What You Need To Know About Canada’s Deficit

The impact of Canada's deficit

The preliminary numbers from the March fiscal year end are in for Canada’s deficit, and there’s some good news: it has decreased to $18.3 million, compared to $21.6 million as of last year. It’s an indicator the federal government’s plan to cut the deficit is on track, and it’s good news for the Conservative government, which looks to balance the books by 2015.

A lower deficit is also very impactful for the average Canadian. Let’s break down the numbers and take a look at how the deficit factors into our nation’s economy recovery, and what it means for Canadians.

Breaking Down the Numbers

The Conservative government’s cost cutting plans look to be paying dividends. A decrease in program expenses lead to $3.4 billion in savings. This is largely due to job restructuring in the public sector, as the federal government looks to downsize its bloated workforce. Canada’s excellent credit rating also looks to be paying off; public debt charges are down by $2 billion, as we saved on interest payments our federal debt.

Economic Growth Is Part of the Equation

Debt is just one side of the coin; Canada has experienced surprisingly robust growth of 2.5 per cent for the first quarter of 2013, according to Statistics Canada. This can be attributed to an increase in net exports, as the U.S. economy slowly recovers. Unfortunately, it’s not all good news. Consumers are still hesitant to spend due to job insecurity and big businesses continue to sit on idle cash instead of investing in key economic drivers like machinery and equipment.

Less Deficit Means More Growth

Eliminating the federal deficit is an important step towards economic recovery. If Canada wants escape the current sub three per cent GDP nightmare, slaying the federal deficit is a good start. Our economy works like a well-oiled machine; when one of the parts stops working, the whole thing comes to a screeching halt. Once the federal deficit is cleared up, the federal government can continue its plans to lower corporate tax levels. This will lead to further job opportunities and encourage corporations to invest in machinery and equipment.

Lower Deficit Means More Employment Opportunity

Until the deficit is cleared up, employers will continue to be hawkish about hiring. Much of Canada’s economic recovery depends on our largest trading partner south of the border. If the U.S. economy recovers quicker than anticipated this could help jumpstart the Canadian economy and eliminate the deficit even sooner.

What About The Average Canadian?

The federal government has promised all sorts of financial goodies for hard working Canadians, but only once the deficit has been eliminated. If all goes according to plan, in 2015 we could see TFSA yearly limits increased to $10,000 and income splitting for couples. These are costly promises that can only be enacted once the deficit is gone. Economic growth means better job prospects for average Canadians. Once consumers start spending again, this will create more jobs and improve Canada’s economic growth. The road to recovery is a long one, but it all starts with eliminating the federal deficit.

 

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