Plan for the worst

Peter Devries says if Jim Flaherty is really worried about European and American debt, he needs to budget for it.

Good budget planning would include an adequate amount of “insurance” or “prudence” to guard against unforeseen events and inevitable forecasting errors. The purpose of the “insurance” is to protect the fiscal targets as much as possible and to give confidence to financial markets and stakeholders that the targets might actually be achieved. This enhances the credibility of the fiscal plan...

The Minister of Finance has expressed his concern about the debt crisis in Europe and the serious fiscal imbalance in the U.S. Despite the evidence that economic growth is slowing in the U.S., and that interest rates will not only rise in coming years but also be more volatile, he has a built a budget framework that offers very little protection against adverse international developments.