For once, we want Canada’s political leaders to be more shortsighted.
The economic impact of the coronavirus pandemic is real. It’s time to take steps to counter it, starting with first things first: pumping money into efforts to fight the spread of the virus and to help people affected by it.
Scotiabank economists made news on Thursday by predicting there will be a recession unless Ottawa pumps out about $20-billion in stimulus spending. Other respected economists were already saying similar things: a short-term stimulus package is needed. Alberta Premier Jason Kenney talked about $20-billion, too.
But then some of the premiers who were preparing for the now-cancelled First Ministers’ meeting piped in with the usual demands. Ontario Premier Doug Ford wanted to talk about larger annual increases in federal health-care transfers. That’s an important issue. But not now. It is time to focus on the short term.
The U.S. Federal Reserve said Thursday it will intervene to the tune of injecting US$1.5-trillion of liquidity into markets to prevent what it called “disruptions” – an emergency move to stabilize financial markets.
The Bank of Canada has already cut its short-term lending rates by half a percentage point, and might do more soon. But market lending rates are already very low, so it’s not clear that rate cuts will spark economic activity.
That leaves government stimulus spending. Ottawa has announced a $1-billion package of coronavirus measures, but that’s not enough to bolster the economy. Australia, for example, has announced a US$17-billion stimulus plan; hard-hit Italy has budgeted US$28-billion.
It’s not as easy as you might think. It can be surprisingly difficult to design stimulus spending that pumps money into the economy quickly.
But one way to deal with that is to do first things first.
Queen’s University economist Donald Drummond, a former senior Finance Department official, said Ottawa should address the most direct effects of the coronavirus right away.
First, pump money into hospitals, public-health agencies, screening, testing and other health-care spending that helps contain and treat the virus.
The feds did some of that with their $1-billion package released earlier this week, but not enough for cash-strapped provincial health-care systems, Mr. Drummond said. Adding more would help contain the virus but also stimulate the economy because the money would be spent quickly, in Canada, and mostly go to Canadians.
“Doing your damnedest to contain this is actually an economic response, not just a health-care response,” Mr. Drummond said. “Strangely, policy authorities seem to skip over this step.”
That doesn’t have to wait for Finance Minister Bill Morneau’s March 30 federal budget. He could announce one-time health funding within a few days; provinces could simply agree to put all of it straight into hospitals, screening and care. That’s the health-care transfer Mr. Ford should be talking about now.
The next step is to provide more support for employees and self-employed people who have to self-isolate or take time off work, by expanding employment-insurance rules temporarily. That will reduce the hit on individuals’ income and consumer spending. That too can be done quickly, Mr. Drummond said.
After that, the budget could provide support to hard-hit industries, and a general stimulus package aimed at getting money out to people within six to nine months. One way, Mr. Drummond suggested, would be a temporary holiday from the GST, or a refundable tax credit that sees cheques go out within months.
Any stimulus must be big. Douglas Porter, chief economist at BMO, said a package about half as big as that marshalled to counter the 2008 financial crisis, perhaps $15-billion to $20-billion, seems appropriate. That won’t stop a downturn in the second quarter, but could raise confidence that the economy will bounce back in the third, he said.
Just look where we are: a long way from where we were just days ago.
The downturn is here. Everything from hockey games to high school is being cancelled. The need for stimulus is suddenly widely accepted. So for once, political leaders should be urged to think short-term. Start with first things first: spending on the virus, on health and on people affected, fast. Then issue a budget that gets money into the economy quickly.
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