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Budget cliff driving: Hit the brakes!

By Kevin Gaudet
web posted March 1, 2010

If your car goes off the road and is speeding towards a cliff, simply taking your foot off the accelerator isn't good enough. You need to put on the brakes, stop and carefully make your way back to safety. Deficit spending by governments in Canada is no different. Unfortunately, Prime Minister Harper has promised only to slow the rate of growth of spending – this year creating a record deficit of $56 billion. This approach will take us off a financial cliff if real efforts don't start now.

As we move towards the next federal budget, many proponents of larger and more costly government have been using the recent recession gleefully to call for even greater government expansion. The President of the Canadian Union of Public Employees (CUPE) argues the federal government should increase spending at even higher rates. Perhaps this is no surprise given their website brags that the union has over 600,000 public sector employees as members. The same calls occur every recession. Grow government and all will be well.

Liberal Senators are calling for an increase in the GST back to 7 per cent to give more money to the RCMP. Corporate CEOs, led by TD Bank's Ed Clark, are calling for a GST hike to help balance the budget. One Liberal MP is calling for a GST hike to give more money to cities. All these calls for tax hikes are predicated on the false impression that Ottawa doesn't have enough money already.

If increased government spending created jobs, every Canadian would have two. Canada's economic challenges are worsened by the large and growing size of government. There are too many programs, employing too many people who, generally, get paid too well (when you include pay and lavish pensions).

According to Statistics Canada there are 3.5 million Canadians employed in the public sector out of 16.9 million working Canadians – 20.7 per cent! This means one in five working Canadians are employed by the public sector. These jobs are funded from the taxes paid by the other 80 per cent of Canadians working in the private sector. This has been a worsening condition over the past 40 years.

In an inflation-adjusted comparison, the federal government spends 360 per cent more today than it did 40 years ago. In 1969, program spending was $12.9 billion - $75 billion adjusted to 2009 dollars. It has exploded to $273 billion in 2009-10. If spending had grown at the same rate as population and inflation, it would only stand around $150 billion today.

Not only are today's taxes paying for this large government spending but debt financing means future taxpayers also will pay later. The federal government debt in 1969 adjusted to 2009 was $111 billion. Today is has surpassed the $514 billion mark, growing by $1 billion every 6.5 days. Simply put, desire for increased government intervention has grown a larger government funded by high taxes and a huge and growing debt – spend now, pay later.

As the next federal budget looms, the federal government is sending mixed signals on what Canadians should expect. On one hand, Treasury Board Minister Stockwell Day was appointed to undertake plans for a spending review. He is making the rounds seeking input on this. Media are dutifully reporting this message of austerity.

Yet, on the other hand, Finance Minister Flaherty continues to ensure those who love big spending that this budget will provide 'son of stimulus;' year two of the government's stimulus program, drizzling cash on everything from snowmobile trails to parties and parades.

Last year spending was $239 billion. This year it grew by 14 per cent to $273 billion. It is planned to increase again next year to $278 billion. Only a public sector union president would consider this level of spending growth a demonstration of 'austerity.'

What the government needs to do to get things back in order is to scrap plans for further stimulus spending. Instead, Mr. Harper should push forward Minister Day's reductions plans. Spending should be rolled back to 2008 levels and the massive debt that has been generated should be paid down.

It is through this kind of an approach of reduced spending that Canadians will experience greater prosperity, not by mortgaging the future to create yet more government jobs. ESR

Kevin Gaudet is the federal director of the Canadian Taxpayers Federation. © 2010, Kevin Gaudet

 

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