“I think the best you can say is, if this exercise of massive stimulus had a positive payoff it was that it stabilized the economy. End of sentence,” he said. “It has not achieved any long-run goal.”
The way ahead
Five years on, the legacy of the stimulus spending survives on university campuses, in cultural centres and in thousands of kilometres of asphalt. But it also lives on in the form of a worrying and persistent debt hangover.
In a normal recovery, much of that debt would be gone. Slow growth has translated into sluggish tax revenues. Ontario and Quebec look most vulnerable, with a return to balanced books still a few years off. About 84 per cent of all provincial and territorial debt belongs to those two provinces and international rating agencies are keeping a watchful eye.
Quebec is looking at perhaps decades of pain. A recent Université de Sherbrooke report by professors Luc Godbout and Pierre Fortin warned that even before the Great Recession, Quebec’s spending and taxation patterns were on pace for chronic deficits over the coming decades. They note that the province’s demographic and financial problems demand tough choices from political leaders.
Dwight Duncan, who was Finance Minister in Dalton McGuinty’s Liberal government, has no regrets. The province did what it had to do in a time of crisis, he believes, to keep an auto-dependent province from tumbling into depression. But the province did so largely with borrowed money, leaving a legacy of debt that could hamper the province’s ability to deliver basic services when interest rates inevitably rise.
“That is a ticking time bomb, both for Ontario and Canada, because of the debt we incurred to do the things that we did,” Mr. Duncan said. “It causes me more worry now than it did at the time.” The province’s debt service costs in 2012-13 consumed $10.3-billion, 16 per cent more than in fiscal 2008.
Colin Hansen, who was B.C.’s finance minister at the time and recalls the period as “those months from hell,” said stimulus must be considered a success simply because it avoided the worst.
“If you look at how well Canada has fared coming through these last five years, I think that’s the real test,” he said. “There’s probably things that could have been done differently, but I think over all, the Canadian approach was successful.”
Few people watched the government’s spending plans as closely as Mr. Page, who was a thorn in Mr. Flaherty’s side during his five-year term as Canada’s first Parliamentary Budget Officer. But on the shape of stimulus and the government’s ability to get it out the door, he gives the Conservatives high praise.
“It did have an impact,” he said. “To me, the government’s stimulus package is probably the high-water mark of this government since it’s been in power.
“It was a time of crisis. And yeah, they got caught completely unaware that this recession was coming. It didn’t look like they wanted to do it, but then the crisis really hit and they responded appropriately.”
Municipalities say that now that Ottawa is taking a longer-term approach to infrastructure spending, cities should have more detailed plans in place should there ever be a need to move up construction schedules to give the economy a boost. Federal Conservatives aren’t so sure recent lessons will apply to more typical recessions.
“This was obviously a one-time thing and it was under extraordinary circumstances,” Mr. Baird said.
When Mr. Flaherty tables his 2014 budget on Tuesday, it will show Ottawa’s years of deficit spending are nearly over. He has promised a significant surplus by 2015-16 and some economists say Ottawa might even climb out of the red this year, when the final numbers are in.
Tuesday’s budget sets the stage for a new era of surpluses and a 2015 federal election over whether that money should go toward reducing debt, new spending or reducing taxes.
Mr. Flaherty has low-balled expectations for budget day by scheduling it during the Sochi Olympics. Opposition parties are already dismissing this as a “do nothing” budget. But in many ways, Mr. Flaherty is releasing the final chapter of a major budget he tabled five years ago.
The 2009 budget was most definitely not a do-nothing budget. Whether 2009 would have been the right time to do nothing is still hotly debated.
The decisions made five years ago will be re-examined again when future governments face the next big economic downturn. To those future leaders, Mr. Flaherty offers some advice.
“As much as we all have political principles and things we believe in, you cannot be ideological as a finance minister,” he said. “You have to be prepared to do what needs to be done to preserve jobs and the economy ... certainly in my view it was necessary to do what we did, and that was run a big deficit.Report Typo/Error