Thursday, November 20, 2008

Deficits

Back in March, I warned about this.

After the election in October, I brought it up again.

In the throne speech, this week, it became official. Deficits are back. Harper is claiming that they will be short term and are not structural. How can he say this? Sure, deficits are somewhat natural in a recession, but maybe those surpluses were not structural. In recent years, a lot of the surplus was due to record corporate profits, record commodity prices and cheap interest rates via a credit bubble. Those are all gone. Exactly like the US surpluses in the tech bubble. Those never came back, as the surplus was not structural.

The easy days of more spending, more tax cuts and more debt repayment are gone for a long, long time. I just hope that these deficits don't get completely out of hand as they did in the 70s, 80s and early 90s. It was stupid cutting the GST as that is the worst type of tax cut (income taxes are the way to go) and a time when Canadians were already overspending and undersaving. Income tax cuts timed at the right time, when the economy is slowing or needing stimulus is a much better way (as was the case in 2001).

If the Liberals had any guts and a true leader, they would topple the Tories on this. They would claim that the Tories hid a deficit at the election and the GST cut ($12 billion) caused it. It may not be 100% true but I think that it would work.

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