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RSS FeedsHeather Scoffield: Economic downturn? David Dodge has a plan for that
(The Star Fashion & Style)


12 november 2019 00:37:41

Heather Scoffield: Economic downturn? David Dodge has a plan for that
(The Star Fashion & Style)

David Dodge, the man who successfully pushed for the drastic government spending cuts in the 1990s, says it’s quite OK for Ottawa to be running a bit of a deficit these days.Dodge, who went on to become the governor of the Bank of Canada in the 2000s and is now a consultant, has developed a new fiscal guideline just in time for the new cabinet, and its hallmarks are flexibility, sustainability and compatibility with the Bank of Canada.Warning: This is complicated. But it’s also a good idea. Read on.The federal government, Dodge says, should govern its finances by tracking and targeting the cost of servicing the debt compared to revenues. Right now, interest payments on debt are about eight per cent of total federal revenues.When the central bank cuts interest rates in response to a weak economy, the federal government would have room to borrow more money and stimulate the economy because servicing the debt would be cheaper. Conversely, if interest rates rise in response to a strong economy, Ottawa should cut back on its spending to keep its debt-servicing costs in check.Dodge hesitates to call it a “fiscal anchor.” That’s the term policy wonks use to describe the guideline governments follow to keep spending in line and the deficit under control. In 2015, Justin Trudeau’s fiscal anchor was a commitment to eliminating the deficit by 2019. As deficits ballooned, he switched the target and promised instead to keep the debt burden on a downward track.The problem is, the debt burden — or the debt-to-GDP ratio to be precise, which compares the size of the debt to the size of the economy — is only barely edging down right now, once the Liberal election platform is taken into account. In a minority government, the reconstituted cabinet might be tempted to add some new spending programs to keep the opposition happy. The guideline would become meaningless.Besides, says Dodge, there are some fundamental problems with using th ...

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