Published in the Telegraph-Journal 6th March 2012
In Europe, tensions over the euro zone debt crisis are beginning to recede and newspaper headlines reflect that the calamity has averted disaster. Even though the arrangements necessary to bail out Greece have not yet been finalized, the European Central Bank has made two rounds of low cost loans available to European banks. That appears to be sufficient assurance to many analysts that the euro zone financial system will rest on a sound foundation for at least another year. Even though Greece has staggered through the rough and tumble bailout talks without being knocked out, its economy is still on the ropes and a number of other European economies are still weaker than at any period since the Second World War. It will take years before the European Union once again possesses the strength it demonstrated until about 2007.
Meanwhile, the U.S. economy been surprisingly strong since last fall and almost every economic report has exceeded consensus forecasts. It does seem that some semblance of a recovery is gaining a foothold south of the border. In the U.S. stock market, the S&P 500 has enjoyed gains of more than 25% since its low last October 3 when the outlook seemed to be at its worst. The economy had stumbled badly in the first two quarters of 2011.
American households have been trying to pay off record debt since the financial collapse but the percentage of household debt to GDP is only down only to 88 per cent. This is critical since consumer spending accounts for 65 per cent of GDP. In conjunction with the still very high levels of unemployment, that does not auger well for consumer spending to pick up in any sustainable way in the near term. In Canada, we can’t expect the U.S. economy to pull us along for some time.
In New Brunswick, the soon-to-be-released provincial government budget will provide additional pressures on growth and prosperity. Faced with large deficits and fiscal debt, Finance Minister Blaine Higgs’ focus will be on reducing those debt obligations and setting the foundation for future growth. With relatively little room in which to maneuver, Mr. Higgs has approached the fiscal situation cautiously, who has been under pressure for not reducing the debt more quickly.
A question that emerges quickly when discussing the challenges that the provincial government is facing is how much we should decrease its cost. There is no doubt that we can continue to cut discretionary spending, but at some point the discussion needs to turn to how much we spend on health care and education. Together, those portfolios represent the most substantial provincial spending obligations with everything else far behind. However, even though we may be inching towards the recognition that government spending needs to decrease, there is no consensus about how to achieve this.
Government cuts will have a cost. That cost will likely have an impact on New Brunswick’s least privileged. The harsh reality is that almost three out of every five government dollars is allocated to those who require medical treatment. A disproportionately high percentage of those who are sick are elderly and poor. Barring some radical transformation of health care, if we cut government, the poor, sick and elderly will be the ones paying the greatest costs.
There have been calls for deep reductions in the size, scope and scale of government and for income tax reductions, both for corporations and for individuals. The task we have ahead of us is already diabolically difficult and will require all our ingenuity, patience and discipline. We will make it that much more difficult if we capitulate to ideological solutions that have never given us anything more than an ever-widening gulf between aspiration and reality.