Under Jim Flaherty, budgets ceased to mean much of anything
NationalPost.com – Full Comment
March 19, 2014. Andrew Coyne
It is hard to assess Jim Flaherty’s record as Finance minister apart from that of the prime minister he served. Nothing gets done, in this government more than any other, without the prime minister’s approval.
What can be said is that during Flaherty’s term at Finance the distinction became even harder to draw: in a government that politicizes everything, Finance has led the way. Under Flaherty, not only did budgets cease to be budgets — now they are Economic Action Plans — but they ceased to mean much of anything.
The budget and the estimates are not only expressed on different accounting systems, but parliamentarians are provided with no means of reconciling the two. Actual departmental spending, as recorded in the public accounts, routinely bears no resemblance to either.
More and more spending is now disguised as tax credits, materially understating both expenditures and revenues. Even the official spending figures have proved harder and harder to trust. Requests for details on spending cuts from the Parliamentary Budget Officer, which departments are statutorily obliged to provide, have been rebuffed. Sometimes, as in the case of the F-35 program, they’ve simply been false.
If I dwell on this part of the Flaherty record, it is because it explains so much of the rest. There is no principle running through it other than expediency, no broad legacy other than what was politically advantageous at the time. Which, after all, is the real Jim Flaherty: the one who merrily ran up spending by 40% in his first four budgets, or the one who flatlined it in the four that followed?
Should we remember the Flaherty who, against every axiom of economics, cut the GST rather than cutting income taxes, then larded up the tax code with all manner of special tax breaks for favoured political interests? Or should we remember him as the tax cutter who made deep reductions in corporate tax rates, the policy innovator who brought in the Tax-Free Savings Account and the Working Income Tax Benefit, the free trader who eliminated all tariffs on intermediate goods?
Of course he was both, but the confusion underscores how far afield the Tories have wandered in the last eight years. Even after the recent cuts, Flaherty leaves with spending higher than it was at the start of his tenure — after inflation, after population growth. It wasn’t the GST cuts that drove us into deficit: had Flaherty only left spending where he found it, revenues would have exceeded spending in every year but 2009-10, when with the help of the recession it might have hit $10-billion — versus the $56-billion actual figure.
That year’s extraordinary splurge — a $37-billion increase in spending in one year, ultimately adding $160-billion to the debt — was, as we now know, entirely unnecessary: the recovery had already begun in the spring of 2009, long before any of Flaherty’s “stimulus” was spent. It was necessary only to preserve the government in office, after the near-defeat over the fall economic statement.
That ill-judged document, with its gratuitous swipe at party subsidies, set the pattern for what was to come: budgets became the pretexts for massive omnibus bills, hundreds of pages long, touching on every subject under the sun.
I don’t want to suggest Flaherty was a failure. Though he created the deficit, he should also be credited with bringing it back under control. He showed a cool head during the global financial crisis, intervening just enough to reassure the markets without doing so much as to suggest we had a problem ourselves.
Not only is the government’s fiscal position strong, with a debt-to-GDP ratio that is the envy of the developed world, but so is the economy: by all of the usual indicators — unemployment, inflation, real incomes — it has rarely been in as good shape. If you are the kind who blames Finance ministers for recessions, you are obliged also to credit them for recoveries.
In fact, like most Finance ministers he had little to do with either. Though governments can certainly cause great harm, their capacity to improve the economy is mostly limited to the longer term. And here the record is decidedly mixed. Oddly, some of the most praiseworthy policy thrusts, for a former provincial finance minister, have been aimed at bringing some order to this fractious federation: consolidating securities regulation under a single agency, harmonizing provincial sales taxes with the GST. Alas, both remain largely unfulfilled.
Even odder, for a professed free marketer, has been his pronounced turn towards 1970s style industrial policy. This isn’t only a matter of cynical politics, as in the raft of business subsidies delivered through the “regional development” agencies that have multiplied under this government. It seems rather to reflect the government’s, and one must assume the minister’s, sincere conviction, as in the much-trumpeted new strategy to “leverage” military procurement as the engine of economic growth. I don’t know what’s sadder: the idea that the Defence department is some sort of avatar of efficiency, or the idea that this is new.
By the end, the minister seemed increasingly out of touch, if not out of control: the hectoring of the banks to stop cutting mortgage rates, the talking down of the dollar, until the last budget, and Mr. Flaherty’s fateful extra-curricular musings on the wisdom of income-splitting. The suggestion that a major election promise was about to be broken, on a par with his earlier move to tax income trusts, may well have been his undoing. In a government that prizes message discipline above all, some things are truly unforgivable.
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