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As Finance Minister Bill Morneau prepares his first federal budget in a maelstrom of plummeting oil and resource prices, a plunging loonie and an uncertain global economy, he should take the time to write a brief thank-you note to Stephen Harper.

Last September, as his never-ending election campaign lurched from one disaster to another, Harper turned magician, pulling a “surprise” budget surplus for 2014-15 from his tattered cowboy hat. At $1.9 billion, it was pretty small — and of course, it wasn’t a surprise to anybody who knows about the kind of fun-with-figures that expert bureaucrats can practice at the behest of their political masters.

The Conservatives touted the sudden surplus as a symbol of their good economic stewardship and pumped up their promises of lower taxes and a smaller federal government. Although oil prices were already sliding and the Canadian economy was looking increasingly shaky, Harper was foolish enough to predict that there was “zero to little risk” of anything but another surplus in the current fiscal year.

Fat chance of that now. With federal revenues sliding fast, we’re heading for a federal deficit in the year ending March 31 and a bigger one in the coming year. And that’s before the Liberals spend a cent of the promised $5 billion in new annual infrastructure cash.

Though our newly-minted finance minister is facing a daunting political and economic challenge, he does so with a fabulous asset — the federal government’s sterling fiscal situation, a legacy from Harper and the Chretien/Martin Liberals before him. The federal government’s debt-to-GDP ratio is 31 per cent, the lowest in the G7.

What’s ironic about the current situation is that the Liberals under Paul Martin bestowed the very same gift on Harper and company in 2006. Of course, Harper never had the grace to credit the Liberals with a word of praise for that legacy, nor for the sound banking system that helped Canada weather the 2008-09 financial crisis. Giving credit to his enemies was never his style.

Still, when Harper and the late Jim Flaherty were forced to unleash much-needed stimulus on the economy in the wake of the global financial crisis, they found they had the fiscal room to do so without provoking the slightest tremor on financial markets.

Morneau — and Canadians — should try not to panic. This isn’t 2008, when we were facing the very real threat of the global financial system collapsing entirely. This is just an old-fashioned economic downturn. Morneau — and Canadians — should try not to panic. This isn’t 2008, when we were facing the very real threat of the global financial system collapsing entirely. This is just an old-fashioned economic downturn.

The Trudeau Liberals enjoy the same security today. If the federal government is forced to run deficits in the range of $20 billion (rather than the promised $10 billion) over the next few years, those deficits will be manageable — and nobody outside the Tory caucus and a few right-wing op-ed pages will complain. As Flaherty discovered in 2009, Canadians don’t care much about the size of the federal deficit when they feel their jobs and personal finances are at risk.

As for the new government’s rookie budget, Morneau — and Canadians — should try not to panic. This isn’t 2008, when we were facing the very real threat of the global financial system collapsing entirely. This is just an old-fashioned economic downturn — even if it will be quite painful for some in the short term.

When you depend on resources for a big chunk of your economic activity, as we do in Canada, you shouldn’t be surprised that you’re at the mercy of commodity prices. Oil and metal prices that soar to unsustainable levels inevitably crash; they’ll recover this time around, as they have in the past, though perhaps not for a few years. Too bad nobody in Alberta seems to have understood that phenomenon and planned accordingly.

In fact, we should be thanking our lucky stars that Canada never really was a world “energy superpower” like Russia, which faces years of gloom because of its excessive dependence on oil. We’re fortunate to have a relatively diversified economy. Ottawa now has to do what it takes to make sure that manufacturing grows and our service economy thrives while we wait for resource prices to recover.

Jobs will disappear in the West. Jobs will be created in Ontario and Quebec. The balance of growth will shift between provinces. It may just take longer than it has in the past.

Our cheaper currency will have to do much of the heavy lifting — which means we’ll all take a hit on imports and foreign travel. Government can help, primarily through automatic economic stabilizers like employment insurance and transfers which compensate regions hit hardest by the downturn. Some stimulus is a good idea — but Ottawa should think carefully before it starts spraying out cheques.

Infrastructure spending is a great idea — but unless the federal government throws money at poorly conceived make-work projects (the sort of thing I like to call “paving the snow”) it can’t possibly get $5 billion out the door in time for the summer 2016 construction season. Short-term spending — money for summer student jobs or speeding up construction projects already underway — might be a smarter form of instant stimulus. The new infrastructure program can wait a year.

One thing that could help would be for the Trudeau government to stop Conservative-mandated government austerity in its tracks — by reversing the mindless cuts to veterans services and First Nations. The government also should halt the Harper-era practice of budgeting billions of dollars in spending and purposely allowing much of the money to lapse, unspent, before returning it to the treasury.

The federal government’s lapsed spending hit $8.7 billion in 2014-15 — an underhanded way of cutting the budgets for Veterans Affairs, International Development and National Defence, for example. Reinstating that money would allow it to flow quickly into the economy.

But above all, the finance minister should not allow the current economic problems to take his attention away from dealing with major economic issues facing the country — like pension system reform, an overdue review of the Income Tax Act and moving ahead on the long-delayed national securities regulator. Eyes on the puck, Mr. Morneau.

Alan Freeman is a Senior Fellow at the University of Ottawa’s Graduate School of Public and International Affairs. He came to the U of O from the Department of Finance, where he served as assistant deputy minister of consultations and communications. Alan joined the public service in 2008 after a distinguished career in journalism as a parliamentary reporter and business journalist for The Canadian Press, The Wall Street Journal and The Globe and Mail. At the Globe, he spent more than 10 years as a foreign correspondent based in Berlin, London and Washington.

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