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Government spending slowed in first quarter Add to ...

Government spending growth in Canada actually slowed to below the historical average in the first three months of 2009, even as the recession's grip tightened and Ottawa unveiled a $40-billion stimulus package to offset the downturn.

A Statistics Canada report yesterday showed government spending at all levels gave little boost to the economy during the January-to-March period - despite the federal stimulus budget unveiled Jan. 27.

Government spending rose only 0.3 per cent in that period over the previous quarter. This increase even fell short of the 30-year historical average of 0.5 per cent for quarterly government spending growth.

"In a quarter they're supposedly rolling out big stimulus, government spending actually rose less than a typical quarter," BMO Nesbitt Burns deputy chief economist Doug Porter noted.

As Mr. Porter observed, it's a surprise that government spending growth actually softened as the downturn grew.

"We were actually expecting a bit more of a positive impact from government spending."

The January-to-March quarter includes two months after the tabling of the federal budget. The Conservatives, however, are quick to note their stimulus budget took until April to pass Parliament and grant authority for funds to flow. Economists say the Tories would have had to table this rescue plan months earlier for it to have taken effect by the first quarter of this year.

Parliament has so far approved $20.6-billion of stimulus spending - which means it's allocated to various departments to spend as outlined in the January budget.

But it's far from clear yet how much of this money has been injected into the economy.

Economists warn that most of the impact from the stimulus package may be delayed until 2010. But when the Tories unveiled their budget, they predicted the bulk of its benefits would be felt in 2009.

The federal government yesterday refused to reveal how much stimulus spending has gone out the door, saying they want to keep that number confidential until Finance Minister Jim Flaherty releases it within the next couple of weeks.

The Tories fast-tracked $3-billion of stimulus funding so that it could be distributed ahead of the normal approval process and this money is the most likely to have been disbursed to date.

But that's only about 13 per cent of the overall federal stimulus planned for the 2009-10 fiscal year.

There's no question one form of stimulus is already making its way into Canadians' wallets: the retroactive tax cuts in the 2009 budget that reduced personal levies for the 2008-09 tax year.

In the budget Ottawa had estimated this backdated levy reduction would cost it $695-million in foregone tax revenue - money that's being returned to Canadians in tax refunds.

"Some of that stimulus is actually showing up in people's hands," said economist Dale Orr of Dale Orr Economic Insight.

Toronto Dominion Bank chief economist Don Drummond said he expects that 70 per cent of the impact of the stimulus package on the economy won't come until 2010, with only about 30 per cent this year.

One reason is that a significant portion of the stimulus is infrastructure spending that is contingent on agreements with provinces and, in some cases, municipalities, before the money flows.

Mr. Drummond said the stimulus will still be beneficial in 2010 because the recovery is not expected to be particularly strong by that point.

"It's not as though it will be gang piling on the economy when it's booming."

Follow on Twitter: @stevenchase

 

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