The proportional spending problem

The federal government wants to reform Canada’s electoral system and has set up a committee that’s investigating the options. But so far, few have acknowledged that changing the way we elect our political representatives could have profound consequences on real policy.

Two of the five political parties on the committee — the New Democratic Party and Green party — are explicitly supporting proportional representation. ( The Liberals, at least according to their campaign platform, are open to the idea.)

Proportional representation (PR) is an electoral system that elects members of Parliament based on the proportion of votes each party receives. While no PR system is exactly proportional, the link between the share of votes a party gets and number of seats it wins is much closer than under our current system.

This means that smaller, sometimes single- issue and regional, parties are more likely to be elected. The proliferation of both the number of parties and, more importantly, the number of parties with seats in Parliament, makes it difficult for a single party to achieve a governing majority.

As a result, coalitions — not majority governments, which are the norm in Canada — are much more likely to govern countries whose representatives are proportionally elected. Research bears this out. In 2000-15, only 17 per cent of elections in countries with PR resulted in a single-party majority, while single- party majorities occurred 85 per cent of the time in countries with election systems like Canada, which are referred to as majoritarian/ plurality systems.

To form governing coalitions, the party with the most seats must negotiate with smaller parties and often capitulate on key policy issues. Therefore, smaller parties can exert disproportionate power in government in countries with PR electoral systems. This is a critical insight because it counters those who argue that PR provides everyone an equal vote. It doesn’t. It disproportionately empowers those who vote for small, even fringe, parties, at the expense of the majority of voters who tend to vote for one of a few main parties.

One result of these capitulations is that government spending in countries with PR is markedly higher than in other countries. In a recent study, we examined the average level of central government spending over 15 years (2000-14) in advanced i ndustrial countries. We found that countries with PR electoral systems had average central government spending equal to 29.2 per cent of the economy (gross domestic product), compared to 23.5 per cent for countries with majoritarian/plurality election rules. In other words, as a share of the economy, central governments in countries with PR systems were almost one-quarter larger than those with majoritarian/plurality electoral systems.

Several other academic studies have reached similar conclusions. For example, in their seminal book, The Economic Effects of Constitutions, noted economists Torsten Persson and Guido Tabellini examined the impact of electoral rules on government spending in 85 countries. Their research found that spending was almost six per cent of GDP lower in countries with majoritarian/plurality systems than in countries with PR election rules.

Interestingly, the higher government spending in PR countries is financed to a greater extent with deficits ( borrowing), than spending in other countries. Put differently, countries with PR election rules tend to not only spend more than other countries, they also tend to borrow more to finance their spending.

Reforming the way Canadians elect their political representatives is a serious matter and all costs and benefits must be weighed. Any analysis of potential electoral reform should take into account how public policies will be affected. The tendency of PR electoral systems to elect coalition governments drives up government spending and deficits — not because voters necessarily want such policies, but because the power structure it creates forces politicians to make more compromises. And, as we well know, the one thing most politicians of all stripes can agree on is spending money.

At a time when spending and deficits are already on the rise across Canada, the fiscal consequences of electoral reform should not be taken lightly.