Today's economy

Do Canadians need to worry about the fiscal cliff?

By Kevin Press,

Comments (5)

A strong majority of Canadians — 63% — are concerned that the U.S. fiscal cliff will “hurt the Canadian economy.” That’s according to a new poll conducted by Ipsos Reid on behalf of Sun Life Financial. The Annual Check-Up survey found that one in 10 Canadians describe themselves as “very worried.”

Capital Hill in winter.The fiscal cliff is a package of tax increases and spending cuts that are due to begin on January 1. Its political origin is bewildering. A year and a half ago, when Congress resolved the debt ceiling crisis with the Budget Control Act of 2011, lawmakers struck a Joint Select Committee on Deficit Reduction. Its purpose was to build a bipartisan agreement that would cut the U.S. national deficit by $1.2 trillion over a decade. So that both the Republicans and Democrats would be committed to success, they agreed that a list of tough measures that included the discontinuation of President George Bush’s tax cuts and deep spending reductions would be automatically enacted if the committee failed to strike a deal. It did fail. And so here we are, days away from a thoroughly avoidable event that threatens the U.S. recovery.

I called John Waggoner, a personal finance columnist at USA Today on Monday to get his reaction to our Canadian data point and measure his optimism about Washington’s ability to get a deal done before the deadline. He and I spoke for the first time this past spring, when he correctly predicted that negotiations would go down to the wire.

Waggoner made three important points:

1. Canadians have good reason to worry

“Absolutely,” he said. “What makes things more problematic is that Europe is already lurching into recession. China is recovering theoretically. But I have problems trusting the Chinese government’s numbers on things. I think they have a serious housing bubble that they may or may not be addressing. The whole world is kind of shaky at this point. I think if you kick one more leg out of the stool, that could be a problem for everybody.” All of these factors contribute to more conservative decision-making (i.e., less spending) by business leaders here at home. Given our tight economic ties to the U.S., it is especially important that a fiscal cliff deal gets done.

2. It’s not just the fiscal cliff

Another debt limit vote is scheduled for February. There’s been talk that a debt limit hike could be rolled into the fiscal cliff negotiations, but it’s not clear at this point if that’s possible. “Almost everyone agrees that not raising the debt limit is incredibly stupid,” Waggoner told me. “The debt limit simply authorizes Congress to pay the debts that have already been incurred. So it’s not the same as saying you can’t take on more debt. It’s a bad law and it should be abolished. If you don’t allow the government to pay the bills it’s already contracted for, that means not only could Treasury securities default — which would be catastrophic — it also means that certain obligations like social security payments and veterans’ pay might not be authorized.” Standard and Poor’s downgraded the federal government’s credit rating from AAA to AA+ after the protracted politicking over the debt limit negotiations in the summer of 2011.

3. On balance, Waggoner is optimistic

But not hugely. “I’m a little more optimistic today than I was a week ago,” he said. “Part of the problem is we have a very fractured majority in the House of Representatives. I’m not convinced that the majority leader has control of his majority. If he doesn’t, then we could go sailing right off [the cliff].” Waggoner put the odds of that happening at 40%.

The U.S. is not all that Canadians are fretting over as this year comes to a close. Among respondents to the Annual Check-Up survey, 54% said they are not better off financially now than they were at the beginning of the year. Just 41% said they are.

On a positive note, 48% are optimistic about the Canadian economy in 2013, while just 26% are pessimistic.

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JakeStarbach on

I don’t think Canadians should be worrying about the USA. The country that just about every Canadian has an opinion but, with very few Americans knowing that Canada even exists. For the crap that most Canadians say about the people of the USA and then brag about how great and powerful Canada is with it’s physical wimp status but, backed with millions of very well articulated words that do nothing — I think it’s time for Canadians to put up or shut up. In fact — only being able to support a nation population of 35 million people the Canadian government is one of the most protected governments on the planet. While the United States supports its own 330 million people then add another 23 nation states on top of that the USA is doing quite well so until Canada takes on about 15 trillion dollars of support cost to the world – I think Canadians should just thank their lucky stars that they are one of the protected few. Should Canadians worry about the USA? No! Absolutely not. Americans will always care for Canada even if it’s not widely known news for most Americans. If the Canadian economy fails it’ll be because Canadians weren’t intelligent with all their university degrees to create their own economy. Canadians brag about how smart they are and how dumb Americans are — but, when it comes to who’s who, Canadians don’t walk the walk they talk.

Tom on

How are the origins of the fiscal cliff bewildering? A bunch of politicians taking every desperate measure they can to kick the can is not so much “bewildering” as “par-for-the-course,” wouldn’t you say? My bet is that January 1st rolls around and another can-kicking solution is put forward whereby tax cuts will expire BUT spending won’t actually decrease at all. Best of both worlds for those with their snouts in the trough.

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