The next step
Before the Liberals embark on their fiscal journey, they have to kill off the short-lived balanced budget of the Conservatives.
There are the obvious reasons, of course, notably that it’s a thorn in the side of Prime Minister Justin Trudeau, who plans a string of deficits that are the result of an oil-shocked economy and his government’s stimulus plans.
“The balanced-budget legislation enacted under the previous government is inconsistent with the government’s plan to return to balanced budgets responsibly and in a manner that supports economic growth,” the government said in the budget unveiled Tuesday by Finance Minister Bill Morneau.
“An immediate return to balance in 2016-17 would require fiscal consolidation in the order of 1 per cent of nominal GDP.”
Thus, it will propose repealing the act.
There’s a lot in the Tory law that would kick in if it’s not killed.
Under the law, which has hardly seen the light of day, a finance minister would be hauled before a Commons committee to explain himself or herself and deliver a plan to get back in the black.
There are different scenarios, as well.
If there were a deficit because of a recession or “extraordinary situation,” no operating budget could be increased to fund pay hikes. Compensation for the prime minister, ministers and deputies would also be frozen.
Extraordinary could be a natural disaster or other surprise emergencies, or “an act of force or violence, war or threat of war, or other armed conflict.”
If there’s no recession or anything extraordinary, the prime minister gets a pay cut of 5 per cent. So do the others.
A recession, by the way, is defined as two or more straight quarters of negative economic growth. Which, by the way, doesn’t fit the definition of most observers these days.
What Greece must think of Canada's budget ...
“Just a few years of deficit?”
Stocks tumble
It’s an ugly morning out there so far.
Almost every major market is down, and New York appears poised for a weak open.
Tokyo’s Nikkei lost 0.6 per cent, Hong Kong’s Hang Seng 1.3 per cent, and the Shanghai composite 1.6 per cent.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were down by between 1.1 and 1.5 per cent by about 5:15 a.m. ET.
New York futures were also down.
“I like the description of recent equity market behaviour by Wells Capital Management’s James Paulsen ... as neither a bull nor a bear market, but a bunny, hopping around a bit bur not going anywhere,” said Kit Juckes, the chief of foreign exchange at Société Générale.
“Over the last year, Easter to Easter and in dollar terms, the Nikkei and S&P 500 have barely moved,” he added.
“European and Chinese equities have done rather worse, down between 5 and 25 per cent. All this does highlight, however, the waning power of central banks to push asset prices (let alone consumer prices) higher with the aid of unorthodox monetary policy.”