Liberal Budget: Not Wise

I can't say that I'm surprised by what the Liberals put out in the budget.

So, what's my take on it?

You know the chase scene in Fury Road where Furiosa heads into an epic sand storm?



I can't help but think we're heading straight into one for a couple of reasons.

First off, there's a global recession and a threat of inflation, and add to this the fact there's low demand for resources and one has to wonder the wisdom in creating a deficit.

"It's no secret - central banks and policy makers around the world are intentionally manufacturing inflationary pressures in the hopes of countering the global economy's prevailing deflationary headwinds. In theory, the use of monetary policy to induce inflation eventually sparks a self reinforcing cycle of economic growth, but there is growing room for doubt that injecting paper money into the system only shows growth on - dare I say it - paper. Perhaps nowhere is this more evident than Japan, which has been losing the fight against deflation for nearly three decades now."

Even with global central banks acting as inflation factories, the global economy continues to exhibit deflationary tendencies and lackluster growth. On the surface this may seem to imply there is nothing to be concerned about, after all, the Fed's preferred measure of inflation, the PCE Index (Personal Consumption Expenditures) has shown little cause for alarm.

The thinking, so goes, is spending to spur growth and as long as Canada hits its projected forecast of 1.2% GDP growth, we don't have to worry about paying for it! But given the scenario mentioned, it doesn't take much for this delicate game to be blown apart. And with oil prices down coupled with environmental pressures to not lay down pipelines, it's really hard to see this ending up somewhere other than where the Liberals predict.

I'm not a fan of basing budgets on 'what if' scenarios. If the target misses ever slightly it will have serious implications for the economy.

Then comes to undo the burden on middle-class families (I'm surprised more has not been made of the fact they put a stop to income splitting which was a fantastic tool for families) and small and medium sized businesses. The former will be paying higher taxes (and don't forget the Liberals are committed to the climate change nonsense which will cost us in the form of still more taxes) while the latter were promised corporate tax cuts only to have been callously ignored.

Canada is back, eh?

Finance Minister Bill Morneau's explanation (a successful guy like that has to deep down know this is a risky gamble given the situation) that spurring growth this way is great for business and Canada as a whole but it rings hollow for me. I hope he's right but I doubt it.

It's unfortunate because, well, we're already over-stimulated. Sure, progressive economists claim we don't spend enough but we spend plenty. When economists start talking 'negative interest rates' you know things are getting a tad too, erm, Japanese.

We saw this play out in the United States (never mind the lessons of FDR's New Deal programs that prolonged the recession under Obama. He - and Bush - used stimulus as a means to an end and it went nowhere.

The Liberal strategy of spending and increasing deficits without provisions to pay for them in the future in an eroding global economic environment that will impact demand for our resources is a dubious play.
Coupled this with higher taxes for the middle-class, an aging population putting severe strains on the social safety net; a net young population are not paying enough into and we have one serious - serious - problem coming.

And the Liberals are not helping matters.