But for anyone interested in Canada’s fiscal and economic future, this piece published in iPolitics last week is worth reading and re-reading.
Not just because of the content, but because of the pedigree of the authors. Scott Clark and Pete DeVries were long-time senior finance department officials, serving under both Michael Wilson and Paul Martin.
Clark was the first person to point out to Martin that the measures he was taking in the 1995 budget would eventually eliminate the deficit. DeVries was nicknamed “Canada’s Bookkeeper” for his mastery of budget detail over two decades.
They are by no means radicals. They precede their discussion of Jim Flaherty’s budgets with a tribute to the Wilson-era policies of the GST and NAFTA, and to Martin’s conquest of the deficit (among other things).
On a week when the media seemed fascinated by Flaherty’s inflammatory skin condition, Clark and DeVries reached a scorching conclusion about Flaherty’s actual performance as finance minister which should be grabbing our attention.
“So far, your legacy after seven years (in finance) is not that solid,” they write, mocking Flaherty’s promise to undertake yet another efficiency review of federal public spending this year. “Were the previous expenditure review exercises a failure?”
Clark and DeVries are detail men and they have a litany of concerns with Flaherty’s fiscal policies. But their most fundamental complaint is simple: at a time when Canada has distressingly high unemployment and no plan for the long-term health of its economy, Flaherty is monotonically focused on something that isn’t a problem at all:
“(Y)our sole goal is to eliminate the deficit by 2015-16, even though there is no fiscal crisis. Indeed, there is no serious fiscal problem at all. Your own budget forecast numbers show the deficit declining rapidly and the debt burden falling.”
They don’t say this, but they are taking aim at something that could be counted as part of Paul Martin’s legacy: the so-called “no deficit rule”, which has spun so wildly beyond its original intentions that it is now a fundamental block to sensible economic policy in Canada among all the political parties.
Martin’s “rule” appears at first blush to be a rejection of John Maynard Keynes’ economic theory that advocated running deficits in tough times and paying for them with surpluses when times were good. But it was actually a political rule — not an economic one — that he propounded. He was worried that unless the public came to believe that deficits were bad in principle, governments, which are led by politicians, would not be able to resist running them all the time. Then deficits would never go away and debt would keep rising in relation to the size of the economy.
All the political parties eventually bought into this concept. True, they all supported deficit spending in the aftermath of the 2008 financial crisis. (Unfortunately, with their small-government ideology, the ruling Conservatives had no policy objectives to frame their spending, which instead they sprinkled around like pixie dust. We got hockey rinks and gazebos but did we get any lasting legacy for the billions spent?)
Such was the power of the no-deficit nostrum, however, that in the 2011 election the Liberals and New Democrats both endorsed the Conservatives’ promise to eliminate the deficit by 2015.
For the Conservatives, this pre-occupation with the deficit serves an ideological purpose: to reduce the size of government. They have cut taxes, and thus the government’s revenues. Now, they use the deficit that resulted as a reason to cut funding for pensions and medicare.
For the Liberals, who have lost their bearings in their reduced circumstances, the no-deficit rule seems like a part of their legacy they can hang onto, even though it was enunciated by fiat in quite different circumstances without any real discussion in the party or among the public.
For the New Democrats, subscribing to the goal of eliminating the deficit seems to be the price of admission to the club of political respectability, enforced by the media and conventional wisdom.
Clark and DeVries are certainly not from the school of thought that claims deficits and debt don’t matter. They were there when Michael Wilson brought in the hated GST. They were there when Paul Martin made huge cuts to health care and unemployment insurance.
But they also recognize that Canada’s budgetary deficits nowadays are trivial compared with two decades ago, and that debt is only a fraction of what it once was in relation to the GDP.
Their argument is that Canada’s finances are in comparatively good shape — compared, that is, with the past, with other western countries and with those of the provinces.
We should be using our hard-won fiscal strength to help create jobs for today and a strong, sustainable economy for tomorrow. That’s a message all the parties would do well to consider.
Original Article
Source: ipolitics.ca
Author: Paul Adams
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