Yesterday’s budget was an implicit admission of a problem whose existence the Conservatives had spent quite some time denying: the federal government is running a structural deficit that will not go away on its own when the economy fully recovers from the recession. If the deficit were purely cyclical -- that is, if the deficit could be completely explained by recession-induced increases in spending and reductions in revenue -- then the government wouldn’t be in a position where it would feel obliged to commit to large, unspecified spending cuts in order to balance the budget.Gordon's analysis is that the GST cut was responsible for the structural deficit.
Many commentators have suggested that the structural deficit was created by increased spending, so spending cuts are the appropriate remedy. I don’t see how this hypothesis fits the data, and the fact that the necessary spending cuts have yet to be specified suggests to me that there’s no expensive new program that can be blamed for the structural component of the deficit.
Wednesday, 8 June 2011
Forget what Tories say, Ottawa has structural deficit
Stephen Gordon: Forget what Tories say, Ottawa has structural deficit