Stimulus gamble: How Ottawa saved the economy and wasted billions

BILL CURRY AND BARRIE MCKENNA-Saturday, Feb. 08 2014 Jim Flaherty had heard enough. It was December, 2008, and the minister was on the road, working his way through a heavy schedule o meetings with business e!ecutives, local and "rovincial "oliticians, and other grou"s. #verything was riding on a budget he was scheduled to deliver in less than si! weeks. $he minority %onservative government had barely survived the autumn& it "rorogued 'arliament to avoid de eat in the (ouse o %ommons. )eanwhile, the global inancial crisis had been gathering s"eed or months. *ith each "assing week, the economic outlook got worse. For the Finance )inister, two days in +askatoon drove the message home. ,n Dec. -., "rovincial and territorial inance ministers lew in with grim re"orts rom across the country. $he ne!t day, at the city/s Delta 0essborough hotel, )r. Flaherty met with business leaders or several hours. 1ll had a similar message2 $heir businesses

were eeling the "ain o a bad economy. 1 light went on in my head at about 2 o/clock in the a ternoon2 $his is worse than I thought,3 )r. Flaherty recalls. *hen the second day o meetings wra""ed u", he "laced a call to 'rime )inister +te"hen (ar"er. 4ou know, we ho"ed we could run a de icit o i teen or twenty billion dollars and manage the "roblem at that level. 0ut I don/t think so,/ 3 )r. Flaherty says he told the 'rime )inister. 5 6It/s dee"er and darker and it/s at all levels o business./ 3 $hat/s how )r. Flaherty, a conservative who/d risen to "olitical "rominence in ,ntario as a member o the cost-cutting )ike (arris government, ended u" delivering one o the largest de icits in modern %anadian history. $he red ink or the iscal year 2007--0 was nearly 89:-billion. *hen ad;usted or in lation, it was on "ar with the ederal de icits o the early -770s, when %anada was considered a inancial basket case. 1nd I/m glad we did,3 )r. Flaherty says. Five years later, the "roducts o %anada/s massive stimulus "rogram are still visible. %ities and towns across the country have new roads and u"dated hockey rinks. )any homeowners en;oy inished basements and new decks because o a tem"orary home renovation ta! credit. +ome o %anada/s native reserves now have

new schools, meaning students no longer have to s"end hours o their day riding a bus to a neighbouring town. 1nother lingering "art o the stimulus is debt. *hen )r. Flaherty/s 2007 budget announced a ederal stimulus "ackage worth 8<.billion over two years, the "lan was or ,ttawa to be back in sur"lus by now. $hat target has since been "ushed back to 20-9--:. 0y the time the books are balanced, seven successive years o de icits will have increased the ederal debt rom 8<98-billion in 2008-07 to 8:20-billion. $hat rise o 8-:2-billion re"resents about 8<,:00 or every "erson in %anada. 'rovincial inances took an even harder hit. 1n era o recession and un"recedented government s"ending is on track to add more than 8200-billion to the combined "rovincial net debt. *restling de icits back to the verge o sur"lus has meant several years o s"ending cuts. =ating agencies are watching ,ntario and >uebec closely to see whether their debt can be managed. ,ntario ? where manu acturing took a heavy hit during the recession ? saw its credit rating downgraded in 20-2. In ,ttawa, the government is "utting its unions on notice that hard bargaining lies ahead in 20-< over sensitive issues like sick leave. 1 rare strike by ederal "ublic servants could be on the

hori@on. $he Auestion, now that the dust has settled ive years later, is was it all worth itB $he "olitical backdro" %onservatives now reali@e that +e"t. ., 2008, was a terrible time to trigger a ederal election. )odern cam"aigns are heavily-scri"ted, micromanaged a airs designed to avoid im"rovisation at all cost. $he economy did not co-o"erate. 0y week two o the cam"aign, *all +treet was in crisis. Cehman 0rothers (oldings Inc. iled or bankru"tcy on +e"t. -9. $he ne!t day, *ashington ste""ed in to bail out 1merican International Drou", the largest insurer in the world. $he 1merican inancial system a""eared to be coming unglued. $he Dow Jones industrial average recorded its biggest-ever one-day "oint dro" on +e"t. 27, with ;ust over two weeks to go be ore the ,ct. -< %anadian election. $he "re"ared cam"aign lines were Auickly tossed aside by Ciberal Ceader +tE"hane Dion and FD' Ceader Jack Cayton as they ;um"ed on the headlines, demanding a government res"onse to the crisis. 0ut they insisted ? as did the %onservatives ? that de icit s"ending was not reAuired. )r. (ar"er accused the other "arties o being overly "essimistic about the state o the economy. *hat the o""osition is demanding I do ? raise ta!es, increase s"ending, do a lot o

direct intervention and bailouts ? these things would demonstrably ruin our iscal credentials and undermine the strengths that we do have in our economy,3 he told the %0% on ,ct. ., one week be ore election day. %onservative sources say it was clear the economy was worsening but the "arty did not want to change its message in the middle o an election. Days a ter the election in which the $ories won -<G seats, the message changed. )r. (ar"er was no longer ruling out the "ossibility o a de icit. 1 key develo"ment took "lace in *ashington on Fov. -< and -9, when )r. (ar"er met with world leaders o the D20. $he grou" emerged with a call or iscal stimulus measures. DominiAue +traussHahn, managing director o the International )onetary Fund, suggested that countries should a""rove new s"ending worth 2 "er cent o gross domestic "roduct. %onservatives believed the international consensus gave the 'rime )inister and his "arty "olitical cover to shelve the no-de icit "romise. $he ollowing week, )r. (ar"er said he was considering 5un"recedented3 stimulus and described the economic situation as "otentially as dangerous 5as anything we have seen since -727.3 In light o that talk, there was a clear disconnect with )r. Flaherty/s ensuing iscal

u"date, released on Fov. 2., 2008. $he document contained no stimulus "lans, and argued that ,ttawa had already given the economy a boost by cutting the goods and services ta! to 9 "er cent that year. It hinted o more s"ending in the 2007 budget, but "resented a long-term orecast that showed no de icit. ,n to" o that, the u"date contained a ma;or sur"rise2 $he %onservatives would be eliminating the 828-million subsidy to "olitical "arties. $he %onservatives backtracked two days later, but it was too late. $he Ciberals, FD' and 0loc >uEbEcois were dee" into negotiations over how to de eat the government. In retros"ect, many economists say the Fovember u"date would have been a better time to launch a stimulus "ackage. 0ut at the time, those on whom )r. Flaherty relied on or advice say the data were not clear enough to make strong recommendations. 0ank o Fova +cotia/s chie economist *arren Jestin, who "rovided data and advice to )r. Flaherty in the all o 2008, said his 5intuition3 at the time was that things were getting much worse, but the economic numbers still weren/t that bad. $he sad thing about being an economist is you/re dealing with lag data,3 he said. )r. Flaherty had the same sense o unease. 5Fone o the economists in the "rivate sector gave us advice that we/re into a recession,3 )r. Flaherty said. Inside the

government, the thinking was that some modest stimulus s"ending in the 2007 budget would be enough. I can look back now and say we were in recession the last Auarter o 2008,3 )r, Flaherty said. 5+o it was a bit awkward to "resent what I "resented and then to reali@e that things were getting increasingly worse.3 Jean %harest, >uebec/s "remier rom 200G to 20-2, said the (ar"er government did not want to believe that %anada was being dragged into the global inancial crisis and recession. $he s"eed at which they turned -80 degrees was s"ectacular,3 )r. %harest said. 5I don/t think anyone held it against them because we had ;ust seen the world unravelling in ront o us. $here weren/t many o"tions. $hey did what they had to do, Auite rankly.3 $he bailout ,n )onday, Fov. G, 2008, Dwight Duncan, then ,ntario/s Finance )inister, was lying back rom an emergency meeting with %hrysler Drou" CC% chie e!ecutive o icer =obert Fardelli and other to" o icials in 1uburn (ills, )ich. $he ultimatum he had received rom the auto maker was blunt and alarming. %hrysler was out o cash and wouldn/t be able to "ay its workers in December.

*ithout hel" rom the I.+. government, the com"any was dead. *ithout money rom governments in %anada, %hrysler would "ull out o the country. $wo vehicle assembly "lants in *indsor and 0ram"ton, ,nt., along with a "owertrain "lant, would close or be moved to the Inited +tates. Fearly -0,000 actory and head o ice ;obs would be gone. )r. Duncan stared out the air"lane window at the lights o +outhern ,ntario below. $he Forth 1merican auto industry was on the verge o colla"se and the global inancial system was ailing. (e wondered what other "roblems might be lurking out there. I remember looking at those homes and thinking, 6$hose "eo"le have no idea what/s coming,/ 3 )r. Duncan said, whose hometown o *indsor would bear the brunt o the de"ression in auto sales. 5$his would have reverberated u" and down the <0- JhighwayK, between *indsor and ,ttawa.3 In the end, the demise o both %hrysler and Deneral )otors in %anada was, as )r. Duncan "ut it, 5too big to contem"late.3 0y the end o December, ,ttawa and the "rovince would agree to hel" rescue both com"anies ? a "ledge that would eventually cost ta!"ayers 8-G..-billion and make them "art owners o D).

+o ar, 8:.2-billion has been re"aid, and the government still owns 8<-billion worth o D) stock. For the %onservatives, the bailout marked a "hiloso"hical I-turn. 'aul 0oothe, who negotiated the bailouts or Industry %anada, said the rescue went against the ree market 5"olitical instincts3 o the (ar"er government. I was convinced, but we had a bunch o e!"laining to get them to the same "lace,3 said )r. 0oothe, now a business "ro essor at the Iniversity o *estern ,ntario. Cike )r. Duncan, )r. 0oothe was convinced both auto makers would "ull out o %anada i the I.+. rescued the com"anies and ,ttawa didn/t "artici"ate. 5,ur o"timal strategy was to match the I.+.3 #ven i D) and %hrysler abandon %anada in 20-: when their "roduction commitments e!"ire, the bailout 5"aid o ,3 said Iniversity o ,ttawa economist Ceslie +hiell, who has studied the im"act o the bailout. $he bailout saved roughly 20,000 ;obs at the two com"anies, and many more at "arts su""liers. 0ut it hasn/t guaranteed the industry/s longer-term survival as "roduction shi ts to the southern I.+. and )e!ico, said Jim +tan ord, chie economist at Ini or, a union that re"resents thousands o %anadian automotive workers. *e are now in a des"erate battle once again to "reserve our share o investment,3

)r. +tan ord said. 5$he bailout did not solve everything. ... It gave us some breathing room or a ew years.3 In rastructure versus ta! cuts 1mid the high-stakes "olitics o a minority government at a time o severe economic distress, )r. Flaherty had an e!tremely tight window to "ut together a budget that would allow the %onservatives to stay in "ower. $he o""osition "arties were demanding stimulus and %anada had "romised the D20 it would do its "art. $he discussion then turned to the si@e o the s"ending "ackage and what it would include. %onservative sources say some cabinet cabinet ministers still thought the stimulus could be ke"t relatively small. +ome believed the s"ending o the "reviously announced seven-year 0uilding %anada 'lan targeted at in rastructure could sim"ly be moved u". 0ut the economic news worsened throughout December. +tatistics %anada revealed the country shed .-,000 ;obs in Fovember, marking the biggest monthly dro" since the -782 recession. $he comment "ages were illing u" with e!"ert o"inions second-guessing ,ttawa/s wait-and-see a""roach. For the Finance )inister, the reali@ation sunk in that the government would need to run a very large de icit.

It was basically go big or stay home. $here was no "oint in doing a hal -measure,3 )r. Flaherty said. 5$he uncertainty was enormous. *ith the 1mericans, with the #uro"eans, I was talking to my colleagues all the time every day around the world and nobody had a good read on what was going on. +o that was "articularly rightening.3 In rastructure s"ending had obvious a""eal, but many economists warned that these ty"es o "ro;ects tend to be too slow to do much good. 0y the time money is s"ent, the recession is usually over. 0rock %arleton, the %#, o the Federation o %anadian )unici"alities, continued to "ush or a ma;or in rastructure "lan. (e had made his case directly to )r. (ar"er on Fov. 20 in the 'rime )inister/s %entre 0lock , ice during a meeting that was attended by )r. Flaherty and John 0aird, the minister in charge o trans"ortation and in rastructure. In the end, the combined ederal and "rovincial stimulus totalled nearly 8:<-billion, according to a inal re"ort on the #conomic 1ction 'lan released by ,ttawa in )arch, 20-2. $hat igure "rimarily covered a two-year "eriod, although some s"ending was allowed to e!tend into the 20----2 iscal year. In rastructure was the biggest category o stimulus s"ending, ollowed by industrial su""ort like the auto

bailout. Inem"loyment bene its and ta! cuts largely accounted or the rest. Detting the money out the door 1 ter the budget was tabled and the government avoided de eat, the "olitical "ressure moved rom )r. Flaherty to )r. 0aird. In rastructure s"ending would be e ective only i the money was s"ent Auickly. 1t the same time, no government wants scandals rom money s"ent hastily ? and badly. $o s"eed u" "ro;ects, )r. 0aird "ushed or a one-"age a""lication orm and demanded that munici"alities submit only "ro;ects that could be com"leted by )arch G-, 20--. Cong-standing rules were being sidelined, creating some concern and resistance in the "ublic service, and ears about "olitical embarrassment. 5*e ;ust didn/t want to be lam"ooned,3 )r. 0aird said in an interview in his 'arliament (ill o ice. In the weeks a ter the budget, ministers were rustrated at the slow "ace o action. $hat tension between the "ublic service and cabinet built until June, when )r. 0aird/s de"uty minister, $rans"ort %anada veteran Couis =anger, was re"laced by 4a"rak 0altacioglu. $he government ho"ed she would get things moving. $here was a huge dynamic change when 4a"rak came in in terms o co-o"eration,3 said %hris Froggatt, who was )r. 0aird/s chie o sta at the time.

In the end, the 1uditor-Deneral tabled two re"orts on the %onservative government/s #conomic 1ction 'lan ? as the stimulus was called ? and both were "ositive. 1 third re"ort s"eci ically on a 890-million D8 Cegacy In rastructure Fund, which was "art o the stimulus "lan, critici@ed the government because auditors could not ind documents showing how "ro;ects were selected. 1uditors also discovered that D8 s"ending was "resented to 'arliament as border-related, when in act it had nothing to do with border in rastructure. $he act that the largesse was concentrated in the 'arry +ound-)uskoka riding o then-Industry )inister $ony %lement ins"ired much o the criticism rom the o""osition that )r. 0aird was ho"ing to avoid. $he o""osition attacked the s"ending as a "artisan slush und, asking why it was used to build ga@ebos and "arks in the riding that had no obvious connection to the 20-0 D8 summit. )r. 0aird argues that in the grand scheme o things, very ew stimulus "ro;ects were controversial. 5'eo"le ;oke about the ga@ebo Jin )r. %lement/s ridingK ? I mean there/s a ga@ebo right there,3 he said, "ointing out the window to one behind the 'arliament 0uildings. 50y and large, it was "retty good. *e did some incredibly e!citing things.3

)ayors across the country would certainly agree. +timulus s"ending meant new cash or community centres and s"lash "arks, as well as less glamorous "ro;ects like sewer and road work. ,ttawa/s determination to receive credit or the s"ending remains a "oint o heated debate. #!tensive rules ensured that large signs "romoted all s"ending big and small ? including a new doorknob at an =%)' building in %harlottetown. $he one thing I su""ose I/d like to see less o is less advertising and billboards,3 said ,ttawa )ayor Jim *atson., who was an ,ntario cabinet minister when the stimulus was launched. 5It seemed a little overkill to have these signs "lunked u" everywhere.3 )easuring results 0ut did the government/s "lan achieve its number one goal ? to mitigate the worst e ects o a recession that drove the unem"loyment rate to 8.. "er centB $he 'arliamentary 0udget , ice L'0,M ? then led by Hevin 'age ? tracked stimulus s"ending by surveying grou"s on the receiving end o the government cash. Its 20-0 re"ort concluded that some "ro;ects, such as solid waste management "ro;ects, were not very good at creating ;obs, while s"ending on "ublic transit was 5very e ective3 at creating em"loyment. +"ending on "orts and highways was also seen

as a good way to create ;obs. 'edro 1ntunes, an economist at the %on erence 0oard o %anada, said %anada invested in mostly "roductive in rastructure and got the money out the door relatively ast. Cooking back, it/s now clear that "ublic investment in rastructure as a "ercentage o DD' shot u" noticeably in 2007 and 20-0, countering the e ects o the recession. $he timing was okay. $he ty"e o s"ending was okay,3 he said. 5,ver the longer term, it/s not like we were overs"ending. *e needed the in rastructure.3 Dood in rastructure bene its the country over the longer term, he "ointed out. #ven hockey rinks in remote locations, he suggested, im"rove the Auality o li e in %anada. 0ut once the short-term ;obs are gone, the lasting economic bene it o "lanters and arenas and ga@ebos "ales ne!t to cutting-edge labs or ma;or new highways. ,ttawa/s demand or shovel-ready "ro;ects created a bias or the Auick-and-easy over higher-Auality "roductive in rastructure. $he Dreat =ecession was a missed o""ortunity to build a better legacy. +ome e!"erts also argue that much o the government stimulus came too late. It had almost no im"act when it should have counted most ? as the economy "ulled out o recession in 2007.

1 20-0 re"ort by the Nancouver-based Fraser Institute, a conservative think tank, ound a 5negligible3 bene it rom government s"ending and a 5small3 boost rom ta! relie in the second hal o 2007, based on a review o DD' data or the "eriod. $he Fraser Institute economists argue instead that a rebound in e!"orts drove the recovery. 5Dovernment stimulus s"ending did not have a material im"act on %anada/s economic recovery,3 according to the study. Finance %anada did not track how many ;obs were created by each "ro;ect. Instead, it used a broad economic model that tried to calculate the em"loyment im"act. It re"orted that the stimulus 5created or maintained3 2<8,000 ;obs, beating the original goal o 220,000 ;obs. $he government/s model was validated by outside economists at the %on erence 0oard o %anada, Fational 0ank o %anada and the Iniversity o $oronto. )easuring stimulus involves a debate about what economists call multi"liers. $he I)F argued in 2008 that an increase in government s"ending eAual to - "er cent o gross domestic "roduct would actually "roduce a - "er cent increase in DD' ? meaning the multi"lier would be one. Finance %anada/s model showed that some stimulus, such as s"ending on in rastructure, had a multi"lier o -.9 "er cent in 20-0, whereas business ta! cuts

only "roduced a multi"lier o 0.2 "er cent. Finance stated that because o the 5considerable uncertainty surrounding the si@e o iscal multi"liers, "rudent estimates have been used.3 )r. 'age said the '0, attem"ted to create its own economic model to test the e ectiveness o having a stimulus "lan versus not having one, but the "ro;ect "roved to be too di icult. 4ou ;ust can/t do it,3 he said. 5It/s almost im"ossible. 4ou/re in un"recedented waters when banks are sei@ing u" and colla"sing.3 $he central argument against in rastructure s"ending as a way to li t a struggling economy comes down to timing. %anada/s economy had begun to recover by the s"ring o 2007, long be ore there could have been any im"act rom the stimulus-laden budgets o the ederal and "rovincial governments, argued Finn 'oschmann, vice-"resident and research director at the %.D. (owe Institute in $oronto. 5+igni icant de icit s"ending a ter 2007--0 was certainly unnecessary rom an economic "ers"ective in %anada,3 he said. In a re"ort this week, the Fraser Institute aulted ,ttawa and the "rovinces or kee"ing the stimulus ta" on and "iling on debt long a ter the emergency was over.

$he ederal government alone will amass nearly 8.0-billion in de icits between 20-and 20-9 ? all o it a ter the recession was done. +ome argue that the government/s stimulus "lan accom"lished a very im"ortant goal that can/t be measured ? it calmed ears o an economic colla"se a ter the bank ailures in I.+. and #uro"e. *hen nobody/s certain o the downside, activity kind o ree@es,3 said =oyal 0ank o %anada chie economist %raig *right. 5+o in some sense, iscal "olicy, not ;ust in %anada but around the globe, kind o ste""ed in and to a degree underwrote the worst-case scenario. It kind o drew a line under how bad things could get and I think that had an indirect im"act on con idence.3 $hat view gets at the undamental "roblem in measuring the im"act o stimulus. $hose who believe it had a "ositive e ect "oint to actors ? like con idence ? that can/t really be measured. #conomists like to evaluate a "olicy by considering what they call the counter actual ? by trying to answer the Auestion, what would have ha""ened i the "olicy had not been thereB 1s a relatively small economy with dee" international trade links, %anada "robably could have avoided ma;or s"ending "rograms as long as other nations stimulated their economies.

#conomist Don Drummond argues such a 5 ree rider3 a""roach would have made %anada a "ariah among the D20. )r. Drummond was chie economist or $orontoDominion 0ank at the time and is now )atthews ellow at >ueen/s Iniversity. (e said there is no sim"le, easy answer to the Auestion o whether the billions s"ent in ,ttawa and "rovincial ca"itals made a di erence. 4ou can/t answer whether that would be a good or a bad thing until you can answer that counter actual Auestion2 *ould we be in a ree all and how would the %anadian economy have been di erent i we didn/t have that stimulusB3 he said. 51nd I don/t care i it/s the Fraser Institute or the government, no one can directly answer that Auestion.3 #ven i there was some bene it, )r. Drummond argues that it was short-lived and Auickly reversed by several years o austerity as governments cut s"ending to shrink de icits. +ome o the s"ending on in rastructure was valuable, he said, but the reAuirement that "ro;ects be 5shovel ready3 meant that "ro;ects that could have "roduced greater long-term bene its were overlooked. I think the best you can say is, i this e!ercise o massive stimulus had a "ositive "ayo it was that it stabili@ed the economy. #nd o sentence,3 he said. 5It has not achieved any long-run goal.3

$he way ahead Five years on, the legacy o the stimulus s"ending survives on university cam"uses, in cultural centres and in thousands o kilometres o as"halt. 0ut it also lives on in the orm o a worrying and "ersistent debt hangover. In a normal recovery, much o that debt would be gone. +low growth has translated into sluggish ta! revenues. ,ntario and >uebec look most vulnerable, with a return to balanced books still a ew years o . 1bout 8< "er cent o all "rovincial and territorial debt belongs to those two "rovinces and international rating agencies are kee"ing a watch ul eye. >uebec is looking at "erha"s decades o "ain. 1 recent IniversitE de +herbrooke re"ort by "ro essors Cuc Dodbout and 'ierre Fortin warned that even be ore the Dreat =ecession, >uebec/s s"ending and ta!ation "atterns were on "ace or chronic de icits over the coming decades. $hey note that the "rovince/s demogra"hic and inancial "roblems demand tough choices rom "olitical leaders. Dwight Duncan, who was Finance )inister in Dalton )cDuinty/s Ciberal government, has no regrets. $he "rovince did what it had to do in a time o crisis, he believes, to kee" an auto-de"endent "rovince rom tumbling into de"ression. 0ut the "rovince did so largely with borrowed money, leaving a legacy o debt that could ham"er the

"rovince/s ability to deliver basic services when interest rates inevitably rise. $hat is a ticking time bomb, both or ,ntario and %anada, because o the debt we incurred to do the things that we did,3 )r. Duncan said. 5It causes me more worry now than it did at the time.3 $he "rovince/s debt service costs in 20-2--G consumed 8-0.G-billion, -: "er cent more than in iscal 2008. %olin (ansen, who was 0.%./s inance minister at the time and recalls the "eriod as 5those months rom hell,3 said stimulus must be considered a success sim"ly because it avoided the worst. I you look at how well %anada has ared coming through these last ive years, I think that/s the real test,3 he said. 5$here/s "robably things that could have been done di erently, but I think over all, the %anadian a""roach was success ul.3 Few "eo"le watched the government/s s"ending "lans as closely as )r. 'age, who was a thorn in )r. Flaherty/s side during his ive-year term as %anada/s irst 'arliamentary 0udget , icer. 0ut on the sha"e o stimulus and the government/s ability to get it out the door, he gives the %onservatives high "raise. It did have an im"act,3 he said. 5$o me, the government/s stimulus "ackage is "robably the high-water mark o this government since it/s been in "ower. It was a time o crisis. 1nd yeah, they got caught com"letely unaware that this

recession was coming. It didn/t look like they wanted to do it, but then the crisis really hit and they res"onded a""ro"riately.3 )unici"alities say that now that ,ttawa is taking a longer-term a""roach to in rastructure s"ending, cities should have more detailed "lans in "lace should there ever be a need to move u" construction schedules to give the economy a boost. Federal %onservatives aren/t so sure recent lessons will a""ly to more ty"ical recessions. $his was obviously a one-time thing and it was under e!traordinary circumstances,3 )r. 0aird said. *hen )r. Flaherty tables his 20-< budget on $uesday, it will show ,ttawa/s years o de icit s"ending are nearly over. (e has "romised a signi icant sur"lus by 20-9--: and some economists say ,ttawa might even climb out o the red this year, when the inal numbers are in. $uesday/s budget sets the stage or a new era o sur"luses and a 20-9 ederal election over whether that money should go toward reducing debt, new s"ending or reducing ta!es. )r. Flaherty has low-balled e!"ectations or budget day by scheduling it during the +ochi ,lym"ics. ,""osition "arties are already dismissing this as a 5do nothing3

budget. 0ut in many ways, )r. Flaherty is releasing the inal cha"ter o a ma;or budget he tabled ive years ago. $he 2007 budget was most de initely not a do-nothing budget. *hether 2007 would have been the right time to do nothing is still hotly debated. $he decisions made ive years ago will be re-e!amined again when uture governments ace the ne!t big economic downturn. $o those uture leaders, )r. Flaherty o ers some advice. 1s much as we all have "olitical "rinci"les and things we believe in, you cannot be ideological as a inance minister,3 he said. 54ou have to be "re"ared to do what needs to be done to "reserve ;obs and the economy ... certainly in my view it was necessary to do what we did, and that was run a big de icit. 1nd it/s necessary to do what we/re doing ? that is, drive it back to balance.3 ------------------------------------------------------------------0,,F+ 1FD 0,,FD,DDC# Nale Civing *ith Cakes %entre Caurentian Iniversity/s Nale Civing *ith Cakes %entre was the "er ect candidate or ederal in rastructure money. Fisheries biologist John Dunn had been toiling or -< years to ind a home or the

university/s various water ecology labs and activities. 0y 2008, he had commitments or 8-:-million rom the university, nickel giant Nale +1 and various levels o government. (e had architectural drawings and a "rominent site on =amsey Cake near the cam"us entrance. 0ut it wasn/t enough. $he centre was 89-million short, and the economy was headed south. #nter the 82-billion Hnowledge In rastructure 'rogram LHI'M, "art o ,ttawa/s #conomic 1ction 'lan, announced in early 2007. *e had already "itched it so many times that our numbers were very accurate,3 e!"lained 'ro . Dunn, director o the centre. 5*e had costed out everything and it was ready to go.3 $he ederal HI' money leveraged a total o more than 89-billion in "ro;ects across the country. 0ecause most schools already had wish-list "ro;ects, the rollout was 5remarkably Auick,3 according to 'aul Davidson, "resident o the 1ssociation o Iniversities and %olleges o %anada. 'ro;ects were a""roved between January and June o 2007, with cranes "o""ing u" at universities by the summer. )ost o the structures were com"leted by 20--.

$his was smart in rastructure,3 )r. Davidson argued. 5It has created a really im"ortant legacy on %anadian cam"uses.3 1t Caurentian, the 820-million centre and its cutting-edge labs have become a magnet or talent it never could have attracted, including a Fational =esearch %hair in environmental microbiology, along with do@ens o researchers and 'hD students. 0irch Farrows school $he irst reserve community to receive a new school through the stimulus was 0irch Farrows, a remote First Fation in northwestern +askatchewan. 'rior to the stimulus, there was no school on the reserve or Drade -0 and u". Hids in those grades had to take a bus or more than an hour each way to attend an o reserve school in Ca Coche. ,nly about one or two kids rom the community were graduating high school each year. Fow with the new 829-million school, the community had -: new high-school graduates this year and <9 since the new school was built. It went really well,3 said %hie =obert +ylvester o the construction "ro;ect, which he said inished ahead o schedule. +till, the chie said it/s a struggle to ind the money to o"erate the school and "ay or teachers. $here/s never enough to kee" it running,3 he said.

$he 0luenose II $he 0luenose is a symbol o "ride or Fova +cotia and all o %anada, but the 0luenose II "ro;ect announced in the early months o stimulus s"ending is now o"enly described as a boondoggle. In 1"ri,l 2007, %onservative minister 'eter )acHay and the then $ory 'remier =odney )acDonald announced 8-<.<-million to restore the 0luenose II, a -7:G vessel built in honour o the original 0luenose, which was built in -72- and now graces the %anadian dime. Fearly ive years later, the 0luenose II is not in service and its rising "rice tag has yet to settle on a inal number. $he Fova +cotia government has said it will be more than 8-:-million, while the %anadian $a!"ayers/ Federation "redicts it will actually cost more than 820-million. For a while, it was a shi" without a rudder. 0e ore the retro it, the 0luenose II had a wood rudder, like the original. 0ut regulators don/t allow wood rudders any more, and inding a re"lacement that works with the shi"/s design "roved to be a ma;or challenge. 1 urther "roblem is that descendants o the designer o the original 0luenose are suing Fova +cotia or intellectual "ro"erty in ringement and arguing that the government doesn/t have the right to use the term 0luenose. $he shi"

returned to the water in Cunenburg in +e"tember a ter three years in dry dock or re"airs, but has not yet been cleared by regulators. $he new Ciberal 'remier, +te"hen )cFeil, recently called the "ro;ect a 5boondoggle3 that should be investigated by the 1uditor-Deneral. #mbarrassing, in a word,3 said Fova +cotia +enator *il red )oore, who re"resents the region and was a volunteer undraiser or maintenance o the 0luenose II "rior to the stimulus announcement. 1round Cunenburg, they/re embarrassed about it,3 he said, listing the rising cost, delays and mistakes that needed to be i!ed. 54ou/ve got a "retty "roud community. $hey/re used to building boats and doing well, so it/s not sitting very well. $his is too bad.3 SINGLE PAGE 1 2 3 4 5 6 7