26 February 2009

Flaherty warns of potential stimulus stumbles

The following is excerpted from the February 25th edition of "globeandmail.com".

Finance Minister Jim Flaherty acknowledged that Ottawa will foul up as it doles out $40-billion of stimulus spending, but said errors are acceptable because it's crucial to roll out cash quickly to counter the economic downturn.

“There will be some mistakes made. But it's worth that risk to help the majority of Canadians during what is a serious recession,” he said yesterday following a weekly meeting of Conservative MPs.

It was a remarkably frank admission from the Tories, a party that prides itself on fiscal rectitude and campaigned on a pledge to safeguard coffers.

Hurried spending to address a crisis – whether it's an economic meltdown or national unity – is familiar but dangerous territory for federal politicians. The sponsorship scandal that helped topple the former Liberal government began as a panicked spending program to promote Canada in Quebec after the narrow defeat of the 1995 sovereignty referendum.

Mr. Flaherty didn't specify what kinds of boondoggles might occur as Ottawa signs cheques for an extraordinarily large amount of money over 24 months, including close to $20-billion in construction and infrastructure spending.

He said Ottawa is sidestepping traditional approval routes to speed up stimulus dollars and will provide Canadians a timetable for implementation on March 11. “This is urgent. This is an emergency situation of getting this stimulus into the Canadian economy to benefit Canadians, to benefit people who are going to lose their jobs.”

For instance, he said, Treasury Board – the government's cash manager – is modifying how it handles spending, and the Tories are taking some plans directly to cabinet instead of the normal route for vetting ideas...

Toronto Dominion Bank chief economist Don Drummond, a former senior Finance official, said Mr. Flaherty's comments seem to be aimed at inoculating the Tories against future stimulus snafus...

He said the government's home renovation tax credit – which offers Canadians a tax credit of up to $1,350 for renovations – appears vulnerable to fraud.

“It says right on the website you don't need to submit the receipts. You just need to keep them in case you get audited. I read that and thought, ‘Holy smokes,'” Mr. Drummond said.

He fears the imperative to speed up infrastructure spending will result in unnecessary construction, such as Quebec's underused Mirabel airport...

A private-sector source familiar with internal Ottawa debate over the stimulus said federal public servants, whom the Tories are telling to expedite spending, are privately nervous they will ultimately get blamed for resulting boondoggles.

The Jan. 27 federal budget boasted that Ottawa's stimulus package will create nearly 190,000 jobs over two years, but private-sector economists and parliamentary budget watchdog Kevin Page have said the estimate is too high.

Mr. Flaherty said the Tories hope to get some stimulus cash flowing April 1, the start of Ottawa's next fiscal year.

Asked about the potential that normal safeguards and checks might be bypassed in the rush to expedite spending, Mr. Flaherty said, “It's a good question.” ... “We've been struggling with this … we need to be responsive to the crisis for Canadians. We also need to be responsible.”

Liberal finance critic John McCallum said the Tories are forced to scramble because they failed to deliver stimulus earlier. He said they should have delivered fiscal aid in the fall, following the Oct. 14 election, instead of waiting more than three months before opening the pig