Winnipeg Free Press

Winnipeg Free Press (Newspaper) - April 28, 1981, Winnipeg, Manitoba Winnipeg free press tuesday april t focus october budget shows slippage six months ago finance minister Allan Maceachen produced a budget in which he set out his expectations of Canada s economic performance for the coming year. This is the second in a series of quarterly reports on the accuracy of these projections and the performance of the Canadian Ottawa the Economy is not be having As expected. Consequently economic projections contained in finance minister Allan Maceachen s oct. 28 budget have gone awry in six Short months. One cannot be too critical of Mac Eachen or officials in the finance department. Many economists in the Pri vate sector and in other countries have had just As much trouble with their predictions. Last fall everyone was expecting an economic downturn with increased unemployment to be followed by a period of declining interest rates and economic growth starting in the second half of 1981. Instead there has been economic growth in the . And Canada which in the first Quarter of 1981, far sur passed expectations. Interest rates have remained extremely High there has been an increase in unemployment and a Rise in the rate of inflation. One statistic feeds on another of course so when economists Are wrong on one Assumption it affects the whole mix. It May have been the election of . President Ronald Reagan or his promised tax cuts but the . Economy did not contract As expected in late 1980 and Early 1981. In fact recent statistics place . Economic growth at 6.2 per cent for the first Quarter a period when the Economy had been expected to be Flat. Economic activity in the . Has stimulated demand in Canada and so officials Here explain it is not Surpris ing that Canada s economic growth has surpassed expectations. There Are still predictions of a Down turn this year but private forecasters Are now predicting Canada s real eco nomic growth for 1981 will be about 3.6 per cent. In his budget last october Maceachen said it would be one per cent or less. Despite the surprising economic strength unemployment is running at 8.5 per cent in Canada the level predicted by Maceachen. If the temporary slowdown develops As expected unemployment will probably get worse before it gets better. It is on his inflation rate projection that Maceachen really miscues. He predicted it would be slightly Over 10 per cent. It is now running at 12.2 per cent and every private projection places in Over 12 per cent for 1981. Maceachen has indicated he will 1 offer an undated statement presumably containing new economic project ions. The old ones Are certainly out of Date. In the longer term there Are still plenty of doubts about the Economy. The conference Board of Canada in a new projection says Gross National product growth will average 2.5 per cent per year for the 1980-85 period. Earlier the Board had placed potential growth at four per cent per year. Starting from a position of excess capacity the Economy May grow above its potential rate in the Short run and Peter Thomson Ottawa editor hence move towards High employment. In the Long run however potential Gnu determines the sustainable rate at which the Economy can grow. Two factors Lead to lowering of Esti mates of potential growth. First the growth of population of the labor Force age is projected to decline from two per cent per year Over the period 1975-80 to 1.2 per cent Over the 1980-85 i period. Second growth of productivity of All parts of the production process is projected to average 0.5 per cent in the 1980-85 period. This is sharply lower than in earlier periods. Maceachen listed nine Short and medium term objectives when he brought Down his october budget. He is obviously in trouble with some of them. His first strategy was to keep government spending within the rate of growth of the Economy. The surprising economic expansion of the first Quarter has made that task easier. Unless there is a Sharp setback later in the year he should meet that goal. His second strategy was to reduce the budget deficit steadily Over the next three years with a modest reduction in 1981. This objective is becoming difficult to achieve. While unexpected growth in economic activity bodes Well for tax revenues High interest rates Are putting a killing Cost on carrying the National debt. The government s Suc Cess in reducing its deficit is closely tied to Petroleum pricing and taxing negotiations with Alberta. Maceachen s third objective was to avoid personal and corporate tax in creases. It is going to become increasingly difficult to achieve this goal and a reduced deficit at the same time especially if economic growth slows As projected by the conference Board. Maceachen s fourth stated objective was to support monetary policies that do not accommodate inflation. That has been done insofar As supporting the Bank of Canada s policies goes. But control of growth of the Money Supply obviously has not slowed the inflation rate yet and Bank of Canada governor Gerald Bouey has recently emphasized that control of inflation requires help from fiscal policies As Well. This objective relates directly to nos. 2 and 3. The fifth strategy was to provide for major new expenditures in Energy eco nomic development Industrial adjust ment and manpower retraining. This goal was tied directly to Petroleum revenues a matter still to be decided and an extremely difficult goal if Maceachen really intends to reduce the Federal deficit. He seems no closer to achieving it than he was six months ago. The sixth goal was to increase Aid to the developing world which has been provided for in 1981-82 spending Esti mates but again a difficult objective while avoiding tax increases and reducing the Federal deficit. The seventh objective to sustain so Cial and economic assistance to those most in need contains a Bombshell. It is expected that Maceachen intends to achieve that objective simply by shunt ing some of the costs on to the prov providing a measure of Relief to the Federal Treasury. Once the constitutional debate has subsided the next Federal provincial Battle Royal will be Over shared Cost programs with the feds trying to get out from under programs for which they do not believe they get due recognition. Maceachen s eighth stated objective was to strengthen competitive forces in the Economy and to reduce the weight of government regulation. To Date there has been no major new thrust in that direction and it would hardly be consistent with government philosophy so one can assume the words were included because they sounded Good. The ninth objective was to adopt an Energy policy which continues Protection for canadians against shocks of open Oil Price increases promotes the economic use of Energy and substitutes off Oil and encourages development of new Energy Supply sources. In Short Maceachen was announcing the goals of the National Energy pro to Date it has been a dismal failure. Canadians Are becoming less protected from International prices almost daily As the Nep disrupts Normal exploration activity. While the . Has reduced Oil con sumption by 20 per cent Canada s use of Oil has increased. A full scale switch to Gas heating has spluttered As House holders wait to take advantage of Feder Al subsidies for switching. And while Oil is highly subsidized there is naturally a disincentive to develop new Energy Supply sources. There were few people who thought on oct. 29, that Maceachen s Budge tary goals would be achieved in the time Frame he set for them. The Prospect appears even less Likely six months later. What harm did the embargo do by Thomas j. Moore Chicago Sun times Washington the end of the so Viet Grain embargo should prove Nei ther much of a boost to the nation s Farmers nor a Boon to the soviet econ omy. A detailed review of the facts suggests that the much ballyhooed Grain embargo did much less harm than advertised to either country d the farm lobby s Contention that the embargo did More harm to Farmers than the soviets could not be Veri fied. D the 18 months since the embargo have been lean months for soviet con Sumers. Meat in particular was in Short Supply. But this can be traced less to the Grain embargo than to the effects of two straight years of poor crops in the soviet Union said experts on soviet agriculture. D the past year was also a lean year for . Farmers. Net farm income dropped sharply last year from the Boom year of 1979. While Many Farmers still blame the embargo the statistics show the main reason behind dropping farm income was a drought and rapid increases in costs particularly Energy. D the longer the embargo remained in effect the less it Hurt the soviets and the More it raised the possibility that . Agriculture might permanently lose a share of the world s Export Market. D president Reagan was caught in a no win situation. He either had to Vio late his Campaign pledge to end the embargo or break his foreign policy of linking . Benefits to soviet restraint. He opted to minimize Domestic political fallout at the Cost of charges he had compromised his Tough stance against the soviet Union. From the beginning on Jan. 4, 1980, the Grain embargo was More a policy of symbolism than an effective instrument of economic warfare. President Carter made it a Symbol of his determination to make the soviet Union pay some Price for the invasion of Afghanistan. Reagan tried to make it a Symbol of ineffective . Foreign policy and pick up farm votes to Boot. Now Reagan s critics have seized upon his abolition of the embargo As a Symbol that he will Compromise his Tough stand against the soviets to Domestic political pressures. New farm Bill the timing of the announcement coincided neatly with the Senate Agri culture committee s beginning work on a new farm Bill under which the administration will ask Farmers to absorb a reduction in Federal subsidies. Underneath All this heavy symbolism was a much More modest set of facts. In the 1979-80 crop year the soviet Union imported More than 30 million metric tons of Grain. Despite the embargo its biggest supplier was the United states which provided half that total. Some eight million metric tons was exempted from the embargo and an other seven million metric tons shipped under the previous year s Purchase agreements. Further the soviet Union was Able to replace from other sources about half or More of the 17 million metric tons that was embargoed according to state and agriculture department analysts. All told the soviet Union was Able to import from 75 to 90 per cent of its planned total. Soviet meat production according to an agriculture depart ment study declined Only about one to three per cent in 1980. But even this decline is largely a result of a massive crop failure in the soviet Union. In 1980, for example the soviet shortfall from the embargo was pegged at eight million metric tons. The losses from a poor Harvest came to 46 million tons. Embargo supporters said this simply enhanced the effect of the embargo. Opponents suggested the loss of eight million tons was a minor irritant com pared to the soviet Union s larger agricultural problems. Meanwhile the embargo s effect on . Farmers appears to have been exaggerated in Many accounts. Despite the loss of the soviet Market . Exports of wheat increased by 20 per cent in 1980 and Corn by 21 per cent. Asked about these figures farm spokesmen insist that without the embargo they could have exported even More. But in More candid moments agricultural experts concede that it is a psychological Issue As much As an economic one. The psychology was horrible. The markets were said agriculture Secretary John Block a vocal opponent of the embargo. A former Carter administration offi Cial who worked on the embargo agrees on that narrow Point the psychological effect on the Farmers was an important Factor. They know they have to Export to be Able to make it. Any interference with exports give them a terrible feeling of Uncer strategic Reserve but he insisted that the embargo had no direct economic effect. The govern ment bought and stored All the wheat that was under embargo. It is still in storage today As a strategic Reserve. A drought sharply Cut the Corn crop and Farmers got Premium prices later in the year for any Corn that might have otherwise sold for Export to the soviet Union. Whatever its merits at the time there were Good arguments for bring ing the embargo to an end. Over time any embargo loses its effect. The bite in the Grain embargo was really in the first noted a state department analysis. Manitoba Hydro Row Cut into budget debate yes Virginia there was a budget. It was almost As real As Santa Claus. On the first Day the gifts were Distri buted but were few and far be tween in a two hour speech which held the nip responsible for past fail ures blamed the Federal government and the world in general for current economic problems and placed Faith in tory policy for Success in the future. On the second Day it was apparent that budget contained so Little of Conse Quence that the nip did not even complain when Sidney Green stole the spotlight from Howard Pawley by introducing another Point of privilege. It was the sixth attempt to Call a commit tee in order to consider various aspects of Manitoba Hydro with the focus this time on the alleged use of the words fabrication and when Green finally explained his Point of privilege and the speaker had taken it under advisement Only two hours remained enough time for Paw Ley to express his thoughts and Intro Duce a motion of non Confidence but not enough for the government to re Spond. On the third Day that Opportunity arrived but Don Orchard was not at his Best. Instead Green returned to the fore with even More reasons Why they should oppose the document and various tory backbench ers defended and praised their government. As june under the dome Arlene Billinkoff Westbury said they were in the win Ter of our on the fourth Day that discontent became More apparent when the speaker ruled that Green had indeed presented a Prima Facie Case of a breach of parliamentary privilege. Sterling Lyon had talked about Fabri and while the Premier was willing to withdraw the word Green would not withdraw the motion. There fore the entire matter was referred to the House for determination. Several hours later the government Defeated the motion and everyone re turned to the scheduled debate. But did they want to discuss the budget each Side presented Token Praise or condemnation of the document but then swerved into other areas. Cabinet ministers tended to talk about their depart ments opposition members took aim at pet areas of concern and government backbench ers attempted to cover the waterfront. There was a familiarity to the approach and an apparent Lack of interest on both sides. On the fifth Day some old fashioned spirit finally entered the debate As Russ Doern charged that the govern ment was desperate. The constitutional smokescreen and the old red smear would not work he said be cause the Public was too smart. He saw a Fuddle Duddle Premier a minister of Energy in very hot water and a finance minister known As the Rifleman shoot ing his own foot. Inspired by that address Bud Sher Man attacked the scandalously insupportable accusations which could not withstand honest decent realistic he was sick to heart. Where were the glorious old campaigners the socialist firebrands of it used to be fun to Battle the socialist hordes he moaned but now they were shuffling about and mediocre like a collection of accidents looking for a place to happen. A faceless nameless gang of mediocre while that Bravura performance May have lacked solid Content it did provide a change in mood. Unfortunately on the sixth Day that mood disappeared. Once More the politicians were caught up in a Point of privilege As Pawley introduced additional evidence involving Hydro mat ters which he believed justified the calling of a committee. Only after the official adjournment time was that motion Defeated. The budget debate was nowhere in sight. By the seventh Day the politicians realized they were nearing the end but that did not necessarily mean they would finally discuss the fiscal state ment. Don Craik who had been the subject of most of the attacks for the past few weeks decided to present his View on the Hydro Issue. He had his own evidence and his own accusations. There had been misleading and reasonably slanderous statements and it was merely a spurious Case. The entire problem had originated from the nip mismanagement of Hydro development. Understandably that response inspired Pawley to repeat his Side of the Hydro argument which Only encouraged Bob Banman to remind everyone of other nip errors. Only late in the afternoon did anyone talk about the 71-Page budget document. However said Sam Yuskiw it was merely an apology to the people and was not a True budget. In fact it was a fraud. On the eighth Day Jim Walding appeared to disagree. There was a Bud get but it was a rather unique Docu ment he admitted. In fact he had never heard anything like it during All his years in office and did not intend to talk too much about it. Instead he returned to the Hydro Issue. Lyon who finally closed the debate did not fall into the same trap. He would not attack or counter attack. Instead he offered an hour of Good economic news about increased invest ment and development within the prov Ince 29 minutes about the constitutional Issue and merely 60 seconds in criticism of the nip. After that calming influence the speaker called the House to order. According to the rules the debate on the budget was for eight sitting Days and it was time to vote. Vote there really must have been a budget. Or was there doonesbury urn m you a pay off sop jalk1n6uksa 1 Mako sore. A Jiken. _ Okay Okay let me just of Kips Eer ;