Conservative budget cuts could tip Canada into recession: CAPE

By Crawford Kilian February 21, 2012 12:00 pm

The Canadian Association of Professional Employees warns that Conservative promised cuts of over $8 billion from the next budget could tip the country into a recession.

CAPE represents some 13,000 economists and social science services employees as well as translators, interpreters, and Library of Parliament research assistants.

In a release issued today, CAPE announced:

In information released today, CAPE examines data generated by an economic model used by federal departments and agencies. Conducted by economists, the analysis takes into account data from Statistics Canada. It found that Canada’s GDP will shrink by $10.17 billion if the Conservative government follows through on its promise to cut $8 billion in federal spending. The target figure of $8 billion in spending cuts was announced some time ago by federal Finance Minister Jim Flaherty.

The model used by CAPE to prepare its analysis indicates that $8 billion in federal budget cuts will have a compressing effect of more than $10 billion on Canada’s gross domestic product. The cuts will eliminate more than 116,000 jobs in Canada’s public and private sectors (a detailed press release on the employment impact of the cuts will be issued February 27) and will have a lasting effect on a Canadian economy still weakened by the 2008 recession.

Any reduction in spending by the federal government has an immediate impact on Canada’s economic growth. Apart from its repercussions on employment, this decline in the GDP will affect some regions of Canada more than others. The analysis model used by CAPE predicts a combined GDP drop of $1.4 billion for Alberta, Saskatchewan and Manitoba, with Alberta accounting for $786 million of that figure. Also, the GDP would shrink by $4.5 billion in Ontario, $2.1 billion in Quebec, $1 billion in the Maritimes and $1 billion in British Columbia.

… The Canadian government has deprived itself of billions of dollars of revenue in recent years; as a result, the burden of fighting the deficit now falls squarely on the shoulders of Canadian taxpayers who will be asked to live with fewer services. The lowering of the goods and services tax (GST) first to 6% and then to 5% has cost the government an estimated $13.4 billion in annual tax revenue. Moreover, the Canadian corporate tax rate was reduced by another percentage point this past January 1 –- a further $1.5 billion in lost revenue.

The release also includes explanatory notes to show how CAPE arrived at its findings, as well as background notes that predict B.C.’s financial and related institutions will lose $133 million as a result of an $8 billion cut in the federal budget.

Crawford Kilian is a contributing editor of The Tyee.

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