One of the behind-the-scenes realities of Canada’s economic success through the Great Recession is that much of it is buoyed by government stimulus spending.
Since the recession began, public sector debt north of the border has spiked 38%. Ontario’s provincial deficit this year is now pegged at $16 billion.
A study by the Fraser Institute — a conservative-leaning Canadian think-tank, found that Ontario would have actually lost jobs overall over the last five years, if not for robust government hiring.
Until now, this kind of classic prime-the-pump government spending enjoyed relatively broad support in Ottawa.
Conservative Prime Minister Stephen Harper said bluntly in 2009 that he thought deficits were necessary given the global downturn.
And the spending has meant a lot more stability.
In northern New York, government lay-offs dominate the economic discussion, whether it’s the threat of prison closures, the risk of downsizing the Army presence in Watertown, or talk of privatizing local government services like nursing homes and home healthcare.
That same kind of anxiety just hasn’t been a factor in Ontario or Quebec.
But now there appears to be something of a backlash. Toronto’s Conservative Party mayor announced this week that he’ll phase out more than 2,000 jobs.
PM Harper is also cutting jobs, following promises he made during the last election to bring the national budget back into balance by 2014. Taxpayer groups are urging him to keep those pledges.
And in Ontario’s provincial debate, conservatives have been talking about wage freezes for public sector workers.
That doesn’t translate into an American-style backlash against “big government.” There isn’t a tea party movement in Canada of any prominence, and no one is talking about shutting down the government in a clash over deficits.
And it’s important to note that when the recession began, Canada’s balance sheets were in far better shape than here in the US.
But people here are beginning to question whether Canada’s remarkable resilience during the last five years of turmoil has been too heavily based on borrowing at all levels.
And what happens if the economy darkens again? Can Canada spend its way through another dip of the Great Recession? And will it hurt Canada over the long term that its overall tax rates are significantly higher than in the US?
(Taxes at all levels account for 32% of GDP in Canada, compared with 26% of GDP in the US.)
So what do you think? Has Canada been smart to apply a steady stimulus through the recession? Or is there a wake-up coming for public sector employees there as well?