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Opinion: The world has changed. Our policies – on defence, the economy, and beyond – will have to as well – The Globe and Mail

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In the spring of 2019, before everything changed, the federal government presented a budget that was the picture of sunny optimism. The deficit, then a mere $20-billion, was projected to decline to less than $10-billion in four years. This was not by dint of any exercise in fiscal restraint; indeed, it would have declined much faster but for some quite heroic increases in spending, so fast were revenues flowing in. But why not? The revenues were there; they would always be there; might as well spend them. The budget, I wrote at the time, was “a tribute to the pleasures of endless economic growth.”

Well, as I say, that was in the before times. The country has spent the past two years dragging itself through an endless pandemic. The $700-billion debt it was considered prudent to be carrying then – 10 years into an expansion – is now a $1.2-trillion debt. Revenues are as strong as ever; indeed, they are now higher than they were projected to be in that 2019 budget. But spending is even higher: not at the heights it reached in the worst days of the pandemic, to be sure, but far above anything that was ever imagined before. Where it is projected to remain.

Or rather, where it was projected to remain. The pandemic may – or may not – be subsiding, but just as the Trudeau government may have imagined it could settle into another age of endless growth, low inflation, and historically low interest rates, it has been blindsided by reality once again. The short-term economic consequences of Russia’s invasion of Ukraine are bad enough: more supply squeezes, this time in minerals, energy and grains, another spike in inflation, and a heightened risk that this will become embedded in inflation expectations. (The interest rate on 10-year Canadian government bonds, at 2.2 per cent, is now at a four-year high.)

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But the longer-term consequences are even worse, even assuming the present conflict does not spiral into the Third World War. A Russian debt default, possibly within days, will send lasting shock waves through world financial markets, especially if it is discovered that one or two institutions have more exposure to Russian debt than they have been letting on. Worse will follow, if sanctions are applied also to China and India, for their willingness to do business with Russia in defiance of existing sanctions. And that is just for starters.

What has yet to be fully understood is what a permanent rupture has just occurred in the world order. Unlike the pandemic, there can be no going back to the status quo ex ante. Under Vladimir Putin, Russia has become not merely a source of instability or the occasional outrage, but an existential threat; even if it can be returned to its cage in the short term, it will be the work of decades to contain it. Predictions of Mr. Putin’s imminent demise will, I’m afraid, prove illusory, and whoever succeeds him could in any case be as bad or worse. This is not a short-term crisis, but a long-term one.

One consequence of this, clearly, will be a requirement – no longer a request – that Canada improve its contribution to the collective defence of the democracies: an increase in defence spending from its current 1.4 per cent of GDP to at least 2 per cent, and probably beyond that. (In the days of Lester Pearson, the great peacemaker, it was closer to 4 per cent.) If this were a short-term or at least finite military engagement, like the Second World War, where the troops could all be sent home at the end, we could simply add this to the debt, and pay it off over many years. But as we are probably looking at a more or less permanent increase, then some difficult choices will have to be made.

It isn’t just the Trudeau government’s pet projects – and there are many of them – that this new demand for spending will have to contend with. It is also the needs of the provinces, specifically for health care. Even before all this, the long-term fiscal prospects of the provinces were looking grim: as an aging population collides with a sclerotic and overburdened health care system, more than one of the provinces is at risk of defaulting on its debts in coming decades. Even radical reform of the health care system cannot avert this. I know the provinces have been in the habit of crying wolf. But this time, they really do need the money.

But so does the defence of the nation. The current crisis has cruelly exposed, if it were not evident already, just how threadbare our military has become: the mere provision of a few hundred rocket-launchers, anti-tank weapons, firearms and grenades to Ukraine has more or less exhausted our own stockpiles. That we need to spend more is self-evident; even more urgently, we need to spend better. Military procurement has been a national disgrace for decades. Played for politics, corrupted by lobbyists, and caught between competing regional interests, projects have routinely come in years late and billions of dollars over budget. Perhaps we could afford this nonsense in the past. We cannot now.

I said everything has changed. But in truth, the golden age we have left behind was never really a golden age. Even that complacent 2019 budget projected economic growth in future years of just 1.8 per cent a year, on average, after inflation – half as fast the economy grew in the 1970s and 1980s, a third as fast as in the 1960s. The only way we will ever be able to afford all of the many new burdens we are piling onto the tax system is if we can generate faster growth – much faster. That is an issue that this government has been content to ignore until now – every bit as much as it has ignored our national security.

So as much as everyone will be looking to see whether, in the coming budget, the government grasps the scale of the new challenges facing Canada, it will also be crucial that it includes, at long last, policies to address the old.

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Economy

Buttigieg defends 'extraordinary' economy as polling suggests significant discontent – ABC News

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Buttigieg defends ‘extraordinary’ economy as polling suggests significant discontent  ABC News

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Economy

Kashmir is bleeding. So is its economy

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On January 1, 2023, as the world celebrated the start of a new year, several families were mourning in the Rajouri district of Indian-administered Jammu and Kashmir. Armed men stormed a village and killed four civilians, injuring six others. Two more civilians were killed the following day.

Just a few weeks earlier, on December 13, India’s Minister of State for Home Affairs Nityanand Rai had presented investment data for Jammu and Kashmir. The numbers spoke for themselves: investments have fallen by 55 percent over the past four years.

Together, the killings and the declining investments contradict two central arguments that have been at the heart of the Indian government’s rationale for the 2019 abrogation of the semi-autonomous status that the region previously enjoyed: that the move would help improve security and spur economic development.

In the past, federal governments in New Delhi have often blamed Jammu and Kashmir’s woes on local governments in power in the region. That’s no longer an excuse that works.

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When the Hindu nationalist government of Prime Minister Narendra Modi eliminated Article 370 of the Indian constitution — which gave Kashmir “special status” — it also carved out the territory of Ladakh from the region. Kashmir’s statehood was withdrawn, and it was made a union territory, directly controlled by New Delhi.

Jammu and Kashmir doesn’t even have the disempowered legislature that other union territories have — the region hasn’t had elections in seven years. Yet it should now increasingly be clear, if it wasn’t previously, that sidelining democratic processes and principles, and steamrolling constitutional provisions, aren’t working in improving the region’s security or economic allure.

Follow the money

The abrogation of Article 370 allowed non-residents to buy and own land in Jammu and Kashmir for the first time. Critics of the region’s previous special status frequently cited restrictions on land ownership as a major reason why private sector industries were reluctant to set up businesses there.

However, data published by the Indian government’s Ministry of Home Affairs — and made public by Rai — calls a bluff on those claims. Total investment in 2021-22 in Jammu and Kashmir stood at $46m, down from $50.5m the previous year, and dramatically less than the $102.8m spent in 2017-18.

While the COVID-19 pandemic no doubt affected Kashmir’s economy, the statistics suggest that wasn’t the biggest factor in investments drying up. After all, the steepest fall in investments came the year that the Indian government ended Kashmir’s semi-autonomous status, before the pandemic, halving from $72.3m in 2018-19 to $36.3m in 2019-20.

Track the bullets

Things aren’t much better on the security front. Although political protests have subsided because most pro-independence leaders have been imprisoned, armed groups appear to have changed their tactics.

Attacks on civilians have increased in the last few years and are increasingly being directed at non-resident Hindus and the minority Kashmiri Pandit community. A S Dulat, the former chief of the Research and Analysis Wing, India’s external intelligence agency, recently highlighted the sophistication of these attacks. The targeted killings, he said, demonstrated that the armed groups have a strong intelligence network and possibly have members within the government.

At least 18 Kashmiri Pandits and non-resident Hindus have been killed in Kashmir since the abrogation of Article 370.

As with the economy, the Indian government’s own data does not support claims that armed groups have been contained. The number of attacks by such groups was 229 in 2021, not significantly different from many previous years: There were 279 incidents in 2017, 322 in 2016, 208 in 2015, 222 in 2014 and 170 in 2013, the year before Modi came to power.

What’s really at play

The Indian government had claimed that Article 370 restricted people’s participation in the political process and led to a few families dominating the politics of the region. However, since 2019, Modi’s Bharatiya Janata Party has taken steps to further disempower local Kashmiris.

First, constituency boundaries for the region’s legislature were redrawn in a way that gives Hindu-majority Jammu a greater say in elections than its population, relative to Muslim-majority Kashmir’s, merits. In effect, that strengthens the chances of the BJP coming to power in Jammu and Kashmir.

Then a revision of the voter list was carried out, giving voting rights to outsiders. Jammu and Kashmir is home to hundreds of thousands of migrant workers and army personnel — if allowed to vote, their electoral influence is going to be significant.

Some Kashmiri leaders have invoked the region’s 1987 elections which were allegedly rigged and were considered a tipping point when the armed separatist movement in Kashmir took off.

Meanwhile, armed groups may continue to adopt attacks on non-local civilians as the mainstay of their strategy to signal their opposition to demographic changes attempted by New Delhi.

While Kashmiris and non-locals alike suffer, there is no reason to expect that Modi and his government will change their policy towards the region. The BJP’s hardline approach towards Kashmir helps it bolster its image in the rest of India as a party that is tough on “terrorism” and “separatism”.

The truth, of course, is more complicated. The BJP’s policies have led to increased insecurity for people living in the region — whether they’re Hindu or Muslim. And there has been no economic payoff, either.

 

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Economy

5 Graphs Explaining Russia’s Wartime Economy – The Moscow Times

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5 Graphs Explaining Russia’s Wartime Economy  The Moscow Times

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