The Conference Board of Canada applauds the federal government’s 2009 budget for surpassing expectations on short-term spending, but cautions that stimulus measures could be slower to implement than the government expects.

“Many of the measures in this year’s budget are aligned with our own thinking and suggestions on how to mitigate the effects of the current recession,” Conference Board economists wrote in response to the budget.

They commend such measures as boosting employment insurance coverage and establishing targeted training programs for the unemployed, as well as infrastructure investment in “shovel-ready” projects.

But the economists add that the planned spending on infrastructure and housing, which accounts for roughly half of the stimulus over the next two years, will be slow to kick in. Including both the federal and the provincial contributions to infrastructure and social housing, the budget sets out plans to inject more than $15 billion this year in construction investment—an amount the Conference Board calls unrealistic. Rather, the economists project that less than $3 billion will be invested in infrastructure this year.

“Given the size of the stimulus, it may be extremely difficult to put this spending in place as quickly as planned,” the economists noted.

“The effectiveness of these recession-fighting measures will depend on how quickly programs can be implemented, as well as their respective impact on stimulating economic growth and job creation.”

The Conference Board calls the tax relief package “modest” relative to the complete stimulus package, but expects the relief to bolster household spending somewhat.

The economists note that some of the tax relief will ultimately be directed abroad, due to leakages through the consumption of imports. They also expect a portion of the tax cuts to go towards saving rather than spending, particularly among higher income earners.

The Conference Board applauds the government’s moves to boost access to credit, including funding for the Insured Mortgage Purchase Program, support for vehicle buyers through the Canadian Secured Credit Facility, higher loan limits for small businesses and greater lending by Crown corporations.

“In the current economic climate, the Conference Board is a strong proponent of measures ensuring that firms have adequate access to credit.”

On the fiscal outlook, the economists warn that the ballooning deficit will have implications in the future.

“Down the road, even as the economy returns to its potential, the federal government will have to make a concerted effort to return to balancing its books,” the Conference Board said.

The economists also noted that the Conference Board boasts an economic forecast that’s more optimistic than that of the Department of Finance. While the government based the budget on expectations for a 0.8% decline in real GDP in 2009, the Conference Board expects a 0.5% contraction. Still, the economists acknowledge that the Canadian economy is subject to significant downside risk, thanks to low and volatile commodity prices.

IE