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Deficit dodging for dummies

By Adam Taylor
web posted November 10, 2008

Despite their firm commitment during the recent election campaign to keep the budget balanced, the governing Conservatives are increasingly wavering on whether Canada will soon plunge back into the red.  They don't need to.  The federal government need only look back to the situation inherited by Jean Chrétien's government in 1993 as a present day guide to keeping the books in the black.

In the early 1990s, Canada was in rough shape.  Decades of fiscal recklessness by Liberal and Conservative governments had reached a boiling point.  The national debt was approaching $500-billion (and would reach an all-time high of $562.9-billion in 1996-97) and the deficit had soared to a record $39-billion.  The Wall Street Journal declared Canada at the time an "honorary member of the Third World ."   

The Liberal government of Jean Chrétien – prompted in part by the Canadian Taxpayers Federation's debt clock it toured from coast to coast -- got to work. In 1994, the Chrétien government announced plans for a program review.   

The review committed to spending reduction targets under a section called "restoring fiscal health."  The 1995 budget stated that "Government programs and activities were reviewed using six tests: serving the public interest; necessity of government involvement; appropriate federal role; scope for public sector/private sector partnerships; scope for increased efficiency; and affordability."

Between 1994-95 and 1997-98, spending was significantly reduced department by department.  The plan called for Transport spending to fall by $2.6-billion, Human Resources would be cut by $2.8-billion, foreign aid would see a $1.3-billion drop, and Natural Resource spending would be reduced $1.3-billion.

Business subsidies were slashed from $3.8-billion in 1994-95 to $1.5-billion by 1997-98, a decrease of 153 per cent and regional development spending fell by over $500-million.

The program review also called for selling the federal government's remaining shares in Petro Canada .  Another Crown asset, Canada Communication Group (formerly the Queen's Printer) was privatized, while budgets of other Crown corporations were substantially reduced. 

Between 1994-95 and 1996-97, transfers to the provinces were reduced by $1.6-billion, while the Canada Social Transfer fell by $2.5-billion.

The Chrétien government also tackled a swollen civil service eliminating 45,000 jobs, a 14 per cent decline.  Another $1-billion in savings was achieved through early retirement incentives.  
In just two fiscal years, (1994-95 to 1996-97) program spending fell by $12-billion and a year later, the federal government posted a balanced budget ending Canada's deficit streak at 27 fiscal years, a time period that saw the national debt rise from $19.3-billion to $560-billion -- a mind boggling 2800 per cent. 

Now, a global economic downturn is threatening to reduce government revenues leaving three options:  raise taxes, cut spending or run deficits. 

Thankfully, when it comes to buttoning down the hatches and living within one's means, Canadian households are once again ahead of the politicians.  An October 2008 Ipsos-Reid poll confirmed an entrenched view in this country: Canadians do not want their federal government to raise taxes or go into deficit to make ends meet.

In fact, 82 per cent support the government cutting spending to balance the budget; 57 per cent of Canadians oppose running deficits and 83 per cent oppose raising taxes.

Messrs Harper and Flaherty should take the good advice of Canadians and resolve to keep Canada 's books in the black.  If that means program spending needs to be reduced, so be it.  If curtailing the $26-billion spent annually on handouts to special interest groups and big business will help, make it happen.  And if it means downsizing the bureaucracy which has bloated to nearly 500,000, it is still preferable to raising taxes or returning to the old ways of spending more than is collected.

You know the difference between the federal government's budget and that of a household?  The number of zeros.  Responsible Canadians do not have the luxury of spending beyond their means in tough times and neither should a responsible government.  If the Liberals can cut spending to balance the budget; surely the Conservatives can. ESR

Adam Taylor is Acting Federal Director and National Research Director of the Canadian Taxpayers Federation.


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