The C.D. Howe Institute is urging the federal Conservatives to delay plans for erasing the deficit in order to tackle more pressing concerns over unemployment.
In a paper released Wednesday by the think tank, McMaster University economics professor William Scarth argues Ottawa has the fiscal room to delay its target for erasing the books by three years, from 2015 to 2018. The paper offers the opposite advice however for Canada's largest province, arguing that Ontario needs to address skepticism over its finances by speeding up efforts to erase its deficit.
For the federal government, the advice strikes at the heart of the Conservative government's two key promises – creating jobs and erasing the deficit before the 2015 federal election. Essentially, the C.D. Howe Institute argues those two promises are at odds.
"A government that emphasizes its commitment to protect the interests of working Canadians should not reject this opportunity to lower unemployment when it can be achieved without a serious trade-off," the paper states.
According to the author's calculations, a three-year delay in balancing the federal books would boost real Gross Domestic Product by $15-billion. That would lead the unemployment rate to be about four-tenths of one percentage point lower for three years, according to the report.
The latest job numbers from Statistics Canada showed a 0.1 per cent increase in the unemployment rate to 7.1 per cent in June.
The advice was promptly rejected by federal Finance Minister Joe Oliver, who issued a statement saying the economy can be strengthened without creating deficits during a period of economic recovery.
"Our government will not open the taps on reckless spending," he said. "We will not go down that well-trod and irresponsible path to economic decline. Canada's Economic Action Plan is on track to achieve a balanced budget next year."
Labour market trends in Canada are drawing increasing concern from economists.
Capital Economics economist David Madani issued a report this week noting that large numbers of Canadians are exiting the workforce, which masks a potential spike in the unemployment rate.
"The fact that Canada's unemployment rate has only nudged higher in the past few months is astonishing, given the recent weakness in net employment gains," Mr. Madani wrote. "The only reason why the unemployment rate hasn't risen is that people have been exiting the labour force."