Pension Fund Managers Call for Further Spending Cuts in the Next Federal Budget to Reduce Deficit-Not an Increase in Taxes
Contacts: Fazil Mihlar, Policy Analyst
Dr. Michael Walker, Executive Director,
The Fraser Institute (604) 688-0221
Release Date: January 23, 1996
NEWS RELEASE:
Vancouver, B.C.>>>> Canadian money managers responsible for approximately $150 billion in total assets under management hold the view that the federal government should make further spending cuts in the next budget, a Fraser Institute survey has found.
An overwhelming 87 percent of Canadian pension fund managers who responded to The Fraser Institute's Survey of Senior Investment Managers believe that the federal government should reduce the budget deficit through cuts in government spending. Ninety-eight percent of fund managers surveyed also believe that the federal government will need to make further spending cuts in addition to those announced in last year's budget. In addition, 100 percent of the respondents believe that tax increases are a non-starter. "This consensus opinion amongst fund managers suggests that the financial markets expect the Minister of Finance to announce further spending cuts above the cuts disclosed in the last budget," said Fazil Mihlar, Policy Analyst at The Fraser Institute.
Federal Deficit Not Sustainable: Deeper Spending Cuts Necessary
No fewer than 92 percent of respondents strongly agreed or agreed that the size of the current federal deficit is not sustainable. When asked to identify the most important issue currently facing the federal government, deficit reduction remains the paramount concern among Canada's senior financial advisors. In fact, 85 percent of respondents rated deficit reduction as the most important issue for Ottawa. The results of the survey send a clear message to the Hon. Paul Martin that deeper spending cuts are necessary, noted Mr. Mihlar.
Ottawa Should Adopt Manitoba's Balanced Budget Law
Manitoba's recently-passed balanced budget law covers both current and capital spending and has tough penalties for non-compliance. The premier and each member of the executive council could lose 20 percent of their pay in each of two years 40 percent overall if budget goals are not achieved. The Manitoba law also includes a mandated payment schedule to retire the provincial debt over a maximum 30 year period. In addition, taxpayer protection is included in about 70 percent of revenues, in that province-wide referendum approval is required for future increases in provincial income, corporate, and sales taxes.
Respondents were asked if the federal government should adopt a balanced budget law similar to that of Manitoba's. Seventy-seven percent said "yes." A Manitoba-style balanced budget law would help shift the emphasis from deficit elimination to debt reduction. It is important that Ottawa consider a debt reduction plan in the next budget, since interest on the public debt is expected to rise to $50.7 billion in 1996-97 from $38.0 billion in 1993-94, added Mr. Mihlar.
Current Deficit Targets Inadequate
The Finance Minister recently reaffirmed the Canadian government's commitment to reduce the deficit to 3 percent of GDP ($25 billion) by the Spring of 1997. Most respondents believe that this target is inadequate. When asked what the deficit target should be for 1997, 56 percent of respondents said that the federal government should seek to achieve either a balanced budget or a budget surplus. A further 37 percent believe the 3 percent target is too large a deficit.
Balanced Budget by Fiscal Year 1999-2000 Unlikely
Fund Managers are pessimistic about a balanced budget by the year 1999-2000. Indeed, 26 percent of those surveyed said that it was very unlikely, 24 percent unlikely, and 18 percent somewhat unlikely. Overall, 68 percent of the respondents believe that federal government will fail to reach a balanced budget by the year 1999-2000.
The ratio of debt-to-GDP is currently at 73.5 percent. "A high debt-to-GDP ratio encourages high interest rates, subjects the economy to volatility and can lead to low levels of economic activity. Ottawa, therefore, should embark upon a more aggressive deficit elimination program," claimed Mr. Mihlar.
Confidence in the Private Sector
Fund managers generally view the Canadian economy positively, particularly the corporate sector. The consensus forecast among the respondents is for the Canadian economy to grow by 2.5 percent and for corporate profits to grow at a healthy rate of 10.0 percent in 1996. Inflation is expected to be at 2.0 percent. "Canada's fund managers appear to have more confidence in the private sector of the economy than they do in the federal government," said Mr. Mihlar.
High Approval Rating for the Minister of Finance
While having no confidence in the performance of the government in budgetary matters, fund managers appear to have confidence in the Finance Minister. In fact, 75 percent of the respondents rated his performance as either very good or good.
For more information, or for copies of the Survey of Senior Investment Managers, please call Fazil Mihlar at (604) 688-0221, loc. 319.