Here’s a phrase you never thought you’d see in the pages of a mainstream publication: “the hotly debated concept of the fiscal multiplier.” Yet those exact words appeared in the pages of the country’s biggest national newspaper last week. Canada’s political establishment, indoctrinated to believe in balanced budgets, still doesn’t know what to do with a government that preaches deficits as economic salvation.
Bank of Canada governor Stephen Poloz was caught off-guard by the parliamentary press corps’ overnight obsession with the way economists inform their guesses of the extent to which tax cuts, road building and the like will affect economic output. The central bank on April 13 released a new economic forecast that predicted Prime Minister Justin Trudeau’s plan to cut taxes and spend heavily on infrastructure would generate a significant increase in economic growth. The Parliamentary Budget Office and some economists had said the Trudeau government was exaggerating the benefits of deficits by using favourable multipliers. Because the Bank of Canada used the same multipliers as the finance department, Poloz was accused of running cover for his “boss,” Finance Minister Bill Morneau. Poloz disliked the suggestion. “The finance minister, I’m sorry, is not my boss,” he said. “The Bank of Canada is a fully independent policy-maker.”
Continue reading at Maclean's ...