It's not a recovery until we start getting jobs back

Bank of Canada Governor Mark Carney pronounced the end of the recession this week and said we are now in recovery. That's great. But, as CIBC World Markets chief economist Avery Shenfeld wisely notes: [pdf]

… for many Canadians, it’s not a recovery until they start getting their jobs back. And on that score, we could still be in for a long wait. Even if the GDP bounce in the next couple of quarters is larger than we project, there are many impediments to getting trend growth back to the sturdy pace that will lower the unemployment rate. US house prices and credit markets remain challenged, consumers here and stateside are still cautious given their earlier wealth losses, and businesses are hoarding cash rather than buying equipment.

Shenfeld goes on to say that from a political standpoint, a jobs recovery is the most important kind of recovery. After all, those who are jobless tend to be upset at whatever government was in power when they lost their jobs. Reducing the number of joblessness, therefore, means reducing the number of potentially angry voters. There are more than 450,000 Canadians who had a full-time job on Hallowe'en that do not have one today. How significant is that number? I wish I could point to a source for this (anyone help me out here?) but I'm sure political scientists figured that had 60,000 votes in the 2006 federal election been distributed slightly differently, Paul Martin would have been 2-0 against Stephen Harper.
Shenfeld's shop may also give some comfort to some MPs and others who are worried that the forecasting reputation of independent Parliamentary Budget Officer Kevin Page was working against official government/Department of Finance forecasts.

In early April, the PBO was on the mark in warning of higher deficits ahead. But he was off course in basing that on his in-house, non-consensus forecast for a Q1 GDP drop of 8.5% annualized. Only weeks later StatsCan reported a much less severe decline of 5.4%. So who can say with any confidence what the Canadian economy will look like five years from now?
…Take the PBO’s current projections, which warn of a $16 bn deficit come 2013/14 barring corrective action. Underestimate the compound annual growth for revenues by just 0.7%-pts, and overestimate the spending growth rate by the same amount, and the budget officer’s projected $16 bn deficit vanishes. Could projections be off that much? It would hardly be the first time. Barely a year-and-a-half ago, Ottawa was handed a private sector consensus forecast for underlying surpluses of $15-$25 billion over the medium term, sufficient enough to pay for significant tax relief

And Jack Layton and the NDP won't like this conclusion from CIBC:

Government revenues are particularly sensitive to corporate profits, with a rising profit share in national income having been an important driver of the earlier surplus-boosting bounty. As noted, pre-recession heights in commodity prices generated huge revenue flows associated with resource royalties, and taxes on soaring corporate profits and capital gains incomes. If, as we expect, commodity prices rebound over the medium term, that could produce another material improvement in federal fortunes, even if real GDP growth is anaemic and tax losses are carried forward in the early years of the expansion.

Jim Stanford? The ball is in your court vis-a-vis appropriate levels of corporate taxation …
And there are implications for both Liberals and Conservatives in this paragraph:

… the majority of the year-over-year budgetary swing represents mounting expenditures. That’s mostly tied to one-time stimulus efforts, including infrastructure programs with a fixed termination date, as well as an $8 billion federal tab for the bailout of the struggling auto sector. As these one-off items expire, expenditures are set to drop off sharply, provided that any changes to Employment Insurance eligibility are contained and temporary. We await a Fall update on that front.

Reading between the lines of the CIBC report, it appears there may yet be room for more stimulus that could, among other things, take the form of an enriched employment insurance program. That, obviously has implications for the current EI Working Group.

Even if the coming deficits are indeed “structural”, that term should not be equated with “permanent”. Back in the early 1990s, it took hard-nosed fiscal restraint—which Ottawa shared with lower levels of government—to get back on track. The policy tools for a fiscal tightening are today more readily available than in earlier periods, when existing tax rates were much higher and the debt servicing burden ate up a larger share of Ottawa’s revenue dollar. Recall that, over a 15-year period from 1982 to 1997, debt service was equivalent to fully one-third of federal revenue. Today that interest burden has fallen to just 13% vs total revenue.
Even if fates prove unkind and fiscal progress is slow to arrive, Ottawa will have plenty of time to prevent a return of the massive debt and interest cost burdens that plagued the country two decades ago. Tax hikes, hopefully temporary ones, won’t be unthinkable when the economy is stronger three or four years from now.
The federal government boosted its tax take as it tackled a relatively larger deficit in the 1990s [during the tenure of both a Progressive Conservative and subsequent Liberal governments – Akin], with the tax share topping 16% of GDP before hefty tax cuts were unveiled in 2000 [the 'hefty tax cuts' came from a Liberal government – Akin]. Last year, despite huge corporate profits, the federal tax burden was barely 12%. Other countries, most notably the US, face large tax increases to address more serious debt and deficit burdens than Canada’s, again opening up competitive room for Canada to raise a bit more revenue if that proves unavoidable.

Finally, the CIBC's economists conclude that Canada's reputation as a fiscally prudent nation, built up by the governments of Jean Chretien, Paul Martin, and Stephen Harper, is likely to survive the recession, the recovery, and the PBO:

whether the PBO or private sector forecasts calling for medium-term deficits are right or not, Canada’s fiscal standing is hardly at risk. While Ottawa has appeared to have dropped its formal target for a debt-to-GDP ratio of 25%, that figure was arbitrary in the first place, and miles below levels that other countries could possibly reach. Even if five years out, Canada is still running a deficit in the $15 bn range, that would leave the debt-to-GDP ratio in decline. Assuming only middling GDP growth, anything less than a $30 billion deficit would manage to keep the debt-to-GDP ratio heading back in the right direction over the longer term . . .