OTTAWA — Finance Minister Jim Flaherty wants to make something clear: No government in the Group of Seven rich countries is doing more to fight the global economic slowdown than Canada.
"Our government is meeting the challenge of global economic uncertainty with a plan that is real," Mr. Flaherty told Parliament while presenting the budget yesterday.
"This year alone, our government is injecting $21-billion of stimulus into the Canadian economy. As a share of the economy, this is significantly greater than the stimulus package offered by the U.S."
The G7 - the U.S., Japan, Germany, Britain, France, Italy and Canada - makes a flattering foil for Mr. Flaherty.
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His 2008 tax measures, announced in October, are equal to about 1.4 per cent of Canada's gross domestic product and should jolt consumer spending just as exporters are facing weaker demand from abroad. The International Monetary Fund in January cut its forecast for global economic growth in 2008 to 4.1 per cent from an earlier estimate of 4.9 per cent.
The U.S. stimulus plan amounts to about 1 per cent of the world's largest economy, according to Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y.
Canada alone has the benefit of running a budget surplus.
Japanese Prime Minister Yasuo Fukuda this month asked his cabinet for ideas on how to help small- and medium-size companies struggling to obtain financing amid a global credit crunch. Any programs will be restrained by Mr. Fukuda's pledge to balance his country's budget by 2011.
U.S. Treasury Secretary Henry Paulson got a win when lawmakers agreed to a package of tax rebates worth about $152-billion, yet his efforts to coax the mortgage industry to renegotiate loans to slow foreclosures have met with mild success at best.
British Chancellor of the Exchequer Alistair Darling is promising steps to support the economy in a budget due March 12. Mr. Darling's room to manoeuvre is restrained by his decision to nationalize troubled lender Northern Rock.
The bank's liabilities will push the British government to the brink of its tolerance for debt.
Mr. Flaherty's challenge is making sure Canadian consumers and companies realize they have extra money to spend.
The advantage of the U.S. plan is immediacy. The rare compromise between the Republican administration and the Democratic-led Congress attracted front-page headlines. American consumers will be waiting for their rebates - as much as $600 for individuals and up to $1,200 for couples - to arrive in the mail in late spring.
"You don't have the announcement effect," Mr. Weinberg said.
While Mr. Flaherty presented the October tax reductions as prudent policy at a time of uncertainty, few appreciated at the time that the U.S. economy was on the verge of recession. Canada's tax cuts were largely interpreted as the Conservative government following through on previous pledges to slash taxes to set the stage for an election.
That helps explain Mr. Flaherty's emphasis on the old tax cuts in his new budget.
His tax reductions won't work as a stimulus unless consumers spend the money they save from a lower GST and companies take advantage of lower corporate taxes to hire workers and buy equipment, said Stewart Hall, a currency analyst at HSBC in Toronto.
"If government is seeing a $1-billion reduction in revenue, that's $1-billion left in consumers' pockets," Mr. Hall said.
"It's a different psychology than opening up your mail and seeing a $600 cheque."
*****
COUNTRY COMPARISONS
U.S.
Growth outlook
2007
2.2
2008
1.5
The International Monetary Fund last month cut the U.S. forecast for 2008 growth.
Budget deficit
3.6
per cent of gross domestic product
Debt
45
per cent of GDP
Stimulus
Tax cuts worth about $152-billion, about 1 per cent of the country's $13.8-trillion economy.
*****Japan
Growth outlook
2007
1.9
2008
1.5
The IMF predicts the Japanese economy will expand less in 2008.
Budget deficit
5.2
per cent of GDP.
Debt
89.8
per cent of GDP
Stimulus
Prime Minister Yasuo Fukuda earlier this month asked his cabinet for ideas on how to help small- and medium-sized businesses, which employ 70 per cent of Japanese workers. In December, Mr. Fukuda's government said it would spend 215 billion yen (almost $2-billion) through March, 2009 to help smaller companies get bank loans.
The Rub
Mr. Fukuda, seeking re-election, will let the budget deficit widen for the first time in five years. He pledged to balance the budget by 2011.
*****Germany
Growth outlook
2007
2.4
2008
1.7
The German government last month cut its estimate for expansion this year.
Budget deficit
3
per cent of GDP
Debt
45
per cent of GDP
Stimulus
German Finance Minister Peer Steinbrueck said on Jan. 23 that he has "no additional leeway" to cut taxes. The Economy Minister, Michael Glos, was more blunt: "The problems that are now manifest in the world financial system didn't arise in Europe and must primarily be tackled where they sprang up: the U.S."
*****Britain
Growth outlook
2007
3.1
2008
1.7
Figures according to the average of the latest private-sector estimates compiled by the British government.
Budget deficit
3.2
per cent of GDP
Debt
38.4
per cent of GDP
Stimulus
Chancellor of the Exchequer Alistair Darling is scheduled to present a budget March 12. "We are able to do what is right to support growth in these uncertain times," Mr. Darling said on Feb. 5.
The Rub
Mr. Darling's decision to nationalize Northern Rock PLC may add 100 billion pounds in liabilities to the government's books, pushing Britain's debt burden above the government's unofficial ceiling of 40 per cent of GDP.
FranceGrowth outlook
2007
1.9
2008
1.5
The IMF last week cut its estimate for French economic growth this year to the lowest in five years.
Budget deficit
2.2
per cent of GDP (the IMF predicted French deficit would widen to 2.8 per cent).
Debt
53.6
per cent of GDP
Stimulus
President Nicolas Sarkozy is struggling against opposition from unions and students to implement his plan to boost the French economy. He has managed to eliminate income taxes on overtime hours, and introduced a plan for a tax deduction on mortgage-interest payments.
*****
Italy
Growth outlook
2007
1.9
2008
1.4
Figures according to the latest estimates by the European Commission.
Budget deficit
3.4
per cent of GDP
Debt
101.7
per cent of GDP
Stimulus
President Romano Prodi pledged to cut taxes on income for lower- and medium-income workers. Days later, his minority government fell in a confidence vote on Jan. 24. The election is set for April.
The Rub
Italy spends about 69-billion euros a year financing its debt. That's more than the entire budget of Poland.
*****Canada
Growth outlook
2007
2.3
20081.8
Figures according to the government's new estimate.
Budget surplus
0.9
per cent of GDP
Debt
25
per cent of GDP
Stimulus
Tax cuts worth $21-billion will take effect in 2008, Finance Minister Jim Flaherty said.
Sources: Alan Ruskin, chief international strategist at RBS Capital Markets; IMF World Economic Outlook Oct., 2007; World Economic Outlook Update Jan., 2008.
