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.

The following article appears in the June 2009 issue of Report Magazine.

“People try to put us d-down.”  That opening line from The Who’s 1965 hit ‘My Generation’ sums up, in reverse, the situation in which young and middle-aged taxpayers will soon find themselves.  In fact, it is a lack of people paying taxes that will put ‘My Generation’ down.

As the federal government ratchets up spending and saddles future generations with an even larger debt, the issue of “who will pay for all of this?” needs to be back on the table.  Indeed, paying down the debt – or even balancing the books – will become progressively more difficult as the baby-boomers move into retirement.

The birth rate required for a population to merely replace itself – let alone grow – is 2.1 children per woman.  Canada’s currently stands at 1.6.  Today, those aged 14 and under constitute only 17 percent of the population – a staggeringly low figure. Further, the “working age cohort” (those between 15 and 64), will also see steady declines.  What’s alarming is that those aged 65 and up currently make up 13 percent of the population, growing to 16 percent in 2016 and 19 percent in 2031, using modest projections that include a very high rate of immigration.

A society with normal demographics usually looks like a pyramid when sketched out visually, with a large number of young people at the bottom with an ever narrowing top.  A society that has an upside-down population pyramid is one that cannot sustain itself.

As the baby-boomers leave the workforce, the costs of pensions, healthcare and a vast array of other social services will skyrocket. Coinciding with this will be a shrinking base of taxpayers from who this system will be supported.

Simply put, this is unsustainable.

Currently, those that are net-contributors to government revenues make up 60 percent of the population. However, this figure is a best-case scenario as it includes all employed individuals (including part-time workers), regardless of income, instead of just taxpayers.  In contrast, a minimum of 40 percent of the population are currently net-beneficiaries of government.

By 2016, those that are net-beneficiaries will reach 43 percent, by 2021, 45 percent, and by 2032, a staggering 50 percent.  And that figure is likely much larger than stated due to the broad definition of “net-contributor”.

Faced with this, there will be only two options: raise taxes or significantly cut the size and scope of government.  The status quo simply will not suffice.

Canada is already a high-taxed jurisdiction, and if federal and provincial governments decide to impose higher taxes, it will not only reduce productivity and make our economy less competitive, it will drive young taxpayers into other, lower-tax jurisdictions.  Losing these taxpayers will only compound the problem, further narrowing the tax base.

Governments today already plead to the public that they cannot balance their books.  Even with eventual economic recovery on the horizon, the long-term trend will not allow for Canada’s bloated welfare state to continue in its present form.

Without significant cuts to expenditures and not imposing progressively higher taxes, ‘My Generation’ will f-fade away.