It seems like only yesterday Canada was running surpluses and was led by a fiscally conservative government. Now both seem distant memories, as recently confirmed by the latest news that the Harper government will run deficits even larger than planned and for even longer than planned. Over at least seven years Mr. Harper plans to add no less than $170.3 billion more to the federal debt. It is time for Canada talk about the costs of this spending problem.
Good governments make tough choices. The Harper government has chosen to over-react to Canada’s recession choosing spending over restraint. They keep saying it is the worst recession since the dirty thirties. Despite this being untrue for Canada, they use this claim to bolster their interest in big spending. Unemployment was a lot higher during the recession of the 80’s and 90’s than it is today, and was similar during the 70s. When one factors in another relevant economic indicator – inflation – Canada’s is much better off during this recession than during any of the last three.
Despite this fact, the Harper government has chosen to go on a giant spending spree. Last fall the prime minister promised a balanced budget, as did all federal party leaders. Much has changed since then. The January budget projected a deficit of $34 billion. In May it was increased to $50 billion. Now the deficit figure has been upped to almost $56 billion. Since revenue has only fallen by $17 billion, this giant deficit figure reveals how massive over-spending is the key deficit culprit. In fact, from fiscal year 2005-06 through 2009-10 the Harper government will have increased program spending by $66.7 billion – a 38 per cent increase in only four years.
Much of the so-called ‘stimulus spending’ allegedly was ‘temporary’. It’s turning out to be as temporary as income taxes, when they were ‘temporarily’ introduced in 1917.
Finance Minister Jim Flaherty keeps suggesting that there is $29 billion in stimulus spending in 2009-10 and another $17 billion in 2010-11. If this is the case and it is temporary then spending should decline substantially in 2011-12. Instead, the fall economic update reveals a planned one-time meager spending reduction of $3.9 billion – 1.6 per cent of program spending in 2010-11. Simply put, the spending is not temporary.
The government argues that the strength of Canada’s economic position means it can afford to shoulder this added economic burden. While this may be true it is bad fiscal policy. Canada’s debt peaked at just under $563 billion in 1996-97. In the subsequent 10 years, it had been whittled down to just under $458 billion. The Harper spending spree will have wiped out in only three years all that was paid back over the last ten. A look at the debt clock hosted by the Canadian Taxpayers Federation at www.debtclock.ca shows Canada’s debt at almost $490 billion, climbing at a rate of $1,772.57 per second!
Interest charges to service the debt drain over $30 billion from government revenue every year. In the mid-90s roughly 35 cents of every federal tax dollar went towards paying interest on the federal debt. Thankfully, due to growing tax revenues and modest debt repayment, this number has dropped to around 14 per cent.
Weaker revenue, higher spending and rising interest rates will see the impact of debt interest charges worsen and quickly.
When the Liberals balanced the budget in the 1990s they did it through a combination of business income tax hikes, payroll tax hikes, sin tax hikes, major cuts to provincial transfers and clawbacks to Old Age Security, just to name a few.
The Harper government has decided it will make almost no effort to balance the books choosing, instead, to try to ‘grow’ the economy back to surpluses. The Liberals under Mr. Ignatieff promise to balance the books but won’t say when or how. The NDP have been silent on this issue as have the Bloc.
The path to prosperity in Canada can only come from federal austerity. That path needs to be paved now with tough decisions driven by a national conversation about fiscal priorities. If the US can debate health care, can’t we debate balanced budgets?