Subject: The NDP Plan:Economic and Fiscal Impacts

From: [email-masked] (MARY OLIN)
Date: 14 Mar 1993 10:31 PST

ECONOMIC AND FISCAL IMPACTS OF THE NDP FULL EMPLOYMENT STRATEGY

     To assess the impact of our jobs plan on employment, economic
growth, inflation and the federal debt, we asked Informetrica Ltd.  to
conduct an independent analysis of our program using their detailed
econometric model of the Canadian economy. 
     Informetrica uses a large disaggregated econometric model, with
over 2,400 estimated equations providing forecasts and impact analysis
for almost 10,000 variables. 
     Informetrica took our plan and performed an impact analysis against
their latest base case forecast.  Based on their analysis, we believe
our plan will generate over 500,000 more jobs than are currently
projected for the next five years, increase economic growth and reduce
inflation, without adding to the federal deficit aggregated over five
years. 

1. Reducing Unemployment
     Our plan will reduce unemployment dramatically.
     Most economists are projecting a jobless recovery if conservative
policies under a Liberal or Conservative government remain in place. 
Informetrica projects that new job growth under conservative policies
will be absorbed by new labour market entrants, leaving about 1.5
million people out of work indefinitely. 
     The NDP plan would substantially reduce unemployment.  Our
estimates on the impact of our plan:

                     1994  1995  1996  1997  1998
Current policies     10.9% 10.4% 10.1% 10.1% 10.5%
With NDP jobs plan   10.3%  9.0%  8.0%  7.5%  7.1%

Total jobs created in the economy (thousands):

                     1994  1995  1996  1997 1998
Current policies      238   281   257   194  121
With NDP jobs plan    328   399   361   266  247
Plan (cumulative)     328   727  1088  1354 1601

2. Details of Job Growth Created by the NDP Plan
     Here are the cumulative number of jobs we expect to generate
through each major component of our plan:

                             1994     1995     1996     1997     1998
Job Creation
     Infrastrucure         57,300  114,000  131,200  130,000  129,600
     Investment Fund       41,100   82,300  123,500  164,700  205,800
     Child Care             6,800   15,000   26,200   39,200   47,100
     R&D, other             6,500   16,500   22,300   26,300   31,300
Mixed Effects
     Revenue initiatives  (14,600) (17,400)  (9,800) (11,500)  53,500
Reallocations
     Defence               (7,500) (15,800) (21,400) (25,900) (30,700)
Market effects
     Lower interest rates   1,200   13,400   40,100   61,600   73,500
Total                      90,800  208,000  312,100  384,400  510,100

     These projections are drawn from Informetrica's report, except for
the employment targets for the Investment Fund, which are based on
Coopers and Lybrand's Third Annual Economic Impact of Venture Capital
Study. 

3. Effect of the NDP Plan on the Federal Deficit
     Our plan will reduce the federal deficit while reducing
unemployment. 
     Three effects work together to improve the federal deficit through
our plan:
    *Our proposed investments earn returns. 
    *We cut federal spending in some areas as well as increase it in
others, reallocating a substantial sum from defence to job creation and
economic development. 
    *Scrapping the GST over five years, as Informetrica's calculations
demonstrate, has a major year-by-year anti-inflationary effect.  With
lower inflation, interest rates will decline.  That saves the federal
government money and creates jobs. 
     The overall effect is a substntial decline in unemployment while
reducing the federal deficit, aggregated over five years. 
     In the table below, Informetrica's projection shows the *net*
effect of our investment plan and revenue measures on federal balances. 
Some of our investments show as positive figures in this table because,
Informetrica calculates, they produce direct returns to the federal
treasury in excess of the amount invested.  Informetrica projects an
$8.2 billion improvement in federal balances as a result of this
five-year strategy. 

             Impact on Federal Balances ($ Millions)

                           1994     1995     1996     1997     1998
Investments
     Infrastructure        $500  ($1,000)   ($400)    $400     $500
     Investment Fund          0        0        0        0        0
     Child Care            (100)    (500)    (800)  (1,400)  (1,700)
     R&D, other            (500)  (1,300)  (1,600)  (1,800)  (2,200)
Reallocations
     Defence                600    1,300    1,700    2,100    2,600
Total                       500   (1,500)  (1,100)    (700)    (800)

Revenue
     Consumption taxes   (2,500)  (6,900) (10,100) (11,200) (18,500)
     Corporate taxes        500    2,800    3,500    4,100    4,200
     Income taxes         2,200    5,200    5,700    6,900    7,600
Total                       200    1,100     (900)    (200)  (6,700)

Market Effects
     Interest Rates         700    3,400    4,800    4,800    7,300

Net Fiscal Impact         1,400      300    2,800    3,900     (200)
Total over 5 years                                            8,200

     Informetrica's report does not include a calculation on the
proposed National Investment Fund.  Econometric models like the one used
by Informetrica cannot trace the effect of such a fund. 
     Investments under the Fund would involve taking an equity stake. 
Therefore, investments on the debit side would be offset by new assets
on the credit side.  For the purposes of this table we assume these will
roughly balance, and we show neither losses nor potential gains (from
increased equity values, higher taxes, and increased economic activity)
on fiscal balances. 

4. Investment Plan
     As detailed in the NDP plan, we propose a focused, targeted federal
investment strategy.  Investments are designed to increase job growth
sufficiently to bring unemployment down, and to produce long term
benefits for the economy.  Our new investment commitments are summarized
below (millions of dollars):

                            1994     1995     1996     1997     1998
Infrastructure Program    $1,500   $1,500   $1,500   $1,500   $1,500
Investment Fund            2,000    2,000    2,000    2,000    2,000
Child Care                   250      500      750    1,000    1,500
Research & Devt              145      325      530      770    1,020
Farm Credit Corp             500      500      500      500      500
Other Programs               410      614      550      555      576
Total                      4,805    5,439    5,830    6,325    7,095

5. Effects of the NDP Plan on Inflation
     Informetrica's projections show that our plan will reduce
inflation. 
     The elimination of the GST over five years provides a continuous,
annual brake, helping to trigger interest rate cuts that reduce pressure
on the on the federal debt and add to growth.  Informetrica's
projections:

             Consumer Price Index

                      1994     1995     1996     1997     1998
Current policies    134.56   136.69   139.78   143.73   148.15
NDP Jobs Plan       133.96   134.10   135.78   138.64   140.80

             Inflation Rate

                      1994     1995     1996     1997     1998
Current policies     2.52%    1.58%    2.26%    2.82%    3.07%
NDP Jobs Plan        2.07%    0.10%    1.25%    2.10%    1.55%

6. Impact on Provincial and Territorial Balances
     Informetrica's projections demonstrate that the fiscal return is
greater than the fiscal cost for our plan at both the federal and
provincial levels, over five years. 
     Three major programs within our plan impact directly on provincial
and territorial budgets:
     The National Infrastructure Program would call on provincial and
territorial governments to match federal and municipal investments in
infrastructure.  Federal investments in each province and territory
through this program would be proportionate to population. 
     The National Child Care Program would call on provincial and
territorial governments to invest in child care. 
     The proposed training levy would invite provincial and territorial
governments to review public service training programs. 
     As Informetrica comments in their report: When the infrastructure
program stops, these [provincial and territorial] balances move into
substantial surplus (+$7 billion) and, of course, the local governments
have a greatly improved infrastructure.  The provinces also benefit
throughout the period from increased economic activity and increased
personal income tax revenues. 
     In order for provinces and territories to take up new programs, a
solution is required to the problems caused by Tory deficit offloading
through cutbacks to existing tranfer agreements.  We are committed to
the early negotiation of new, stable and long-term transfer agreements
for existing programs. 
     Our objective is to stabilize federal cash transfers at a level
sufficient to ensure that all jurisdictions have adequate resources, and
that basic national guidelines for health care and other existing
programs are sustainable.