Big-spender Harper true to his neoconservative roots

TheStar.com – Opinion/Comment – Big-spender Harper true to his neoconservative roots: Running big deficits while squeezing revenue is a way of reaching goal of smaller government
Published On Mon Nov 30 2009.   Eugene Lang, Philip DeMont

A new conventional wisdom has emerged. The Harper government has been labelled moderate, centrist – even “liberal.”

This characterization is due entirely to the large fiscal deficits that have emerged on the Harper watch – $56 billion next year alone – deficits the government admits with a shrug will extend for several years.

No self-respecting conservative government could tolerate such profligacy, or so goes the critique. The Harperites have lost their way, abandoned their guiding philosophy, sold out to those soft-headed, big government political parties for which deficits are regarded as a normal part of governing.

Nothing could be further from the truth. The Harper government has, in fact, remained very true to its ideology. But that ideology is not “conservative.” Rather, it is “neoconservative,” and this makes a big difference on the question of deficits and fiscal policy.

For neoconservatives – the denomination that emerged in the 1970s and 1980s – balanced budgets are not a first-order priority. The overriding objective is to cut taxes; balancing the books comes a distant second or even third on the to-do list. Most neoconservative governments have never gotten around to balancing the budget.

Ronald Reagan, a neoconservative icon and political grandfather of the movement, is generally regarded as having presided over the first real neocon government in North America. His first significant initiative as president was to enact a large tax cut, even though he had inherited a big budget deficit from his predecessor, Jimmy Carter.

The economic rationale for these tax cuts was based on “supply side economics,” an obscure corner of the dismal science that postulated the right kind of tax cuts would not only induce unprecedented economic growth, but might even provide a net increase to government revenue through the generation of so much new economic activity.

The Reagan tax cuts helped drive up the U.S. federal deficit from $80 billion in 1981 to $200 billion by 1983, or from 2.5 per cent to 6 per cent of gross domestic product. Yet they also coincided with strong economic growth in the U.S. following years of stagnation.

This fact has led another American neoconservative prophet, former Bush administration vice-president Dick Cheney, to remark: “Reagan proved deficits don’t matter.” Reagan evidently agreed, having failed to balance the budget during his eight years in office.

George W. Bush, another neoconservative, also ushered in massive tax cuts early in his presidency. And like Reagan, Bush presided over a huge spike in the deficit, leading to a $2.5 trillion increase to the federal debt during his tenure. The Bush administration never balanced the budget during its eight-year term.

Consistent with Reagan and Bush, the Harper government’s first major act upon taking office was a big tax cut – a phased-in two percentage point reduction in the GST.

The Conservatives touted the move in two election campaigns. We heard very little about the deficit in either election. It was not a priority.

Yet the GST cut has helped balloon the federal deficit, permanently draining Ottawa of around $12 billion per year in revenue.

Some economists and commentators have excoriated the Harper government for this tax cut, claiming the GST is the worst tax to cut, implying it is the best tax to keep. These critics have portrayed the GST cut as little more than a cynical, unprincipled move to bribe the Canadian electorate with a couple of cents off the price of a cup of coffee.

This analysis misses the mark. The GST cut is highly principled to the neoconservative mind. Not only is it consistent with their top priority of cutting taxes even if that results in a deficit, it is the perfect tax to cut from the standpoint of achieving the second-order priority of any self respecting neoconservative – reducing the fiscal capacity, and hence ultimately the size, of government.

The GST – that most reviled and visible of federal taxes – is easy to cut, but it is also regarded as politically impossible to raise. No political party has had the stomach to challenge the GST cut on its merits. Hence, the GST cut will likely permanently deprive the federal coffers of a substantial amount of revenue, which over time should reduce the size of government.

If we view the Harper government through a neoconservative lens – where tax-cutting and reducing government fiscal capacity are the paramount objectives – then the Harperites are operating in a manner entirely consistent with neoconservative economic philosophy, not to mention the track records of their forerunners in other jurisdictions.

So don’t be fooled. There is nothing “liberal” about the Harper government’s fiscal and economic policy. They remain true to their ideological roots, and can walk proudly in the footsteps of trailblazers like Ronald Reagan.

Eugene Lang, a former senior economist at Finance Canada, is co-founder of Canada 2020: Canada’s Progressive Centre and vice-president of Bluesky Strategy Group. Philip DeMont, an economist, veteran financial journalist and former Ontario government adviser, is co-author (with Eugene Lang) of Turning Point: Moving Beyond Neoconservatism.

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