Economy Former premier's reassurance reinforced by encouraging forecast from Royal Bank of Canada

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Daniel McHardie
Telegraph-Journal

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FREDERICTON - As countries battle the spreading economic malaise, Frank McKenna is cautioning New Brunswickers not to panic over the state of their investments.

The former New Brunswick premier and deputy chairman of TD Bank Financial Group would not forecast whether Canada or the province would succumb to a recession, but he offered hope to people worried about the future of their investments.

"I think New Brunswickers should feel very confident. The government over a long period of time has been very prudent," he told reporters.

McKenna said Canada's banks are in the best shape of any in the world and therefore people should be confident in the security of their investments and savings.

Central banks from across North America and Europe acted in concert on Wednesday morning to cut interest rates as a way to staunch the bleeding of capital. Markets have been reeling for weeks as the U.S. government fumbled its $700-billion bailout package aimed at aiding financial institutions as they recover from the subprime mortgage crisis.

Jittery equity markets have combined with tightening access to credit to create a formidable impediment to economic growth around the globe.

The New Brunswick government is attempting to reassure businesses and individuals with a promise that Business New Brunswick will develop a plan to inject capital into businesses, especially in rural areas.

Governments often fall back on direct financial assistance such as what is being bandied about by the Liberal government now, McKenna said.

Additionally, McKenna said cutting corporate tax rates is one policy option that countries, even traditionally high-tax jurisdictions, have adopted in recent years.

New Brunswick earned some respite from the talk of recession on Wednesday when the Royal Bank of Canada forecast the province's growth rate to be among the best in the country next year.

Business New Brunswick Minister Greg Byrne and his officials are now crafting the policy guidelines that will be open to companies facing the credit crunch. So far, the provincial government has not determined whether it will be a standalone initiative, or rolled into existing programs, or even how much money will be involved.

"We have to approach this in a responsible manner. We don't have unlimited resources but we have to look at strategically where we need to assist businesses that are undergoing challenge," Byrne said.

Byrne said the final details will be out soon, stressing that the government will evaluate business cases so as to protect taxpayer investments.

Business groups are already starting to discern how the expected slowdown will impact them.

Jeff Roach, executive director of the Saint John-based IT industry group Propel, said potential clients may be under pressure to put their money in other places besides IT. That may not be the best plan, he said.

"If you're going to cut costs, improve productivity, improve processes, (IT) is the answer for a lot of those problems," he said

Blindly announcing new policy prescriptions to fix an ailing economy is usually discouraged by economists.

Donald Savoie, an economist at the Université de Moncton, said the unprecedented upheaval witnessed on the global markets in the last 10 days demonstrates that traditional approaches no longer work.

"Three years ago this kind of medicine in the U.S., U.K. or New Brunswick would be bad medicine," Savoie said. "But we're at the point where the best we can do is improvise.

"Governments don't want to go down a black hole, so they're trying to do different things."

The idea of using a sweeping set of tax cuts as an economic stimulus package is being increasingly discussed. The Liberal government outlined a bold regimen of personal and corporate tax cuts in its tax policy discussion document earlier this spring and those cuts could be found in the March budget.

Pushing forward with such an initiative could plunge the province into deficit. However, Savoie said, politicians should not be afraid of short-term deficit financing.

"Politicians should not promise not to go to deficit. We are going to be facing deficits federally and provincially," Savoie said.

"A stimulus package when the economy is as weak as it appears to be will run a deficit. If you run a deficit for a few years to get through, I'm not worried about that."

- with files from David Shipley