Wednesday November 14, 2012

Editorial Cartoon by Graeme MacKay, The Hamilton Spectator – Wednesday November 14, 2012

Canada has contingency plan for fiscal cliff

Canada has a contingency plan should the United States not reach an agreement with respect to a series of tax hikes and spending cuts set to kick in next year or if the eurozone’s debt crisis worsens, finance minister Jim Flaherty said on Tuesday.

“I can assure you, we have contingency plans. This is not a new subject for us. We have been concerned about this subject for many months. And we prepare. So we have contingency plans not only with respect to the fiscal cliff, but with respect to the European situation were that to unravel in a disorderly way,” Flaherty told a news conference in Fredericton, New Brunswick.

Flaherty’s comments follow his warning last week that a failure by U.S. politicians to reach a fiscal deal before Jan.1 will plunge the United States into a recession quickly, with Canada to follow shortly afterward.

“Were the entire fiscal cliff risk to become reality, the effect on U.S. GDP, according to the Americans themselves, would be 4 to 5%, which would put the U.S. economy into recession quite quickly and the Canadian would follow shortly thereafter,” Flaherty told reporters in Ottawa last Wednesday.

“We’re all concerned that it’s an immediate problem within the next 60 days that needs to be dealt with.”

There are estimates that going over this fiscal cliff would reduce U.S. gross domestic product by about four or five percentage points.

Flaherty said finding compromise won’t be easy for American politicians, but he pointed out that the Harper government was able govern for five years as a minority, so it can be done. Gridlock in Washington could prevent a deal to extend about US$600-billion in tax cuts and spending beyond Dec. 31. (Source: Financial Post)