Ken Boessenkool is co-author of Ordered Liberty: How Harper's Philosophy Transformed Canada for the Better.
Does Canada need a fiscal stimulus program? The Liberal federal government certainly thinks so. Alberta and other natural-resource-producing provinces could certainly use a shot in the arm. And monetary policy is doing pretty much all it can short of turning interest rates negative.
So even though there is no evidence the country as a whole is in recession (even if Alberta certainly is) and even though the latest numbers show the federal budget in surplus (which it certainly wouldn't be if growth was slowing), the current government looks hell-bent for leather on stimulating the economy in the upcoming budget.
So it is worth asking: What would be the design elements of an ideal stimulus package?
First, timing. A stimulus package should be delivered just before economic growth slows, and should be sustained during any downturn. The historical failure of most fiscal stimuli has been on this front – programs designed when a recession hit typically took too long to design and implement and all too often came into effect well after the recession was over.
Second, speed. A successful stimulus package should be something that injects money into the economy quickly. It shouldn't require a lengthy change in legislation or an army of bureaucrats to do design and administration before the first dollar goes out the door. In political terms, we are talking about "shovel-ready" projects.
Third, the target. A stimulus package should encourage spending, not saving. The motivation for a short-term stimulus package is very different from the motivation for improving economic fundamentals. Improving the fundamentals – which usually means some variant on encouraging saving – is a long-term project and is something governments can, and should, do when times are good.
Fourth, sustainability. Any stimulus package should not threaten the long-term objective of balanced budgets, even if in the short term, a budget deficit is impossible or imprudent to avoid. All government budgets contain various automatic measures that kick in when the economy slows, such as employment insurance and welfare programs. Measures over and above this should have the same character: They should not only go up when the economy goes down, but they should also go down when the economy goes up.
Based on these four criteria, the government should take a page from the Stephen Harper playbook and consider a (perhaps temporary) cut to the goods and services tax and harmonized sales tax (GST/HST), something Mr. Harper did in early 2008.
On timing. The last GST/HST reduction was enacted on Jan. 1, 2008, just as the Canadian economy began to tumble as a result of the global economic downturn. It was one of the not insignificant reasons that Canada weathered the global economic downturn better than most other countries. A similar thing could be done today.
On speed. A drop in the GST/HST could be announced in the budget and implemented within a month or two, say July 1. In fact, it could be done quicker than that. Prices for nearly all goods and services that we all buy would then drop instantaneously. It is nigh impossible to goose up infrastructure spending that quickly.
On the target. The GST/HST cut, unlike personal or corporate income tax cuts can be "experienced" only when you spend. You cannot put your GST/HST cut into your registered retirement savings plan or use it to pay down debt. As good and important as those things are in the longer run, they are not things to kick-start the economy today.
On sustainability. Ottawa's budget is currently in surplus, so a permanent GST cut is potentially affordable. Having said that, any GST/HST cut could be made temporary. The government could promise to raise the rate back up following two or three quarters of consecutive growth above 1 or 2 per cent.
And perhaps, though tax-efficiency folks will certainly balk, Ottawa could consider regionalizing such a GST/HST cut. Perhaps it could be cut in Alberta and across the West, but not in Ontario, Quebec or Atlantic Canada. We already have regional differences in GST/HST so why not focus regional stimulus on where it is needed most?
Canada may or may not need a stimulus program right now (even if Alberta almost certainly does). But if the government is intent on delivering a timely, quick and sustainable stimulus kick to our economy, it should follow the Harper approach and enact a (perhaps temporary) cut to the GST/HST. And perhaps it might consider focusing that cut where it's needed most – in Alberta and the West.