

"Had the government eliminated stimulus spending for 2010/11 and 2011/12 and reduced program spending by an additional 2.8 per cent in each year, the budget would have been balanced by 2011/12 instead of running deficits for at least the next five years," Veldhuis said.

"Stimulus" spending a risk to recovery

The budget follows through on the governments "stay the course" $19.2 billion stimulus plan for 2010/11, including an addition $7.7 billion in infrastructure spending for this coming year.

"The risk for 2010 and 2011 is that government stimulus spending, and particularly infrastructure spending, will hit the economy as it naturally moves out of recession. As a result, the government will compete with the private sector for scarce resources resulting in increased costs and fewer private sector projects," Veldhuis said.

Spending cuts would allow for needed tax relief

By failing to cut spending and by putting off balancing the books for at least five years, the budget does not address Canada's uncompetitive personal income tax rates.

The budget includes $600 million in new initiatives to in part "help develop and attract talented people." However, the government's own economic plan, Advantage Canada, states that, "Canada's tax burden on highly skilled workers is too high relative to other countries" and that "Canada needs lower personal income tax rates to encourage more Canadians to realize their full potential."

"If the goal is to strengthen the Canadian economy, then the government should be looking to tax reductions, rather than more spending. Academic literature provides ample evidence that incentive-improving tax relief encourages economic activity, whereas government spending does not," Veldhuis said.

The Fraser Institute is an independent research and educational organization with locations across North America and partnerships in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit

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