'There will be a major human and economic cost if deficits are eliminated before a real recovery has been achieved.' - Andrew Jackson.
Ottawa (12 Nov. 2010) - Given fragile economic recovery and weak job market, now is not the time for public spending cuts, says a study by the Canadian Centre for Policy Alternatives (CCPA).
“It would be a huge mistake to significantly tighten the fiscal screws,” says economist Andrew Jackson, author of Big Train Coming: Does Canada Really Have a Deficit and Debt Problem?
“While debt has risen due to the recession, there will be a major human and economic cost if deficits are eliminated before a real recovery has been achieved,” Jackson says,
His new CCPA study points out that debt in Canada, even after two years of stimulus, remains at low levels compared to other countries and compared to the mid-1990s. It warns against repeating the major spending cuts of the 1990s, which shredded social programs and public services.
“Cuts will shrink rather than raise our economic potential. We need to maintain high rates of public and private investment to boost our future rate of growth,” Jackson says.
He argues that balancing the books can be done without spending cuts or raising taxes. Deficits and debt will shrink rapidly so long as interest rates are lower than the rate of economic growth. They are at historically low levels today, he adds.
Once the economy has recovered, Jackson says, changes in taxation should be made to address the small structural deficit that remains and to meet the costs of an aging population.
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Big Train Coming: Does Canada Really Have a Deficit and Debt Problem?