Canadian governments addicted to deficits
M yths arise in every election campaign, courtesy of partisan war-rooms and some commentators who repeat the propaganda. But every so often, one should look at the facts as opposed to repeating fiction.
Here’s one fiscal fairy tale that deserves some empirical truth-telling: That the federal and provincial governments are overzealous about balancing the books.
Reality check: For starters, the last recession ended in June 2009. That the federal government is only now arriving at a balanced budget, six years after the recession, is hardly evidence of a laser-like focus on getting back to black ink.
Which, for much of the postwar world, has been the usual lollygagging approach to government finances. With the exception of a brief fling with balanced books starting in the mid1990s (depending on the government) and until the last recession, most governments, federal or provincial, rarely focused on bringing their expenses and revenues into any sort of rough equality. More often, most governments have been deficit dilettantes.
If one digs through the dry but illuminating Fiscal Reference Tables, the numbers from the federal Department of Finance make this point with mathematical precision. These go back to 1947, the earliest fiscal year available from the department. Between that year and 2014, the federal government ran red-ink budgets in 48 years and surpluses in just 20, with 11 black-ink budgets showing up between 1998 and the Great Recession.
Provincially, add up the collective 10-province deficit and surplus years since 1961 (the earliest year available), and out of the ensuing 54 years, the provinces collectively ran red ink for 45 years; they only balanced the books in nine.
The continual red ink cannot always be blamed on recessions. Since the Second World War, recessions occupied part or all of just eight years. Even if one cuts politicians some slack for lags in economic recoveries and thus in government revenues, that hardly justifies 48 federal deficits since 1947 (and 45 provincial deficits since 1961).
As for explanations for the historic deficit numbers, several assertions are routinely and wrongly offered up as fact.
On provincial deficits, some blame a supposedly parsimonious federal government for cuts in federal transfers to the provinces. But Jean Chrétien’s Liberal government cut federal transfers to the provinces starting in 1995; collective provincial deficits, at a high of $24.9 billion in 1993, dropped by 90 per cent to $2.4 billion by 1999 as the provinces spent smarter and occasionally less.
After 2000, regardless of the vagaries of the economy and provincial prudence (or not), federal transfers to the provinces again resumed an almost upward trajectory, with the exception of one year.
Such increases began under the Liberals and continued under the Conservatives, hitting $60.5 billion as of 2014, up from $23.4 billion in 2000.
Some might blame deficits on the supposed neo-liberal/neo-conservative corporatist tax-relief agenda (the taxus-more crowd’s favourite labels that substitute for argument). The claim is that relentless tax-cutting starved governments of revenue and thus drove them to drink in deficits.
Except that relative to GDP, taxes and other revenues scooped up by all governments were higher in the 1980s and 1990s, and most governments still ran massive deficits until they reformed and pruned expenditures late in that period.
Point: Canadians faced higher taxes and high deficits in most of those years. More money can’t buy you love and higher taxes don’t necessarily buy you balanced books.
Except for a brief 1990s-era fling with prudence that helped produce surpluses, politicians have rarely pursued balanced budgets in the manner the “invest-more,” tax-us-more stimulus crowd accuse them of (i.e., in some zealous, obsessed or self-imposed fiscal straitjacket fashion). If only. Mark Milke is a senior fellow with the Fraser Institute.