Sunday, January 4, 2009

How countries are trying to jolt their slumping enonomies

The world's stimulating debate

How countries are trying to jolt their slumping economies

By Muriel Draaisma

World leaders from China to Mexico have announced plans in recent months to spend their way out of the global economic slowdown. Governments are scrambling to push their sluggish economies forward almost always through more spending.

As economic growth slows to a crawl, governments are trying to spark demand by
getting more money into the hands of consumers and enticing them to spend it.

Corporate and personal tax breaks, plans to build new roads and airports, and job-
creation programs are among the many measures being taken. The government of
Taiwan even plans to hand out shopping vouchers.

Here is how some countries around the world are handling the crisis:


Canada stands out in its decision not to offer a new spending package at least for now. No stimulus package was included in the government's economic update in late November. Finance Minister Jim Flaherty has said Canada has already introduced stimulus equal to 1.4 per cent of gross domestic product this year and two per cent of GDP next year. Measures already taken include cuts to the Goods and Services Tax and planning for infrastructure spending.

At a meeting in Washington earlier this month, members of the Group of 20 nations agreed that they would individually draw up economic stimulus plans that would equal about two per cent of GDP in each of their countries.

"Other countries are trying to catch up with Canada," Flaherty told CBC News after delivering his economic update in the House of Commons on Nov. 27. "We acted in advance."

But Flaherty has not ruled out more stimulus spending in the next budget, expected to
be unveiled in February 2009.


In January, President George W. Bush signed into law a $107-billion US economic stimulus package that sent cheques to low- and middle-income families. They were delivered in the spring. Economists said many used the money to pay off debt, although spending did temporarily increase.

The Democrats lobbied for a second stimulus package in September, worth up to $300
billion US. Under the plan, the government would extend its unemployment insurance
benefits beyond 39 weeks and expand its food stamp program.

President-elect Barack Obama also called for a spending package to be implemented
immediately when he takes office in January 2009. Bush and the Republican party so
far have not committed to action.

The U.S., however, has not been shy about spending to prop up its financial system in
light of the financial crisis.

In addition to a $700-billion US financial bailout of the financial services industry
announced in October, the Federal Reserve announced on Nov. 25 plans to create two
additional programs. Potentially costing $800 million US (almost $1 billion Cdn), these
would lower mortgage rates and other consumer loan rates and to make those kinds of
loans more available.


The British government announced on Nov. 24 an economic stimulus package worth 20 billion pounds ($37 billion Cdn). The amount is about one per cent of Britain's gross domestic product.

In a pre-budget address, Alistair Darling, the chancellor of the exchequer or finance minister, said the government will reduce its value-added sales tax, known as VAT, to 15 per cent from 17.5 per cent until the end of 2009. The cut is effective Dec. 1. Taxes will increase for the country's top earners.

The cut is expected to cost the British treasury about 12.5 billion pounds ($23.7 billion Cdn).

"These are exceptional times and require exceptional measures," Darling said.


The Chinese government announced plans on Nov. 9 to spend about four trillion yuan
($722 billion Cdn) over the next two years on infrastructure and social welfare. It said it will reform taxes to cut industry costs by about 120 billion yuan.

China will spend money on 10 major areas, including low-cost housing, infrastructure (new railways, roads and airports), health, education, environmental protection and high technology.

And the government said it will spend on rebuilding disaster areas, including in Sichuan province, where 70,000 people were killed and millions were left homeless by an earthquake on May 12.

It will also remove credit limits for commercial banks to channel more lending to priority projects and rural development and it will reform the value-added tax system to cut taxes for enterprises.


The German government announced a stimulus package on Nov. 5 that includes tax breaks on new cars and credit assistance for companies. The package is to take effect over the next two years and cost the government about 23 billion euros ($36 billion Cdn) from until 2012.

Economy Minister Michael Glos said the package is designed to trigger investments of up to 50 billion euros ($79 billion Cdn).

The new package includes specific measures to help the ailing auto industry: a one-year holiday on tax for new cars and a two-year holiday on tax on most environmentally friendly vehicles.

Glos said every sixth job in Germany home to such automakers as Daimler, Porsche, Volkswagen and BMW is connected to the auto industry.


The French government said in late November it planned an economic stimulus package that will support the automobile and building industries, two sectors hard hit in France by the slowdown.

President Nicolas Sarkozy said the 19 billion euro ($30 billion Cdn) package, to be unveiled Dec. 4, will also increase government spending on infrastructure and include help for the environment.


The Italian government approved an economic stimulus package on Nov. 28, with the money to be spent on help for Italian banks, company tax breaks and financial support for low-income families.

According to one media report, the package is worth about five billion euros (about $8 billion Cdn), or less than 0.5 per cent of the gross domestic product in Italy.


The Australian government announced a $10.4 billion ($8.4 billion Cdn) economic security strategy on Oct. 14. The allocation worked out to about one per cent of GDP and wasdesigned to strengthen the Australian economy and support households.

The strategy includes support payments for low- and middle-income families and money to help first-time home buyers purchase a home. There will also be money for 56,000 training places and to push forward three national building funds.


The Japanese government in October pledged five trillion yen ($65 billion Cdn) in an economic stimulus plan to help households and small businesses deal with the slowdown.

The package came after the government announced in August it would spend two trillion yen to boost the economy.


The Taiwanese government said it plans a number of stimulus measures, worth $482.9 billion ($18 billion Cdn), that will be spread out over the next four years.

One of the measures includes $82.9 billion ($3 billion Cdn) in shopping vouchers for citizens. The vouchers, for $3,600 each (about $133 Cdn), are expected to be issued to all Taiwanese citizens early next year and must be used by the end of September 2009.


The Mexican government announced in October a $4.4 billion US ($5.4 billion Cdn) economic stimulus package. The plan is partly designed to create jobs.

Mexican President Felipe Calderon said the "invisible hand" of the markets needs the "firm and just hand" of government and the "generous hand" of society.

The Organization of Economic Co-operation and Development said in a recent forecast that Mexico is particularly vulnerable to the U.S. economic slowdown.


The Brazilian government is expected to be the next government to announce measures to boost its economy.

The Organization of Economic Co-operation and Development said in a recent forecast that economic activity "appears to be slackening" in Brazil, which has been a bit of an economic powerhouse in South America.

According to the OECD, growth in Brazil will slow to three per cent in 2009 from 5.3 per cent in 2008 but it will increase to 4.5 per cent in 2010.

European Union

The European Commission is urging EU governments to boost economic growth with a
stimulus plan worth 200 billion euros ($317 billion Cdn).

The European Economic Recovery Plan, which would be rolled out over two years, calls on all 27 EU members to spend more. The stimulus would represent 1.5 per cent of EU GDP.

About 170 billion euros ($270 billion Cdn) would come from national governments and the rest from EU funds and its lending arm, the European Investment Bank.

"Exceptional times call for exceptional measures," European Commission President Jose Manuel Barroso said in Brussels on Nov. 26. "This recovery plan is big and bold, yet strategic and sustainable."

No comments: