By John Williamson
Following the Bank of Canada's downward revision of the country's growth rate in 2008 there is alarm in some quarters the federal budget will soon tip from surplus to deficit. This anxiety is welcome because it signals a public consensus in Canada that did not exist 15 years ago when the norm was deficit financing. Today, voters take a dim view of any politician willing to run deficits, no matter how small. We are a nation of deficit hawks.
The assumption in Ottawa is that a slowing economy might force a deficit because there will be fewer dollars available as a result of recent -- and modest -- tax relief. This has it backwards since years of spending growth is the culprit.
In October, 2007, Finance Minister Jim Flaherty delivered a $60-billion package of broad-based tax cuts. It put in place a schedule to chop the business tax rate from 22.12% to 15% by 2012; cut the GST an additional point to 5%; and reverse the personal income tax rate increase the Conservative government enacted in its first budget. The surplus was so large Mr. Flaherty didn't even need to cut back federal expenditures. Program spending increased by $13-billion last year and will go up another $7-billion in 2008.
For the Liberals this is apparently awful public policy. Opposition leader Stéphane Dion recently thundered, "In two years, they destroyed the fiscal framework. They swept the cupboard bare and put us on the edge of a deficit." Former Liberal finance minister Ralph Goodale similarly went into rhetorical overdrive in a column he wrote entitled "How Stephen Harper ruined our national balance sheet." He lists a number of big ticket items the government should fund but cannot because of "costly" tax relief.
The surplus is the result of overtaxing Canadians and should not be confused with good fiscal management. After the budget was finally balanced in fiscal 1997 the idea of setting annual spending targets in a budget and operating within those limits was abandoned. According to the C.D. Howe Institute a decade of fat surpluses resulted in lawmakers spending more than budgeted "for a cumulative spending overrun of an eye-popping $28.7-billion, a sum almost equivalent to what Ottawa spends on elderly benefits a year." It didn't matter how much money was spent provided the budget wasn't in the red.
Massive surpluses made possible gigantic levels of government spending irrespective of the party in power. If we compare expenditure growth of the two-year Liberal minority to the first two years under Conservative rule, we discover they are virtually undistinguishable. Each party increased the size of government by roughly 14%. Their shared addiction translates to a $47-billion spending increase in four short years.
No doubt returning part of the surplus to taxpayers will make Minister Flaherty's job more difficult, but given the economic uncertainty facing Canadians it is good the government reduced the tax burden. It places the economic well-being of businesses and families ahead of Ottawa's limitless spending appetite.
Yet, it will not be difficult for Mr. Flaherty to trim spending to avoid a deficit (or for that matter offer personal income tax relief in the 2009 budget). Under the Conservatives the federal government has already expanded by $26-billion. And what has been the impact of this spending on Canadian taxpayers? Not much according to Mr. Goodale. He says, "Stephen Harper is today the biggest spending prime minister is history, but few Canadians can name a single thing they've gained from it all."
The Conservatives should remember this the next time they cut a program and are immediately denounced by Ottawa's many special-interest lobbyists. Spending is up and according to former finance minister Goodale it hasn't made a difference to the lives of ordinary Canadians. It's unfortunate Mr. Goodale failed to understand that excessive government spending can be wasteful when he was still writing budgets. Finance Minister Flaherty should heed his predecessor's insight. It is unusual to hear such honesty on Parliament Hill.
John Williamson is the Federal Director of the Canadian Taxpayers Federation.