Friday, January 23, 2009

Hollow Triumphalism Interrupted

The numbers don't support the portrayal of the Tories as economic goats

With Canada on the brink of at least two years of budget deficits, opponents of the governing Conservative party couldn't be happier.

The message coming from most of Canada's opposition is very simple: oh, if only the Liberals were still in power. Then we wouldn't be facing down a deficit.

The theorem is basically divided into two parts: through spending increases and tax cuts, the Conservatives spent Canadians right down to the brink of a deficit. Even if the hit to government revenues were too big, the maintained Liberal surpluses would at least render the deficits smaller, and more managable.

But those actually paying attention to the numbers know this isn't true.

As done previously here at the Nexus, National Post Full Comment editor Kelly McParland compares the current budget numbers to those forecasted by the Liberal party, and reaches a not-so-shocking conclusion: they aren't that different.

First, there's the matter of the "wasted surplus". As it turns out, then-Finance Minister Ralph Goodale was planning a program of tax cuts and increased spending worth a total of $39 billion to implement if the Liberal party managed to win the 2006 federal election.

The Liberal party had forecasted annual surpluses of $1.6 billion to $3.4 billion.

According to the fiscal plans made by the Liberal party under economic models that forecasted continuing surpluses, the deficit under the Liberals would have been at most $2 billion smaller. This is also before the addition of any additional costs due to the national daycare program the Liberals had planned to put in place.

The possibility is very real that this surplus would have been larger under the Liberal party. The possibility is also much more likely that Canada would have sustained a structural deficit under the Liberal party.

This shouldn't be terribly shocking. The Liberal and Conservative parties used the same economic projections to plan their spending. In terms of raw numbers, Ralph Goodale and Finance Minister Jim Flaherty made the same plans.

As such, an important question looms: do both the Liberal and Conservative parties have to "wear" the deficit considering the similarity of their spending plans? Or is there something else to blame for this deficit?

This is a false choice. The answer is a little bit of both.

No matter what they may insist now, few people, if any, predicted the sheer scale of the economic crisis that has led to this deficit. Considering that the government has jumped from budgeting a $2 billion surplus to budgeting a $36 billion deficit (with a $30 billion deficit next year), external influences are responsible for the majority of the surplus.

The Conservatives, however, very much do have to answer for their share of the deficit. They ran on the premise of being more fiscally responsible than the Liberal party, and they delivered something very different. Then again, the Liberal party also campaigned on being more fiscally responsible than their competitors, and their spending plans also speak for themselves.

Given the current levels of spending by the Canadian government, there should be little question that this deficit was inevitable regardless of whomever was in power. This economic crisis was one born in a foreign country, albeit one with ever-closer economic ties with Canada.

It's becoming increasingly difficult to deny that Canada has become much more vulnerable to economic crises born in countries that irresponsibly under-regulate their economies -- in particular, their financial markets. Then again, considering that the United States is Canada's number one trading partner, perhaps the impact would have been just as inevitable in NAFTA's absence.

This is a matter for much more experienced economists to debate.

The bigger picture is that of the comparison between Canada's current economic and fiscal situation and the one the country would be in if the Liberal party was in power. The pictures are scarcely any different.

Not that those eager to pin this matter squarely on the Conservative party are in any rush to admit this. Which only underscores the opportunism and hollow triumphalism of the argument that the Conservatives, and the Conservatives alone, are to blame for the deficit.

Other bloggers writing on this topic:

The Phantom Observer - "We're All Guilty of 'Budget Bias'"


  1. This comment has been removed by the author.

  2. One might point, however, to the fact that Tom Flanagan had openly bragged about "tightening the screws" for any future Liberal or NDP governments through their GST cuts. It's comments like that that give the impression they were more interested in trying to screw over their opponents than establish sound fiscal policy.

    Parliamentary budget officer Kevin Page also pointed out that a large part of the deficit will be coming from previous Conservative tax cuts rather than global economic weakness:

    Ironic, isn't it?

    And the thing is, here in Canada, we're really not that overtaxed compared to a lot of other places. Same thing with our social spending-compared to a lot of other OECD countries, we really lag behind. Taxes have been repeatedly cut for years by successive Liberal and Conservative regimes-funny how papers like the National Post rarely seem to mention that. If you want more info, I'll be happy to dig up the material.

    That said, you're right about any planned tax cuts the Liberals might have had in place and their own spending hikes-but Flanagan was the one who openly advocated these reductions at a time when the U.S. financial markets were about to collapse. That extra tax revenue would have made it a lot easier for us to make it through the crisis and otherwise invest in infrastructure, retraining and stimulus.

    Don't get me wrong, tax cuts have their place, and can certainly be a valuable tool, but it's a mistake to think that they're the only tool available. If all you do is cut taxes over and over...well, where are you going to find the money for the things people want the government to get involved in, whether it's a national daycare program or the war in Afghanistan?

    The Conservatives are scarely alone in being to blame for the deficit and the current economic collapse-if anyone, the guy to blame is Milton Friedman. The current financial crisis shows that private enterprise and entrepreneurs can be just incompetent and irresponsible as any public sector bureaucrat.


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