Where have all the fiscal conservatives gone?

Posted on April 7, 2015 in History

NationalPost.com – Full Comment
April 6, 2015.   National Post View

Canadian conservatives had great success in the 1990s — not so much at winning elections as influencing those who did to make significant spending cuts.

The Canadian right was badly fractured during former Prime Minister Brian Mulroney’s second term, resulting in the upstart Reform Party overtaking the Progressive Conservatives as the party of choice for right-of-centre voters. This rift opened the door for 13 years of Liberal rule, but it also allowed the Grits to do what previous Conservative governments had failed to do: balance the budget and start paying down the debt.

They did it, what is more, largely through spending cuts, rather than tax hikes. Between 1995 and 1998, federal program spending was slashed by 14%; as a share of GDP, it fell from 18% of GDP in 1993 to 13% in 2009. In 1994, Canada’s debt-to-GDP ratio was 67%; by 2009, that had been reduced to 29%.

Where Conservatives were in government, in Ontario and Alberta, they made similarly bold moves. When Ralph Klein came to power in Alberta in 1992, the government was running a $2.6-billion deficit. Total government debt amounted to $23 billion, which cost taxpayers $1.3 billion per year to service (representing about 10% of the total budget).

The Mike Harris Conservatives in Ontario managed to balance the budget even while bringing in substantial tax cuts

Immediately, Mr. Klein set out to reduce the size of government by cutting spending, privatizing services and reducing the amount of compensation received by government employees. By 2004, the Alberta PCs had balanced the budget and paid off the debt. The Mike Harris Conservatives in Ontario similarly managed to balance the budget even while bringing in substantial tax cuts — and while absorbing even deeper cuts in federal transfers.

For a while, indeed, conservatives succeeded in making deficits and debt into dirty words in Canadian politics, something every government sought to avoid. Tax increases were even more taboo. How ironic, then, that this fiscal-conservative revolution was eventually undone by the Right.

In the wake of the 2008 financial crisis, the Harper government opted to ramp up spending and run large deficits, ostensibly in the name of “fiscal stimulus” but more accurately to save its political skin, in the years when the opposition parties had a majority of the seats in the House. To be sure, it has since made moves to clean up the fiscal mess it created, but the damage was already done — not just to the country’s finances, but to the coherence of conservatism as a movement.

In Alberta, the recently tabled budget predicts the province will once again owe $30 billion by 2020

The Harper government has now re-borrowed the entire $105 billion worth of debt that was paid off between 1997 and 2008, and then some. Meanwhile, in Alberta, the recently tabled budget predicts the province will once again owe $30 billion by 2020, essentially leaving the province with the same amount of debt it had in 1992.

With those two erstwhile pillars of conservative governance toppled, the ramparts of fiscal discipline elsewhere were that much easier to breach. New Brunswick’s new budget raises taxes and predicts a $476.8-million deficit in the coming year; Ontario’s finance minister says his province will spend $10.9 billion more than it takes in this year; B.C.’s budget is balanced on paper, but the province will still borrow $11 billion over the next three years to finance infrastructure. Things have got so bad that the new champions of fiscal conservatism are the Quebec Liberals — though only because the province starts with the worst fiscal mess of any government in the country.

So what’s the solution? Balanced budget laws can be a useful prop — though history shows they are no substitute for political will. The more fundamental solution is responsible political leadership, educating the public about the importance of keeping spending in line with taxes, and taxes in line with what the economy can reasonably bear. An informed public can in turn pressure their elected representatives to do the right thing.

Small c-conservatives had the will and the nerve to do this successfully in the ’90s. They need to learn to do so again.

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