No matter how you add it up, Harper’s fiscal record is a catastrophe
https://ipolitics.ca/2015/04/19/no-matter-how-you-add-it-up-harpers-fiscal-record-is-a-catastrophe/
On April 8, Finance Minister Joe Oliver stood up before the Economic Club in Toronto and delivered what can only be described as one of the greatest “fantasy economics” speeches in decades.
It was a message from a parallel universe — one in which the Harper government delivered ‘sound economic management’ through the recession (it didn’t), the economy recovered its pre-recession growth pattern (it hasn’t) and Ottawa is delivering tax relief for the average Canadian household (it isn’t). Stranger still, it’s a parallel universe where Pierre Trudeau is still around, haunting us.
In his speech, Oliver somehow contrived to blame Justin Trudeau for the alleged fiscal sins committed by his father during Trudeau Senior’s decade in power. (Justin Trudeau is 43. He was in his early teens when his father left office. Somehow we doubt Pierre was taking Justin’s fiscal advice at the time … but that’s the magic of rhetoric for you.)
According to Oliver, federal spending tripled between 1969 and 1979, driven by “the ideology of the man at the wheel and on the reckless assumption that commodity prices would remain high”. Change the timeline and Oliver could have been talking about Stephen Harper — but this is not a crowd that’s open to irony.
How bad a fiscal manager was Pierre Trudeau? Program spending did indeed triple between 1969 and 1979 in absolute terms. But measured as a share of GDP, program spending only rose from 15.4 per cent in 1969-70 to 16.7 per cent in 1979-80. As a share of GDP, revenues actually fell from 17.6 per cent in 1969-70 to 15.5 per cent in 1979-80.
According to Oliver, “Trudeau-era debt clung to Canada like a bad flu”. Actually, the federal debt burden only rose from 23.0 per cent to 27.7 per cent over the ten-year period. It rose further to 37.5 per cent in 1983-84, but this was due to the effects of the 1980-1981 recession.
In fact, the fiscal record of Trudeau Senior actually looks pretty good when compared to that of Brian Mulroney. Under Trudeau, the average annual deficit was 2.9 per cent of GDP between 1969-70 and 1979-80; under Mulroney the average annual deficit was 6.7 per cent of GDP between 1983-84 and 1994-95.
Between 1983-84 and 1994-95, program spending under Mulroney fell from 18.4 per cent of GDP to 15.7 per cent, while the revenue share actually rose from 15.6 per cent to 16.6 per cent. This weak performance, along with rising interest rates, resulted in the debt burden dramatically increasing from 37.5 per cent in 1983-84 to 66.6 per cent in 1994-95.
Mulroney did balance the operating budget — but that wasn’t nearly enough to solve the fiscal problem facing the government. In retrospect, the Mulroney government was simply reluctant to take the fiscal actions needed to stop the country from sliding into crisis in the early 1990s.
In 1984, the Conservative government actually published a document — ‘Agenda for Economic Renewal’ — which stated that, without major action to cut program spending and/or raise taxes, the federal debt burden would double by the end of the decade. Which is exactly what happened. (Disclosure: Both of us were heavily involved in the preparation of all of the Mulroney budgets.)
Mulroney’s Finance minister, Michael Wilson, did his best to warn Canadians about the dangers of failing to aggressively contain the fiscal problem. His May 1985 budget did raise revenues and reduce spending. However, after the confrontation between the “senior from Vanier and Mr. Mulroney” over changes to old age security benefits, Mr. Wilson lost not only the PM’s support for further measures to reduce the deficit, but also the backing of the business community. Wilson was on his own.
So what about the Liberals? Oliver is hardly going to give any credit to Jean Chretien and Paul Martin for getting the federal government out of the worst fiscal crisis it had ever faced.
According to Oliver, the Liberals balanced the budget “by hiking taxes, cutting vital programs and slashing billions in transfer payments.” (Disclosure: Both of us were very involved in the preparation of the Liberal budgets in 1994-1995 and subsequent years.)
Now, as far as we can recall, the Liberals imposed a temporary capital tax on large deposit taking institutions; a higher tax on large corporations; a temporary corporate surtax; and higher excise taxes on gasoline and tobacco products. That was it. There were no higher taxes on the elderly, as Oliver has claimed. Indeed the Liberal government benefitted from the Mulroney government’s decision to introduce the GST in 1991, reform the personal and corporate income tax systems, partially de-index the personal income tax system in 1984, implement the North America Free Trade Agreement and sell several Crown corporations – all major structural changes which fostered economic growth and resulted in a more stable fiscal situation. Finally, the Liberal government eventually implemented the largest income tax (personal and corporate) reduction in Canadian history in the 2000 budget.
There was no slashing of vital programs in the 1995 budget. Quite the opposite; for the first time, the government introduced a process to carefully review federal program spending — what it was doing, what it should be doing. That program review process was transparent and accountable — unlike the spending reviews undertaken by the Harper government since 2010, for which the government has refused to provide information to the Parliamentary Budget Officer.
Granted, the Liberals did cut transfer payments to the provinces. But with debt as a percentage of GDP at a post-Second World War high and with ever-increasing interest rates due to a lack of confidence in financial markets, everything had to be put on the table. Once the federal government achieved a balanced budget, that interest rate risk premium quickly disappeared and all levels of government benefited from lower borrowing costs. The Liberals then introduced a 10-year plan which put the major transfers to the provinces on a sustainable and growing track.
In 1994-95, the federal deficit was 4.7 per cent of GDP. By 1997-98 the deficit had been eliminated and the federal government ran surpluses for the next nine years. The federal debt was actually reduced by $90 billion; the debt burden fell from 66.6 per cent in 1994-95 to 31.4 per cent in 2006-07.
How does this compare to the Harper government’s fiscal record? In 2006-07, the Conservatives inherited a surplus of $13.8 billion — which they turned into a deficit of $5.8 billion within two years.
Since then, they have been in deficit each and every year. In 2009-10, the deficit reached its peak of 3.5 per cent of GDP. They are desperate now to show a surplus in 2015-16 — one surplus in nine years. Since Harper was elected, the federal debt has increased by over $150 billion, wiping out the reduction in federal debt achieved under Chretien and Martin. Not much to boast about there.
Joe Oliver has announced that the government will introduce balanced budget legislation. But legislation won’t keep a government out of the red if it lacks the political will to do so.
What about the government’s commitment to economic growth and job creation? Who hasn’t heard about the 1.2 million jobs created since “the depths of the recession”? Again — time for a reality check.
The figure — 1.2 million — is correct, but almost meaningless. It certainly doesn’t describe the performance of the economy since 2006 and the labour market situation in Canada. Since 2006, economic growth has declined in every year since 2010 and averaged only 1.7 per cent per year. In the previous nine years, economic growth averaged 3.4 per cent per year. In 2014, only 120,000 new jobs were created — less than in 2013.
At the end of 2014, the unemployment rate was higher than at the end of 2008. The labour force participation rate was lower than in 2008. The employment rate (the percentage of the adult population employed) was lower than at the end of 2008. The youth unemployment rate was higher than at the end of 2008. The share of total employment made up of full-time jobs was less than in 2008 — and the quality of jobs had sunk to its lowest level in a quarter of a century.
Then there’s Oliver’s claim that his government has put money back in the hands of Canadians through its commitment to reducing taxes. This government has definitely cut taxes for high-income, single-earner families with children under 18 — just 15 per cent of all families. They’ve been very good to families with teenage children who — somehow — still need ‘child care’. They’ve been generous to families who can afford to put their kids in sports leagues and summer camps, and they’ve cut taxes for high-income seniors who can split their pension income with a spouse.
The government has announced it will double the contribution limits for Tax-Free Savings Accounts, despite research by the PBO and others indicating this will — again — overwhelmingly benefit high-income Canadians and leave a growing unfunded liability to be paid for by all Canadians in the future. Oliver and Harper claim to be doing this for our grandchildren. Somehow we don’t think they’ll be grateful.
All of this, of course, came after the government’s biggest and most foolish tax cut — the two point cut in the GST which every economist warned them was a terrible idea. Sure enough, it was a major factor in putting the government into deficit.
The key thing to remember here is that these tax cuts accomplished nothing for the economy. None of them contributed to economic growth or job creation. They certainly didn’t contribute to tax fairness.
Numbers don’t lie, but people do. It’s one thing to spin your failures as successes — it’s another thing entirely to try to present a decade of fiscal failure as one long triumph. The journalists going into the budget lockup will have their work cut out for them, trying to separate the Harper government’s fiscal fantasies from the true record of the past ten years.
