Balanced-budget law a meaningless gimmick
Harper trying to convince voters of his fiscal integrity, but similar legislation has failed elsewhere
Joe Oliver’s vow last week to impose on Ottawa a law requiring the government to balance the budget each year is a farcical notion. But it does usefully hint at the absurd economic priorities of the Harper government.
Roundly dismissed by economists as meaningless, the pre-election gimmick might prove useful as ear candy. But it’s so full of loopholes you could lead a parade of pachyderms through it.
The governments of Jean Chrétien and Paul Martin didn’t need a law to put Canada on track to post 11 consecutive budget surpluses, a record unmatched by any major economy.
Meanwhile, balanced-budget and debt-ceiling laws have not worked in those Canadian provinces that have tried them. And they have failed spectacularly in the United States, the world’s biggest debtor country, since the U.S. Congress introduced them back in 1917. So why do it? Reason one is that in the election expected in October, the Harper government wants to convince Canadians that the Tories have been exemplary stewards of the country’s economy. That is manifestly not true, of course.
“Harper Economics” has consisted of bloated spending and diminished revenue sources, a perfect storm of fiscal imprudence. And Harper’s industrial policy doesn’t extend much beyond trying to sell a finite resource, fossil fuels, to a world ever more heavily invested in fuel-efficiency gains and alternative energy sources.
Reason two is that a balancedbudget law would cripple government if it was actually adhered to. That fits with Stephen Harper’s mission, since long before he became PM, to diminish the capabilities of government. And he has largely succeeded.
Our federal government is not impoverished, to the point of Greece’s or Spain’s. But consider these indisputable facts.
The Harper fiscal record is the flip side of Chrétien-Martin. The Harper government has run an astonishing seven consecutive budget deficits.
And it’s likely to run an eighth straight deficit, given that its projection of a razor-thin surplus in the next fiscal year is predicated on an $81 (U.S.) world oil price.
Even the most bullish experts don’t see an oil-price recovery much beyond $70 (U.S.) this year. That alone will cut Ottawa’s revenues by as much as $2.5 billion (Canadian), against the $1.6-billion surplus Oliver is expected to forecast in his upcoming budget.
During the Harper era, Canada’s national debt has soared by 32 per cent, to a record $615.8 billion. During the Chrétien-Martin years, the national debt actually shrank modestly, by 4 per cent.
The Harperites have been free spenders. In the Chrétien-Martin period, federal program spending increased by 25 per cent. During Harper’s tenure, spending has jumped by 37 per cent.
Federal program spending as a percentage of GDP now stands at 13.1 per cent, compared with 12.8 per cent when Harper became PM in 2006. During the nine years of Harper government, that number has averaged 13.6 per cent, compared with 12.4 per cent in the nine years prior to Harper.
Federal program spending per Canadian was $5,501 in 2006. It will hit $7,109 in fiscal 2013-14, a whopping 29-per-cent increase under Harper. And each Canadian’s share of the national debt is now estimated at $17,324, a 21-per-cent jump during the Harper years.
Harper’s big-spending and taxcutting ways have weakened our central government without noticeably benefiting the Canadian economy. Growth in both GDP and jobs has been falling over the past five years. Over-indebted consumers have curtailed their spending. And Corporate Canada is hoarding cash rather than investing it to become more globally competitive.
On the taxation side, the Harper government has deprived the federal treasury of an almost unimaginable $332 billion since 2006. That is the calculation of Scott Clark and Peter DeVries, two former senior federal finance ministry officials. That sum is equal to almost half the national debt.
The Harper government has depleted the treasury with its bevy of “boutique” tax cuts geared to niche voter groups as well as Big Business, and with its increases in spending noted above, often on dubious initiatives.
For instance, Harper remains committed to buying the stupendously expensive and unproven U.S. F-35 fighter jet, which is unsuited to Canadian military needs. He is intent on building prisons during a prolonged era of declining crime rates.
And on the foregone revenue side, the Harper plethora of tax breaks includes a proposed income-splitting scheme that will cost Ottawa several billion dollars a year, and benefit only the most affluent Canadians.
This may seem counterintuitive, but that fiscal malpractice might improve the Harper government’s prospects for re-election this fall.
Harper’s bare fiscal cupboard ensures that the NDP and the Liberals cannot propose initiatives that cost money without Tories balking that we can’t afford them.
Yet we could afford improvements to quality of life with a change in Ottawa’s priorities.
One example: The Harper government’s cut in the corporate tax rate from 22 per cent to 15 per cent — lowest among the OECD countries except Ireland, and a fraction of America’s 35-per-cent rate — has cost Ottawa about $72 billion since 2006.
Business didn’t ask for that tax “relief” and doesn’t need it. What business craves is low-cost labour. Harper’s business-friendly tax policy has not prevented the defection of Kellogg, Heinz and Caterpillar to jurisdictions with lower labour costs. Indeed, business investment in the economy has been stagnant since Harper cut Corporate Canada’s share of the national tax burden. Meanwhile, Big Business’s accumulation of unspent funds for growth and job-creating innovation has grown to about half a trillion dollars of “dead money.”
That $72 billion in foregone revenue would pay for more than 400,000 affordable housing units, or cover the four-year undergraduate tuition of about 2.1 million Canadians. That $72 billion would fund almost 60 per cent of Canada’s estimated $123-billion “infrastructure gap” to repair decaying schools, hospitals and highways. It would cover the annual cost of the NDP’s proposed national daycare program four times over.
The opposition parties this fall will propose a restoration of funding for basic science, repeatedly cut by Harper. Canada is falling behind in the scientific research that leads to greater global competitiveness and job creation in everything from solar panels to biotech breakthroughs.
Business itself needs a change in Ottawa’s priorities.
Business is reliant on a healthy, well-educated workforce. It needs the government-funded scientific innovations that it commercializes. (The Pentagon-grubstaked Internet, for example.) It needs state-funded superhighways.
Walmart is as much a logistics enterprise as a merchant. If there were no U.S. interstate highway system or Ontario’s 400-series highways, there would be no Walmart. Or any other business reliant on just-in-time delivery of merchandise to stock its shelves, or take prompt delivery of parts to build its goods.
These are not radical priorities. They account, for instance, for China’s stunning eclipse of Japan as the world’s second-largest economy. Governance 101 teaches that countries that invest in themselves thrive.
The consequences are sobering, note Clark and DeVries, “when a government decides that government is the problem, that taxes are always bad and a shrunken state is the only guarantee of prosperity. Everything goes right — until absolutely everything goes wrong.” dolive@thestar.ca