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(John Woods)
(John Woods)

December, 2009

A stand in support of stimulus Add to ...

Canada's corporate executives stand firmly behind Ottawa's decision to pump billions of stimulus dollars into the economy, and they aren't seriously worried about the huge budget deficits that are piling up.

Senior executives who responded to the latest C-Suite survey say the stimulus spending was the right move at the right time to get the economy moving again, despite the creation of a federal deficit of more than $55-billion this year - with more shortfalls to come.

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"Desperate times call for desperate measures, so I think the government responded appropriately," said Simon Nyilassy, chief executive officer of Calloway Real Estate Investment Trust, a firm that owns shopping centres across Canada.

Mr. Nyilassy was one of 158 executives who responded to the C-Suite survey, which was conducted in late November and early December for Report on Business and Business News Network by Toronto research firm the Gandalf Group.

About two-thirds of those who participated said the amount spent on stimulus was in the right ballpark, with 22 per cent saying Ottawa pumped out too much money, and 11 per cent saying it was not enough.

While the government will soon need to turn its attention to eliminating the huge deficit, Mr. Nyilassy said, "it needn't be the first priority today."

Indeed, only 7 per cent of executives say balancing the budget should be the government's No. 1 priority. Reducing the ratio of debt to gross domestic product - is a better goal, many said.

Almost 60 per cent of the executives said they support the government's stated policy that it will run a deficit until 2013. Still, there are conflicting views on what needs to be done to eliminate the deficit when the time comes. A slim majority of executives - about 56 per cent - think the country's finances will come back into balance as the economy recovers.

That's the view of Jim Evaskevich, CEO of Calgary-based junior oil and gas exploration company Yangarra Resources Ltd.

"If they are prudent in their budgeting, and don't provide for huge increases in the underlying budget, the tax receipts will improve over time and the deficit will go away," Mr. Evaskevich said.

He said the Harper government was "spot on" with its stimulus spending, which helped jolt the economy out of the doldrums, and he does not want to see any tax increases which would "just choke business."

Others - about 43 per cent of those surveyed - are concerned about a structural deficit, and think more drastic action needs to be taken to get rid of it. The top choice: Cutting government spending to well below prerecession levels.

Tax increases are much less popular, although 44 per cent of executives would support raising the goods and services tax to improve government finances.

"They are definitely going to have to look at some form of increase in taxes to pay for this, and consumption taxes are the [best]way to do it" said Charles Phillips, CEO of Armtec Infrastructure Income Fund, a construction products manufacturer based in Guelph, Ont.

The GST cuts in 2006 and 2008 didn't really stimulate the economy, Mr. Phillips said, so the inverse is also true - jacking the tax back up is not likely to dampen growth.

Raising income taxes or corporate taxes would be a bad idea, however, Mr. Phillips said, and "could nip any recovery right in the bud."

While an economic recovery is clearly taking hold, Canadian executives have only modest expectations for growth in the coming few years, the survey shows.

The vast majority of those polled expect moderate growth over the next year, and they say the overall recovery will be slow. Almost half say they expect a significant stock market correction in the next six months.

And three-quarters think Canada's economic growth over the next two years will fall below the average of the last decade.

"It's going to be a slow recovery - I don't think it's going to be V-shaped," said Jacques Drouin, CEO of ProSep Inc., a Montreal-based maker of processing equipment for the resource sector. "The economy in the past couple of years has absorbed a pretty big shock, and it takes time to recover."

Mr. Drouin said the global upturn that's been seen so far is mainly thanks to the unstoppable growth in the developing economies of South America and Asia. "Without them, I don't believe the recovery would be [catching on]"

Coming out of the recession, the Canadian sector that is poised to be the biggest winner is banking, the surveyed executives said. Mining, oil and gas and technology firms are also expected to do well as the economy improves. A large majority of executives indicated that manufacturing has emerged from the downturn as a losing sector.

That's too simplistic a view, Mr. Drouin said.

Canadian manufacturers who make use of technology and add significant intellectual value to their products can do very well in the new slimmed-down world order, he said.

"In Canada, we have two things: natural resources, and a highly educated and innovative population. We have to rely on these to build the future."

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