By 2015, Harper will have shrunk government to smallest size in 50 years
TheGlobeandMail.com – news/politics
Nov. 18 2013. Bill Curry
By the time of the 2015 campaign, Conservatives will have shrunk the federal government to its smallest size in over 50 years.
This milestone accomplishment is buried deep in the pile of fiscal numbers released over the past few weeks. As a percentage of the economy, federal taxes are now at their lowest levels in decades.
Government spending is on a similar path and is projected to hit a record low two years from now.
Finance Canada tracks government revenue as a percentage of Gross Domestic Product, with comparable data going back as far as 1958. It is a better measure than using dollar amounts when comparing historical trends because it accounts for inflation and economic growth.
In that entire period, the most recent year is the lowest level ever recorded for government revenue at 14.1 per cent of GDP. It was 16 per cent in 2006-07, the first full year under Prime Minister Stephen Harper. Total expenses hit a record low of 14.8 per cent in 2008-09 as the recession hit. Spending spiked to 17.7 per cent of GDP the next year because of stimulus, but the recent economic update forecasts a new record low of 14.3 per cent in 2015-16.
For such a significant change in policy, it has received surprisingly little attention. For fiscal conservatives, statistical proof of record low taxes can be trumpeted as a central accomplishment.
For those who see a broader role for government in the lives of Canadians, the data could bolster arguments that Ottawa’s current tax levels are outside the historical norm and could be raised to cover new spending. It could also translate into calls for future surpluses to be spent on programs rather than tax cuts.
Raising taxes is a tough sell in politics, which means the Conservatives have slowly and steadily tied their opponents’ hands.
“It’s a very interesting story and one that I suspect a lot of people are completely unaware of,” said Brian Lee Crowley, who monitors historical spending patterns as managing director of the Macdonald Laurier Institute, a fiscally conservative think tank. He credits Liberal finance minister Paul Martin for starting a trend of more sustainable spending that the Conservatives continued until the 2008 recession temporarily knocked the trend lines off course.
“Until the recession, we were on track to actually have a smaller federal government in Ottawa than America has in Washington, which is something that’s not been seen in 50 years,” he said. “I’d like to say that we have basically a strong political consensus now. We’ve had Liberal and Conservative governments pursue these policies almost without interruption now for basically 20 years and the payoff for Canada has been huge.”
The government’s response to the 2008 recession obscured the longer term trends that were locked in before the recession hit.
There are several factors behind the lower revenue, including the Conservative government’s decision to lower the Goods and Services Tax from 7 per cent to 5 per cent, the seven-point drop in the corporate tax rate from 22 per cent to 15 per cent and lower personal income taxes.
NDP Leader Thomas Mulcair has mused about reversing the corporate tax cut. Liberals, meanwhile, were highly critical of the Conservative GST cut, but have not campaigned on raising the GST in subsequent elections.
Using Finance Canada’s year-end tables and budgets, here’s how key sources of tax revenue have changed between 2006-07 and 2012-13:
- Personal income tax revenue dropped from 7.4 per cent to 6.9 per cent
- Corporate income tax revenue dropped from 2.6 per cent to 1.9 per cent
- Employment Insurance revenue is unchanged at 1.1 per cent
- GST revenue went from 2.2 per cent to 1.6 per cent
- Total revenues dropped from 16 per cent to 14.1 per cent
Labour economist Jim Stanford of Unifor said Canadians are increasingly aware that smaller government and tax cuts come with consequences, such as less generous transfers for health care.
“I think the Conservatives have signaled quite clearly they’re going to channel the surplus into more tax cuts,” he said. “In that regard, I think the next election will be a pretty fundamental choice: Do we want to pay less taxes and get less back for it, or do we want to shore up the programs that are important to our quality of life?”
Bill Curry covers finance in Ottawa.
< http://www.theglobeandmail.com/news/politics/globe-politics-insider/by-2015-harper-will-have-shrunk-government-to-smallest-size-in-50-years/article15485546/#dashboard/follows/ >