Canada Cuts and Wins

Nov. 15, 2013
Canada’s fiscal policy is an example worth considering.

Canadian Finance Minister Jim Flaherty is leading the charge to do something amazing in Canada. Our neighbors to the north will be realizing a C$3.7 billion federal budget surplus starting in the year April 2015. That is larger than earlier estimates. This is happening even as the economy is sluggish and federal revenues are projected to ease lower over the next five years (by C$10.4 billion). Canada will generate a surplus by spending C$14.4 billion less through the same time period.

Did you catch that? Even in a projected sluggish economic environment, with a projection of declining federal revenues, they will actually cut spending and run a surplus. Flaherty would like to see the surplus used to pay down the public debt because he doesn’t believe in public debt. I wonder if he would mind moving to the US.

Canada's balance sheet will look increasingly more attractive compared to the US in 2016 and beyond. This could strengthen the C$ is comparison to the USD. US firms will benefit from increased export potential; but in the end, it also means higher borrowing costs in the US as our less-attractive balance sheet is likely to put upward pressure on interest rates.

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