PM, Fraser Institute ramp up stimulus spat

Prime Minister Stephen Harper shoots back at a Fraser Institute report that cast doubt on Ottawa's stimulus spending, defending his government's "unprecedented" efforts to pull Canada out of a recession.

Prime Minister Stephen Harper shot back Thursday at a report that cast doubt on Ottawa's stimulus spending, defending his government's "unprecedented" efforts to pull Canada out of a recession.

Prime Minister Stephen Harper, shown speaking in question period earlier this month, defended his government's efforts to end the recession Thursday.

Government officials have repeatedly insisted the $47.2-billion spending splurge was necessary and directly responsible for Canada's economy emerging from recession in late 2009.

But on Tuesday, the Fraser Institute, which champions free-market economic solutions, concluded government spending and infrastructure investment accounted for just 0.2 percentage points of the 1.1 per cent growth between the second and third quarters of 2009.

The report further asserts that stimulus spending played no role at all in the one per cent improvement between the third and fourth quarter, saying an increase in net exports was the main reason for that growth.

"First of all, that’s completely wrong and quite frankly contradicted by very serious work that’s been done [elsewhere]" Harper told reporters. "Economic theory and history is clear, governments must … make sure [funds] are put to productive use in the economy to create jobs.

"That is what we have been doing, that has been successful [and] every reputable international study says so, by the way, not just for us."

Long-term, he said the private sector has to take the reins for job creation, but he rejected outright any suggestion that government actions weren't directly responsible for pulling the country out of recession.

"If we had not done this … the recession would have been a lot worse," he said, citing studies from world bodies such as the International Monetary Fund and the Organization for Economic Co-Operation and Development to back up the claim.

Authors reiterate position

The Fraser Institute stood by its analysis on Thursday, releasing a commentary responding to the government's objections in which it again insisted that stimulus spending in the last two budgets had a negligible effect on Canada's economy.

"While [the government's] comments are certainly great political rhetoric, the latest data from Statistics Canada tells a remarkably different story," the authors of the initial report, Niels Veldhuis and Charles Lammam, wrote in their response Thursday.

The Fraser report was based on sound economic data from Statistics Canada, the Institute noted in a tweet on Thursday, whereas other recent reports, such as analyses by TD Bank and the Conference Board of Canada, were based on assumptions and economic models.

The authors did give Ottawa credit for $4.5 billion in tax credits, which it said no doubt increased consumption, but had nothing good to say about the stimulus measures.

"Despite the government’s claims, the stimulus package didn't work and was a mistake that will burden Canadians with debt for years to come," they said in their commentary Thursday.

Finance Minister Jim Flaherty has also criticized the report's conclusions.

"It's poorly done, and it's wrong," he told reporters in a scrum after question period Tuesday.

Flaherty said the report fails to take into account the effects of the home renovation tax credit, the automotive stimulus program and the work-sharing program, which he said have saved more than 200,000 jobs.

"We added two points of GDP last year through the economic action plan," Flaherty said. "Consumer confidence is back at historically normal levels —so is business confidence in the first quarter of this year.

"I'm disappointed that the [report] is as shabby as it is," he said.