The following article appears in the Fall 2009 issue of Report Magazine.
What a difference a few months can make. In last October’s federal election, both parties contending for power – Liberal and Conservative – and even the opposition parties – NDP, Bloc Québécois and Greens – all pledged to support balanced budgets. Fast forward a few months, an attempted quasi-coup, the rebirth of Keynesian economics and Canada now stares down a glaring hole in its national finances.
The federal government is now running a record deficit, but the size of the deficit is not the only alarming figure, it is the trend of its growth. The rate of growth – or in more prudent times, decline – in annual deficits that is the best indicator of where our finances are headed. Until now, the largest single-year increase in the accumulated deficit, (all figures are adjusted for inflation in 2009 dollars) was $69 billion in 1984 during the dying days of the Trudeau/Turner government. 2009-10 will give that record a run for its money (or more accurately, our money) with a single year increase of $50.2 billion.
In per capita terms, the largest single-year increase was also in 1984-85 at $2,799 per Canadian as the Trudeau/Turner government came to a close. Only four times in Canada’s history has the debt grown by more than $1,000 per person annually: World War I, World War II, Trudeau’s expansion of government (with its hangover into the Mulroney years), and right now at $1,327.
Considering the obvious fact that Canada is not fighting anything on the scale of either World War, the direction of the current deficit is outpaced only by the legacy of Trudeau. Needless to say, being second only to Trudeau isn’t an economic indicator a “Conservative” should be touting.
In 1984, Brian Mulroney swept to power with a pledge to get the national finances in order and had a record majority government with which to do it. Despite the efforts of his then Finance Minister, Michael Wilson, the debt grew by more than $226 billion (2009 dollars). However, the annual increase in debt was reduced from $2,799 per Canadian when Mulroney took office, to $1,641 when he left.
If a two-term government elected on a promise to get the national finances in order, with virtually no political obstacles in its way still allowed the debt to nearly double and was only able to marginally slow down its annual rate of growth, can we believe with any certainty that this current deficit will not become structural?
Regardless of what party is in power or what its philosophical leanings are, the ship of state is a large, cumbersome vessel that demands a great deal of willpower to change course and reverse inertia. Holding the line on spending – let alone rolling it back – inevitably results in aggrieved special interests demanding that taxpayers give them their “fair share.” More often than not, governments of all political stripes will conclude that the political heat from the public service and special interest groups is simply not worth it.
It is only when politicians make the electoral calculation that there will be more votes to be lost from reckless spending than to be gained that they will be possessed with the courage and willpower to make the tough decisions necessary.
Most observers would agree that when Jean Chrétien came to power in 1993, he had little inclination to cut spending and eliminate the deficit. What then changed to compel a left-leaning government to cut spending in ways that some conservatives have only dreamed?
What happened were taxpayers becoming politically active. Fuelled by the newly founded Canadian Taxpayers Federation and pressured by the rising anti-deficit, Reform Party, the Chrétien government realized that government spending beyond its means was no longer in vogue. There would now be a political price to pay for passing the buck on to future taxpayers. The Liberals woke up to the fact that if they did not balance the budget, their grip on power would be threatened by a party that would.
And so balance the budget they did; but before the deficit could be eliminated they had to reverse the trend of how much the deficit was increasing each year. In 1993, the annual single year increase in debt was at $1,559 for every man woman and child in Canada. In subsequent years, it was reduced to $1,441, $1,088 and then $121 before breaking into the black with a debt repayment of $331 per Canadian in 1997-98.
In the end, the Liberals took the wind out of Reform’s sails and cruised to another two majority governments aided by their new mantel of fiscal management.
Today, parties of all stripes see political advantage in spending beyond their means and passing the bill to future generations. Politicians respond to one thing above all others: what gains or losses votes. The only way government will reverse the trend and start paying today’s bills today, is to ensure that there is a political price to pay for it.
As angry taxpayers said on the deficit in the early 1990s, “the first thing you do when you’re in a hole, is to stop digging.” Politicians intent on keeping their shovel in the ground may just be digging their own political graves.