The federal government should provide temporary fiscal stimulus of $10 billion to 13 billion during 2009, the Conference Board recommends in a new briefing.

“Monetary policy has been the primary tool used to inject stimulus into the economy, but it may be reaching the limit of its effectiveness. Governments can’t afford to wait 18 months for the full benefit of lower interest rates to kick in. Complementary fiscal action must now ride to the rescue,” says Glen Hodgson, senior vp and chief economist. “Fortunately, Canada is in a much stronger fiscal position than most other nations and can easily absorb fiscal deficits over the near term.”

The Conference Board recommends that the federal government inject temporary fiscal stimulus of up to 1% of Gross Domestic product ($10 to 13 billion) into the economy during 2009, over and above the effect of lower revenues. This action should be accompanied by a well-developed plan to get back into fiscal balance as soon as the economy recovers.

“Action of this magnitude would create a total deficit in fiscal year 2009-10 of $20 billion or more, but that is a price worth paying for a faster recovery and a return of consumer and investor confidence,” says Hodgson.

The Conference Board says the funds should be targeted at the following priorities:

> immediately enhance federal programs that provide direct support to the unemployed, since they will spend the money quickly;

> use existing income-tax-based programs to provide increased financial support to low-income Canadians;

> fund programs that target workers who are directly affected by the slowdown;

> increase and accelerate infrastructure investment on shovel-ready projects that have already passed regulatory hurdles, or on capital renewal expenditures; and

> continue to intervene aggressively to ensure that Canadian firms have access to credit.