Canada Says It Will Introduce Balanced Budget Law
Comment of the Day

October 17 2013

Commentary by Eoin Treacy

Canada Says It Will Introduce Balanced Budget Law

This article by Theophilos Argitis & Andrew Mayeda for Bloomberg may be of interest to subscribers. Here is a section
Canadian Prime Minister Stephen Harper pledged to introduce legislation that would keep the nation’s finances at or near balance to maintain the country’s status as one of the world’s most creditworthy nations.

Harper, in a mid-term update of his agenda released today, said he will legislate a rule that requires balanced budgets in “normal economic times, and concrete timelines for returning to balance in the event of an economic crisis.”

Canada is the only Group of Seven country with stable AAA credit ratings from three major rating companies, an advantage that helped the country escape the worst of the global financial crisis last decade. Balancing the budget has been a key plank of the government’s economic agenda.

“We cannot be complacent,” Harper said in the so-called Speech from the Throne that marks the ceremonial opening of a new legislative session in Ottawa. “The global economy still faces significant risks from factors that we do not control.”

Eoin Treacy's view The timing of a Canadian commitment to balanced budgets suggests the country is attempting to delineate its status as a AAA rated debtor from the political diatribe that the US has garnered such media coverage for over the last couple of years. The corollary of course will be that if such a commitment is in fact adopted the resultant strength of the Loonie is likely to be unwelcome in Ottawa.

The Canadian Dollar Trade Weighted Index has been ranging with a downward bias since July 2011. It has stabilised near the lower side of its range but a sustained move above 150 would be required to suggest a return to demand dominance.

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