The conservative agenda in the numbers

Stephen Gordon details the ‘starve the beast strategy’ in budget 2013

The Conservatives’ “starve the beast” strategy of reducing the size of the federal government is one of gradual erosion and not dramatic cuts, so it’s only noticeable if you revisit the process at regular intervals, like time-lapse photography. Here is the history of federal government revenues and expenditures as a share of GDP:

Federal government revenues have been at record low levels — less than 14.5 per cent of GDP — for the last four years, and they are projected to remain there. The strategy for eliminating the deficit is to keep expenditure growth below that of GDP so that its share of GDP declines over time. But this approach is not applied across the board. For example, transfers to persons (elderly benefits, children’s benefits and the like) are politically sensitive, and cuts here could provoke broad-based opposition. So the plan in this budget — and the ones that preceded it — is to limit the growth of these transfers to the rate of growth of GDP. In other words, transfers to persons as a share of GDP is projected to converge to a constant level:

The same goes for transfers to the provinces:

If you combine this strategy with the downward revisions to the Department of Finance’s GDP projections, you get the cuts in the projected path of transfers to the provinces that are in this year’s budget.

If transfers to persons and transfers to other levels of governments are schedule to rise with GDP, then direct program spending must fall as a share of GDP. The way this is done is by holding nominal spending constant: its share of GDP declines as GDP increases:

Not only do these lines slope down, they get steeper with every budget. The jump in the current budget in 2012-13 is due to an accounting change: some measures that had previously been classified as tax expenditures have been reclassified (properly, in my view) as part of regular spending. But this is simply a one-time level shift; the trend to steeper profiles continues. The 2012 budget projected a decline of one percentage point between 2013 and 2017; the decline projected in this year’s budget is 1.1 percentage points.

The Conservatives are often accused of having a secret agenda on certain policy fronts, but they certainly can’t be accused of having a secret agenda about what they have planned for the size of the federal government. Their agenda has been published in every post-recession budget, and it will be published in next year’s budget as well.




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The conservative agenda in the numbers

  1. “Federal government revenues have been at record low levels — less than 14.5 per cent of GDP — for the last four years, and they are projected to remain there.”

    The reason revenues dropped like a rock is because the Harper Government recklessly cut taxes by $44.4B/yr. Just imagine the howls of indignation if an NDP government increased social spending by $44B/yr. It all amounts to the same thing: reckless policy that is unsustainable.

    What’s worse is that the tax cuts are entirely worthless to the economy because they are about playing politics and weaseling votes.

    * $12B/yr wasted on a GST tax cut that economists hated. It’s purpose was to appeal to an irrational aversion to sales taxes in Western Canada.

    * $15B/yr was wasted on corporate tax cuts. Before these cuts, Canada had one of the lowest effective corporate tax rates in developed world. Now, according to KPMG, we have the lowest of all countries in their study. Yet instead of “creating jobs” corporations are hoarding “dead money.”

    * $3B/yr wasted on a Tax Free Savings Account that only benefits the wealthy. Average Canadians get better tax savings under RRSPs.

    * Billions more wasted on boutique tax cuts that do nothing but complicate the tax code and attempt to buy votes.

    The reason the Harper Conservatives squandered all the advantages they inherited from the Chretien-Martin era? They believed perpetual campaigning was more important than actually governing.

    • KPMG Competive Alternatives 2012 — Focus on Tax (Chp 3, pg 7)

      “Corporate income taxes are lowest in Canada (7.3 per cent effective corporate income tax rate), France (14.7 per cent), and China (14.8 per cent). At the other end of the scale, effective corporate income taxes exceed 30 per cent in Japan (31.5 per cent), Brazil (36.1 per cent), and Italy (37.6 per cent). These effective income tax rates are significantly lower than the nominal tax rates in most countries due to the inclusion of various tax incentives, including R&D tax incentives, in these calculations.”

      http://www.competitivealternatives.com/reports/2012_compalt_report_tax_en.pdf

  2. Perhaps mr G could clue me in here, but as I read this real spending as a whole through out the country won’t decline – it’ll just get shifted to the provinces. This is nothing more than an ideological attack, not on big govt -
    , but the national govt…and a willful abdication of responsibility.
    And fiscal Conservatives are happy with this? Certainly Canadian nationalists like myself arent.
    When you ask for a rational explanation from fans of this approach, all you get is stuff like…so we don’t get no more NEPs; as if that’s all a national govt does – get it wrong – and by implication the provinces always get it right.
    When these guys have finally done emptying the national piggy bank, along with giving up every bit of leverage and responsibility our national govt has to protect us from forces larger than the provinces – will they then ask themselves what the hell they were thinking? Power is meant to be used. Just because it has been used unwisely in the past is not a reason to commit slow national suicide. Do they imagine once the premiers have their self interested mitts on most of the national levers of power they can ever be forced to relinquish them again for the national good?
    The Balkanization of Canada – the real “hidden” Harper agenda!

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