Money Matters: Fiscal Performance and Minority Governments
Given the degree to which fiscal commitments reflect the existential priorities of any government, what happens to the process of allocating funds to those priorities in a minority government context? It requires a juggling act of navigating political tension, reconciling political survival vs. Parliamentary viability and embracing collaboration as way of life.
Samuel Butler, the iconoclastic English author, said “Life is the art of drawing sufficient conclusions from insufficient premises.” The premise in many heads in Canada is that minority governments can be unstable and unpredictable, while majority governments imply steadiness and predictability. Minority governments, however, are becoming increasingly common. Since 1867, we have had 14 minority governments, four of which have emerged in the last 15 years. With the 2019 election over and the business of governing about to begin in a minority Parliament, it is worth considering what lessons can be learned from experience—good, bad and ugly—from Canada and across the world, on how best to improve legislative and fiscal performance in this context.
The next parliamentary session will play out in a politically divided and diversified House of Commons. Is this the new normal? If so, is it necessarily bad? The Liberals received the lowest percentage of the national popular vote of a governing party in Canadian history. This is only the second time in Canada that a governing party will form a government while receiving less than 35 percent of the national popular vote. Not to mention having no representation from two of Canada’s western provinces.
The Conservative Party, the official opposition yet again, ran a campaign with a policy agenda similar to the Liberals, focused on improving affordability for Canadians but with a stronger plank of fiscal prudence (i.e., get back to budget balance). The NDP and Greens launched very ambitious and progressive policy agendas (highlighting health, education, housing, First Nations and climate change), but requiring historic increases in tax revenues. The Bloc Québécois agenda, not surprisingly, focused on promoting the interests of Quebec and called for enrichment to intergovernmental transfers.
The secret sauce of governing in a minority Parliament is confidence. Getting legislation passed, including bills tied to budget implementation, will depend on political support from opposition parties. In Parliament, you can govern as long as you have the confidence of the majority of members of the House of Commons. It is known as the Confidence Convention.
As Conservative opposition leader Stephen Harper warned Prime Minister Paul Martin in 2004, “If you want to be a government in a minority Parliament, you have to work with other people.” In this environment, governing parties need to beware of motions of confidence. By convention, all money bills are issues of confidence. Money matters.
The good news, from a fiscal perspective, all parties made explicit or implicit commitments to fiscal sustainability notwithstanding the small (Liberal and Conservative) vs. big agenda platforms (NDP and Greens). If you like game theory and politics, a minority parliament can be a source of entertainment. Most Canadians don’t get hung up by parliamentary procedure whether in majority or minority parliament. There is risk however, that Canadians grow increasingly disenchanted if their newly elected representatives fail to address fundamental economic, social, security and environmental policy issues.
Considering the evidence, it turns out majority governments do not necessarily outperform minority ones. In Canada, while the data generally point to lower legislative productivity in minority parliaments, the differences are not overwhelming and political scientists often point to contextual factors to explain the differences (e.g., the presence of scandals, high levels of partisanship, etc.).
The high-water mark for legislative performance in Canada (perhaps under majority and minority rule) was Prime Minister Pearson’s two consecutive Liberal minorities in 1963 and 1965. A productive political consensus resulting in historic legislation on
health care and pensions. Modest levels of partisanship and Prime Minister Pearson’s strong diplomatic skills were credited as critical factors for success.
Globally, the evidence suggests that practice makes things better. Minority
governments do seem to perform better in systems where minorities are more common, with practices such as interparty cooperation incentivized through experience. If political representatives think minority governments are the exception, they are less incented to work with their political opponents, even in the short-term. If, on the other hand, as with Pearson’s Liberal governments, the governing party is open to cooperation and accommodation, and is willing to move its policy agenda to the “middle”, legislative performance improves.
On fiscal matters, the evidence is mixed across the globe. There are studies that confirm a deficit bias in minority governments, while others do not. Like legislative productivity, fiscal performance can come down to specific factors and strategies. A recent study by Niklas Potrafke, Fiscal Performance of Minority Governments: New Empirical Evidence for OECD countries, 2019, suggests that deficits and public expenditure can be smaller under minority than majority governments, if minority governments work with potential partners and choose the least costly policy alternatives. By contrast, fragile minority governments are more susceptible to running higher deficits. They are under pressure to bargain with opposition parties to get budget bills passed. The weaker bargaining position makes them susceptible to choosing more expensive policy options and to deficit financing. No matter the issue, the message is clear: collaboration drives better outcomes. Collaboration, however, is a learned skill that must be incentivized and practiced. These messages apply equally to government and opposition parties.
What does all this mean for a possible governing strategy for a Liberal minority government? We have five principal expectations for the new government and Parliament. One, we expect the Liberals will implement their 2019 (costed) electoral platform in Budget 2020. Yes—one entire platform in one budget. Politically, it is very low probability the government will fall in its first budget. History suggests the average duration of minority parliaments is about two years. Moving quickly on implementation of the platform focused on improving affordability allows the government to claim it can be trusted to deliver on its promises. In
addition, the Conservative Party ran on a platform targeting similar issues.
Two, a key transition discussion is taking place now behind the scenes between the incoming government and public service. It is imperative that the legislative agenda and fiscal strategy are woven together. We need policy development and potential implementation strategies on a range of issues. Policy choices and trade-offs need to be made in the context of a credible fiscal strategy that is realistic, prudent, transparent and responsible.
Third, on policy issues, the new Liberal government should give due consideration to launching expert panels to bring evidence, ideas, recommendations and transparency to (multipartisan) parliamentary committees as early as the fall of 2020. All major policy issues highlighted across political parties in the 2019 electoral campaign should be considered—including climate change, pharmacare and dental care, review of the Canada Health Act, education, housing, public infrastructure, First Nations affairs and tax reform. All parties should contribute to the development of the terms of reference for the policy reviews. The reviews should be conducted in a way that promotes progress and collaboration.
Fourth, on electoral reform, the new Liberal government should consider launching a citizen assembly as highlighted by grassroot organizations like Fair Vote Canada. Electoral reform was a major policy failure of the previous Liberal government. The time has come for citizens and experts to tell our elected representatives what kind of electoral system we want for Canada. Electoral reform has strong support from people who voted for the NDP and Green Party. As U.S. President Woodrow Wilson once famously said, “if you think too much about being re-elected, it is very difficult to be worth re-electing.”
Finally, on improving fiscal performance, the new Liberal government should consider the development of a fiscal charter, in collaboration with opposition parties, to outline principles of fiscal management in good times and less good times, as well as budget constraint targets and rules that will work in a minority parliamentary context. The concept of a fiscal charter has recent roots in other Westminster parliamentary systems such as the United Kingdom and Australia.
The current Liberal fiscal rule of a declining debt-to-GDP ratio, while supported by the NDP and Green Party in the 2019 electoral campaign, is likely too weak of a rule to guide budgets in a minority setting where political pressures to use deficit financing will be greater. (See Chart 1). Note the upward drift to the projected debt-toGDP ratio since Budget 2019. A more complete fiscal strategy could include fiscal targets based on (nominal) budget balances; rules that limit (deficit) spending; contingency reserves to address risk; and annual fiscal sustainability analysis.
Building on fiscal reform, there is an opportunity to strengthen expenditure management systems and Parliamentary fiscal oversight. Both the Liberals and Conservatives called for spending reviews in the 2019 electoral campaign. All parties, including the Bloc, called for revenue integrity measures to promote tax compliance, reduce tax gaps and generate much needed tax revenues. Recommendations for system-wide reforms like the 2012 Operations and Estimates Committee Report on Estimates Reform under NDP Chair Pat Martin have largely fallen by the wayside under majority governments less interested in strengthening parliamentary accountability. In a minority Parliament, prospects could be much brighter for strengthening fiscal performance by better aligning financial and non-financial (performance) information and improving transparency. Both are needed to strengthen fiscal discipline.
There is a need to change the way we govern, if minority parliaments are going to get things done. The key words to live by are compromise; long-term policy focus; and citizen engagement. There are sufficient premises and lessons from Canada demonstrating that minority parliaments can be effective. Our elected officials have the opportunity to show us how it’s done.