The Finance Dept. finally agrees with the PBO: it’s a structural deficit

It wasn’t just the recession

Canada's Finance Minister Jim Flaherty. (Chris Wattie/Reuters)

The Parliamentary Budget Office has been warning that the federal government has been running a “structural deficit” for several years now, and the Conservative government has been dismissing those warnings for just as long. Interestingly, though, the Department of Finance just came up with a new feature for the 2012 edition of the Fiscal Reference Tables, which were made public on Friday: estimates for the “cyclically-adjusted budget balance.” And they look a lot like the PBO’s estimates.

The idea behind the CABB is that governments should aim to run a balanced budget over the course of the business cycle: surpluses in expansions would offset the deficits incurred during recessions. Balancing the budget in every year would mean that governments would be forced to increase taxes and cut spending in downturns, and to do the opposite when the economy is growing quickly.

Estimating the CABB requires breaking down the budget balance into two components: the “structural balance” we would observe if the economy was operating at capacity and the cyclical factor. If the CABB is zero and there’s a cyclical deficit, then there’s no cause for alarm: the budget will balance on its own when the economy picks up. But if—as the PBO has been claiming—there’s a structural deficit, then the budget balance will stay negative even after the economy recovers.

Notwithstanding the Conservatives’ repeated rejections of the PBO claim, last year’s budget was an implicit admission that a significant portion of the federal government’s deficit was structural. If the Conservatives really believed that the deficit was purely cyclical, there would have been no need to adopt austerity measures in order to bring the budget back into balance.

The estimates released last Friday are a final confirmation of the problem. Calculating the CABB requires a certain number of judgment calls in extracting the business cycle from the trend, so no two sets of estimates will be exactly alike. But even though the PBO and the Department of Finance use different methodologies, they produce very similar estimates:

Both the PBO and the Department of Finance identify a reduction of the CABB of about two percentage points of income (Finance uses Gross Domestic Product, the PBO uses Gross Domestic Income) between 2005 and 2009, bringing what had once been a structural surplus into deficit.

This raises the question of how and why this happened. I know the opposition parties like to point to the corporate income tax cuts as the cause of the structural deficit, but there are two problems with this theory. Firstly, the timing doesn’t work: the first reduction occurred in 2008. Secondly, the revenue losses are too small to explain the movements in the budget balance.

As far as I can make out, the most important contributing factors to shift from structural surplus to structural deficit were:

  • The Martin government’s increase in transfers to the provinces
  • The Conservative government’s reduction of the GST rate from 7 per cent to 5 per cent

 




Browse

The Finance Dept. finally agrees with the PBO: it’s a structural deficit

  1. As far as I can make out, the most important contributing factors to shift from structural surplus to structural deficit were:

    The Martin government’s increase in transfers to the provinces

    The Conservative government’s reduction of the GST rate from 7 per cent to 5 per cent

    That won’t do at all. We all know Martin walked on water. Not to worry: A stream of commenters will arrive shortly to correct your “oversight”.

    In any case, said commenters will have half – but only half – a point. Harper has only acted in the past year to reduce the rate of the healthcare transfer increases, from a guaranteed 6% to a rate equalling the nominal GDP. And these changes don’t take effect until 2015-16. He could have implemented this two years sooner, but chose to allow the 6% per annum increases guaranteed by Martin to extend to 12 years, instead of the 10 Martin had first promised.

    A s a final note, I find it odd that the PBO can on one hand attack the rational for moving the OAS qualifying age up to 67, stating that the projected OAS increases are “affordable” (even though they will almost triple), yet complain that we are in a structural deficit. Kevin Page can’t have it both ways – denouncing cuts and then crying about deficit spending. Well, he can, but he undermines his own credibility when he does it.

    • Is the PBO “denouncing cuts and then crying about deficit spending”? I don’t think so. That’s your inference. It’s merely pointing out that, according to its analysis, a structural deficit exists. It’s up to Parliament (theoretically) to judge whether that’s good or bad.

      • And if that’s all they’re doing, then that’s great. But Page seemed quite adamant that OAS would continue to be affordable, even at a tripling of payouts each year. If he wants to give dispassionate advice on where the budget stands, that’s fine. If he wants to start weighing in on which cuts need to be made or not made and why, then he should run for office.

        • There was no reason to cut pensions. Canada is a very wealthy country.

          There is, however,a difference between a deficit, and a structural deficit and that needs to be addressed. First,of course, you have to get the govt to admit it.

          • Addressing a structural deficit is easy, you simply trim some spending. It’s not that hard.

          • Kay….let’s get rid of the military

          • Certainly DND is in line for some cuts.

          • Cons promised a completely rebuilt military…..that was one of their biggies.

            Ships, planes, tanks ….you name it….were promised. Then downgraded. Then cancelled.

            Afghanistan got some money for awhile. Pilots in Libya even stayed in hotels between daily bombing runs.

            Rest of it is a sham.

            THEN Harper started cutting……build em up, cut em down

            Utter stupidity.

            We don’t need any of that stuff anymore. Anything beyond a coast guard, pongo peacekeepers plus a search and rescue team, and some transport, and search and rescue planes is a waste.

          • Is that a Tony Clement quote Rick?

          • Do you actually know what the word “structural” means at all? I’ll make it easy for you. If you take 10 -12 billion $ out of govt revenue each and every year AND continue to increase transfer payments what are you left to cut in order to fix said Structural Deficit? Good luck on finding that much fat to trim.

          • Um, you’re left with cutting transfers to the provinces. Which SHOULD be music to the province’s ears, because the Feds have left them tonnes of room to raise taxes themselves, and you know…. take actually responsibility for the services they’re RESPONSIBLE for.

            Where in the constitution does it state the federal government is supposed to be a tax collector for the provinces?

          • But Harper isn’t cutting transfer payments, is he? And the argument about transferring tax points is not w/o its potential downsides. Besides i doubt if it is within either of our competencies to spell out adequately. Maybe SG could do a blog post on the matter?

          • Do stop being silly Rick

            In 1867 education was a tutor, a church class, or a few people around a table….one room school house at best….for basic literacy.

            Health was at best the ‘doctor’ in his horse and buggy with a black bag and leeches….or home remedies.

            Trying to pretend that the tiny 4 million people in Alberta can fully fund a modern health and education system is absurd. And PEI has no hope at all.

          • I don’t agree with the OAS decision either. I don’t necessarily oppose it -the age may need to be moved up someday anyway, perhaps as high as 70 – but I I would prefer that we first tried to reform the entire old age support system along the lines of what Paul Martin tried to do in the 1990s. He wanted to combine OAS and the Guaranteed Income Supplement into a single, means-tested benefit, with a single, uniform claw-back rate, based on household income. The government could then adjust the claw-back rate higher or lower as budgetary constraints dictated. It’s a shame Martin backed down on that plan back in the late 1990s purely for political considerations, especially after most of the heavy lifting to put it in place was already done. It was an all-round better solution. Simply moving the age to 67 without the necessary reforms is the easy way out.

          • The entire pension system needs an overhaul….agreed.

            It needs to be portable, decent, govt backed….and one item, not a bunch of bandaids.

            But then we need a GAI too, so we can get rid of the welfare hodge -podge…..but none of this will happen till we hit the wall.

        • You’re forgetting the fact that those costs wont triple in real $ at all, and the economy will continue to grow slowly as will the population overall.
          The adjusted figures i’ve seen indicate a real cost increase of 1/3 – a bulge followed a gradual downward trend.

        • “If he wants to start weighing in on which cuts need to be made or not made and why, then he should run for office.”

          Exactly. I’ve made the same point. The PBO frequently goes outside his mandate, and because his office is supposed to remain independent, he is immune from the criticism that he deserves.

      • He points out that a structural deficit exists, and then pooh-pooh’s every single spending cut that the government announces. Clearly he thinks that being “budget watchdog” means ensuring that the budget is never trimmed, only grows. Page is a clueless buffoon.

        • Only someone as “clueless” as you would draw that conclusion. He didn’t pooh pooh anything. He asked to see the numbers and where the cuts would fall. Unfortunately the govt thinks this is outside his mandate…i wonder why?

  2. So then the Harper government ignores allllll of the strings the Martin government sought to attach to those transfers, and we have a (more) decentralized federation.

    • The strings are futile anyway. Andrew Coyne expounded on this many times in this magazine. For all we know, each dollar transferred to the provinces simply replaces one dollar the provinces would have spent on healthcare out of their own revenue streams, freeing up that dollar to be spent wherever the premiers feel they have the best chance to bolster their own re-elections.

      If you mean that Harper used Martin’s own promises and agreements to permanently hobble the federal government, then you’re correct. That’s exactly what he did. Took the ball Martin handed to him and ran with it.

      • So that’s Coyne’s argument for not favouring targeted federal transfers, that the naughty premiers might use it for a slush fund? I had no idea Andrew thought so little of the people who run our provinces.
        If it had been left up to him we might never have even seen a universal health system. Obviously it’s such an impediment to democratic accountability.

        • That’s pretty much what the premiers do. Remember a few years back when Harper increased equilization in the middle of a Quebec provincial election, Charest immediately announced a tax cut equal to the size of the transfer increase. It got him elected. Most examples aren’t that blatant. Premiers are accountable to their own electorates, not the feds, whatever high-minded language might accompany any new fed-prov agreement. This is a reality; that one might wish it weren’t so doesn’t change anything.

          And this is why, when Martin was balancing the budget in the mid-1990s, massive reductions in provincial transfers were among the biggest cuts. It was the Finance department itself that was pushing for that kind of cut – they believed that the provinces had become too reliant on getting the feds to pay for their own program increases, and that both the federal and provincial governments were making a mess of their finances as a result. It wasn’t a political or partisan issue – it was something the senior Finance Canada officials – led by David Dodge – were extremely concerned about and therefore pushing hard for. I have no idea how Martin initially felt about this. But we do know that once he became PM, he instantly began restoring the transfers.
          Some future government will likely have to grapple with the same issue, and do the same thing as Martin. Having one level of government raise the funds, and another level spend it, is the very opposite of accountability. Instead of transfer increases, we should have been doing tax point transfers. Hell, even Trudeau did one of those back in the 70s. Harper has taken only the tiniest, belated baby steps in that direction by first removing the 6% health transfer guarantee (tying it instead to nominal GDP) then removing any equalization component from the new healthcare funding arrangement, making it a pure per-capita transfer. Such baby-steps aren’t near enough I’m afraid. A structural deficit would seem to confirm that.

    • Transfers with strings are examples of poor governing, because they lead to a lack of accountability. The government that does the spending should raise most of the taxes for that spending. That is the way to get sustainable and accountable government.

      • “That is the way to get sustainable and accountable government.”

        …and a patchwork of uneven social programmes from one side of the country to the other. How are you on equalization?

        • That is what equalization is for. It should be provinces taxing for their own spending, and discrepancies made up for by equalization.

          • No, equalization is to make things equal for all Canadians.

            Or do you think those in PEI can afford the same services and life-style as those in Alberta?

          • Why is it any more or less accountable to transfer funds via equalization than via other transfers to provinces, such as the health transfer? Sounds like robbing Peter to pay Paul so that you can eventually reimburse Paul to me…or something like that.

        • He’s exactly right. And so are you. We can have a patchwork, where premiers are responsible for raising the funds they spend, and therefore accountable, or massive federal transfers, but less accountability among provincial governments. So we do the typically Canadian thing and compromise somewhere in the middle. It’s not an all or nothing choice. There is, as with most things, a spectrum of choices.

          It is a matter of deciding where along the spectrum we want to be. Every choice has both benefits and costs. We see these choices reflected in various cycles of increasing and decreasing transfers. Trudeau increased them. Mulroney slightly trimmed them. Chretien slashed them. Martin became PM and increased them. Harper is increasing them more. Some future government will be forced to decrease them again. And on it goes.

          • Sounds reasonable. I hope you’re right, but i have little or no confidence in this particular govt to make sure good policy trumps good politics. Maybe it was ever so, i really don’t know to be honest.

  3. So we go from years of surplus under the Libs to a structural deficit under the Cons….and this is sound financial management of the nation?

    And after all that bragging, and lecturing other countries!

    What we need is for the current PBO to replace the current FinMin.

    • Most sensible people would rather the government run a structural deficit than a structural surplus. I certainly remember the Chretien/Martin era where the government would announce massive spending at the end of every budget cycle because they had “money to burn”.

      • Most people think nothing of the sort, and certainly not if they’re sensible.

        Oh wait….it’s you.

        • You believe that most Canadians think the government should over-tax it’s citizens just so they can go on annual spending sprees? You should probably get out of the house and stop trolling.

          • Yer into the bullshit again ol boy…..off you go for TG dinner instead

          • Our taxes have been cut and in exchange we have told our youth that they will pay for this. Great Neo-Con idea!!!

          • Hint: If they go on a spending spree, there’s no structural surplus.

        • A surplus means that the government is taking more money from the economy than is necessary. A surplus is either an accident or the result of politicians who do not understand the principles behind fiscal policy.

          Deficits are normal in a credit-based economy. Without deficit spending the only money in circulation would the outcome of bank loans. Attempt to balance a budget at the same time that private creditors are de-leveraging and the result is already predetermined: austerity.

          • No, it does not. That is Con crap. Stop it.

            A surplus means good management….and it should be put away for a rainy day (because there are always rainy days) or used to pay down the debt.

            Had the surplus been used for such a purpose instead of blown on silliness…..the govt wouldn’t have had to go into deficit in the first place when the Great Recession hit.

          • It has nothing to do with Conservative talking points, but I would not disagree with any self-declared conservative who made them!

            Its a statement based on the principles of a credit economy that uses a non-redeemable currency for liquidity. A federal surplus only means that more money is being taken from the economy than is necessary to manage the demand for money. The deficit is merely a record of the amount of money the state has spent into the economy against that which has been refluxed or taken out of the economy through taxation.

            Does a modern bank first “save” the deposits it lends out? Of course not. Demand for money is met by the creation of a loan contract and the crediting a bank account with deposits. In the same way, the issue of state currency is the outcome of a contract between the government and the banking system through the public Central Bank.

            The government spends, you receive a deposit in your bank account. No tax revenue involved.

          • Yer one of those gold-nutz ready to rant on fiat money and the federal reserve arncha…..

            Those are rightwing talking points….and bear no relation to reality.

          • You obviously have completely misread what I am saying. And are confusing descriptions of principle for political talking points. If anything, I was ready to be called out for being a misguided and dangerous Keynesian. I don’t see where you are picking up the idea that I am a gold bug from my comment… The term fiat money is used because it is the reality. If anything, your idea that money has to be saved to be spent is the gold-standard mindset right wing talking point.

            Here is a good introduction to where I am coming from:rodgermmitchell.wordpress.com/2009/09/07/introduction/

            neweconomicperspectives.org/2010/04/paul-samuelson-on-deficit-myths.html

          • Roger Malcolm Mitchell….yup.

          • Looks like the link to Mitchell’s site didn’t process. Do you know him? He’s a Post-Keynesian economist from Australia. No gold bug that is for sure.
            “To understand economics, you must understand monetary sovereignty. Most politicians and economists don’t.”
            rodgermmitchell.wordpress.com/2009/09/07/introduction/

          • WOW!!!! The Neo-Con mantra is now changing: deficits are good!!! Then why punish the youth by reducing their O.A.S. eligibility. Why have we traded corporate tax cuts and jet purchases for the screwing our youth?Our deficit is an illusion create on purpose by these Neo-Cons in order to justify their proposed reduction in services. We are being conned by these Neo-Cons.

          • Wow, that’s deep and profound.

          • “is necessary” is the sticking point. Especially in a country with a large amount of debt.

            Deficits are normal (during recessions), but ideally they come out of surplus investments held by the government, not interest bearing loans held by private individuals.

          • “Deficits are normal in a credit-based economy.”
            This right here, ladies and gentlemen, is not only why the country is massively in debt, but may also go some way to explaining many household debt problems, as well. I don’t know who started the “debt is normal” thing, but I suspect it was someone making money from interest. Hint: If every year (or even most years) you spend more than you make, that is trouble, and is not normal.

      • ‘Most people’ – you mean you and your cat?

        • Yes, I was referring to my cat and I. Thanks for raising that brilliant point. You’ve really helped elevate the level of discourse here.

          • It’s called sarcasm, i believe. I suspect Jan doesn’t like your unsupported claim to ownership of “most people”… most people wouldn’t.

      • You forgot the part about paying down the debt…unsurprisingly.

        You seriously think a structural deficit is preferable to a surplus? Remind me not to bank where you do.

        • Yes, a structural deficit is preferable to a surplus. How is a government over-taxing it’s citizens preferable to it running a short-term deficit while it balances the budget?

          • You are aware that those surpluses were ocurring at a time of economic expansion and growth aren’t you? You do know something about Keynesian theory i suppose? It was precisely the right time to be running surpluses. Who pays for a SD do you think? No free lunch bud.As a Conservative you should know that.

            Where i think Martin was open to justly deserved criticism was in raiding UI, even if the courts did say he could. Harper deserves some credit for fixing that – if he really has?

          • Now you’ve changed horses in mid stream…talking about short term deficits now are we…whatever happened to Structural ones? Gone off them, have we?

      • Again a mythical notion supported by Neo-Cons. Sorry but these Liberals were actually paying down the debt in addition to supporting the services we so cherish. Not so with the Neo-Cons who cut revenues in order to get rid of services they so detest. We are being conned by these Neo-Cons. .

      • Actually, only idiots would rather that.

        Both are unsustainable, but a structural deficit tends to collapse far more suddenly, when creditors simply stop trusting the government to be able to pay. Then we have Greece and a lot of severe suffering amongst the populace.

        A structural surplus, on the other hand, would tend to slow the economy and so self-correct before it could get too bad — and that’s assuming you didn’t have normal political inclinations take over to spend the extra to get re-elected.

      • you said it bub ..they ended thje fiscal year with a big surplus…I’ll put it as clear as Mr.Goodale did during last election…no Conservative federal government has taken us from a deficit to a surplus. Just ask the Americans. They Conservative bunch always say ‘eh there we’re conservatives/we’re business …we’ll always going to be good with you’re money. Run the numbers. Conservatives just take the money and spend it differently. And alot the time they actualy take more.

      • no; government should run like business in that all surplus should be put into a rainy day – slush fund to be used in recession/depressions like the one we are currently going through. it was martin that kept this boat floating while harper seems hell bent on sinking us. in case you’re wondering i am a Red Tory not a westerner who once threatened to separate if he didn’t get his own when – then created a new party and became it’s leader. imagine if Parizeau had become prime minister…

    • That’s for sure. Unfortunately for Canadians, Harper is getting rid of Kevin Page next spring. No doubt he’ll put some lackey in his place or abolish the office altogether as a “cost savings” measure.

      The reason the Harper Conservatives turned a Liberal-era $12B surplus to a massive structural deficit is because:

      a) they raised government spending by $100B/yr or a 60% increase; this is a worse record than Bob Rae’s according to conservative columnist Andrew Coyne

      b) according to their 2009 budget, they boasted they would be cutting taxes by $44.4B/yr (by 2013)

      Of course, while Harper has been raising spending on prisons, militarization and a Soviet-style information-control bureaucracy, he has been slashing benefits, services and transfers to the provinces. So most Canadians have not benefited from the spending increase.

      The tax cuts have also failed to “create jobs.” The corporate tax cuts were supposed to boost investment and productivity. But corporations are hoarding cash and productivity growth is at all time lows.

      • Again, the notion that corporate cuts generate increased revenues is a stupidity that still resounds with the Neo-Cons. In addition,let us not forget the proposed expenditures for ships planes and other irrational expenses that are being forced on Canadians with the trade-off that our youths of today will be forced to work two more years in order to become eligible for OAS. We have not even been made aware of the cuts in services that will result by these cuts in taxes that these Neo-Cons have allowed. And we continue to provide rich corporations with all kinds of tax breaks at the expense of services that the Neo-cons absolutely dislike. We are being conned by these Neo-Cons.

        • Read it and weep, grind your teeth, whatever.

          “Corporate tax revenues coming in to Ottawa were up slightly last year, even as the Conservative government was in the midst of an aggressive plan to lower the corporate tax rate. The federal government raised $31.7-billion from corporate taxes in the fiscal year that ended March 31, up from $30-billion in 2010-11″

          http://www.theglobeandmail.com/news/politics/corporate-tax-revenues-higher-despite-lower-rate/article4597437/

          • Indeed the article states this quite clearly. Why then is Flaherty’s deficit forecast totally out of whack. Seems another Neo-Con con job to me, much like the hype about 55k jobs created last month, with well over a third occurring by youths going into business for themselves (no way to get such statistics on a monthly basis) while the unemployment was up (by stating more people are looking for work when in actual fact unemployment figures come from a calculation of people collecting E.I.). Doesn’t it make you wonder how the Neo-Cons are releasing all of this unsubstantiated information that cannot absolutely be verified by actual statistics. Frightening isn’t it?

          • The G&M article title is misleading. Nominal corporate tax revenues were slightly up from 2010 to 2011. But that’s what happens as the economy grows (GDP.) That’s why tax revenues are measured in terms of GDP by economists. In these terms tax revenues remained the same: 1.8% this year; 1.8% last year.

            Considering how corporate tax revenues fluctuate, it’s completely dishonest to suggest they “pay for themselves” when there is a one-year bump. That is nothing more than stat-cooking.

          • Thank you for your insight on this issue. This has been a point I have been trying to make for a while. Take care.

          • i am what is known as a red tory which puts me into direct conflict with the neo-cons. i am so tired of governments trying to pass off ‘reaganomics’ as anything other than voodoo economics. if you take in less money than you spend you will end up in a deficit. all rich corporations are hiding their money offshore and will never put it back into the system by creating jobs. they are all about streamlining and offshore cheap labour etc. millions of jobs have been lost in a ‘global’ economy. i am working a full-time job while attempting to open my own business. i worked around 80 hours last week and i am not young i am 41 years old. young people may be starting up their own businesses but they will be in for a rude awakening when they run into the ‘tax man’ and don’t have an MBA to back them up. it’s depressing that the government concentrates on ‘big’ business when all studies show that small, mom & pop operations are responsible for more job creation than anyone else. the difference is the cibc can buy politicians mom & pop can’t. cheers

          • No economist is going to say a small rise in nominal tax revenues over a 1 year period is proof that tax cuts pay for themselves. (Not an honest one.)

            The reality is that corporate tax revenues were 1.8% GDP this year (2011-2012) and they were 1.8% GDP last year (2010-2011.) That is not an increase. One must also take into account there are other factors that affect corporate tax revenues (like variable profits and when tax deductions are claimed.)

            It should also be noted that the Harper Government bragged it was lowering corporate taxes by $14.9B/yr in its 2009 budget (by 2013.)

            Here are corporate tax revenues over the past decade (base year) taken from the Department of Finance website:

            2000: 2.6% GDP
            2001: 2.2%
            2002: 1.9%
            2003: 2.3%
            2004: 2.3%
            2005: 2.3%
            2006: 2.6%
            2007: 2.7%
            2008: 1.8%
            2009: 2.0%
            2010: 1.8%
            2011: 1.8%

            1% GDP = $17.4B (2011)

          • Hmm. I seem to miss where that says that the reduced taxes generated the revenue.

      • Somehow I doubt Harper plans to benefit anyone…..actually it appears to be …revenge

        • Yes Harper is certainly a petty man. It seems like he’s paying QC back for not voting for him by renaming the Canadian Forces after the British monarch and combining our embassies with the British.

          He is not a person who should have political power. That he got absolute corrupt power when a super-majority was opposed to him suggests we need to reexamine our voting system… Under him, the “dictatorship” is not so “benign”…

          • “Nobody expects the Spanish Inquisition!”

            THAT was our mistake!

  4. The article is missing the essential point. Canada needs the federal government to become structural smaller, because the provinces have to become structurally larger. Health care and education are growing. These are provincial responsibilities primarily, not federal ones (although many progressive types want to ignore the Constitution) So the higher restorative transfers of Martin and the GST tax cuts by Harper provide more fiscal capacity and room for the provinces at the expense of the federal government.

    This was/is a good thing considering the division of powers and the challenges the country faces in providing services.

    • Your assessment is far too reasonable and obvious for the “progressive” left here to understand. It’s astounding how the so-called political class in Canada has completely accepted the idea that Ottawa’s simply there to tax the citizens in order to hand the money over to provincial governments so that they have zero accountability on how that money is spent. See Manitoba for a prime example of this.

      • How did you become such an authority on what the “progressive” left understands and accepts? You make these banal, sweeping generalities about those with whom you evidently disagree and make unfounded assumptions about what they know, want, understand, believe, or accept.

        Stick to advancing your own point of view and stop attributing motives and ideas to others about whom you evidently know very little.

        • For years it was ‘lefties’ and ‘looney lefties’ they denounced……what ever Cons hated it was automatically ‘left wing’

          Lately it’s been fashionable for them to call anything they hate ‘progressive’ instead…..although why they want to come across as anti-progress I don’t know.

          Goes along with anti-scientific, and anti-intellectual I guess.

          • The left abandoned the term ‘liberal’ and started calling itself ‘progressive’ about 15 years ago. The word has had a history of fading in and out of fashion for at least a century. And of course, the rest of us gleefully turned the word ‘progressive’ into a pejorative. I can’t say it wasn’t fun.

          • The left didn’t abandon anything…..they are left

            Liberal types are generally liberal

            Philosophies as well as parties are involved here.

            I don’t know anybody who calls themselves ‘progressive’…..unless they believe in progress. Apparently Cons don’t.

            You are just being bizarre.

          • You mean like “progressive conservative”…?

            Puahahahah~!

          • So progressive people don’t like being called progressive? What do they like to be called now?

          • I’m progressive. I’m hugely in favor of progress.

            It has nothing to do with politics.

            Maybe you could just use the party names?

        • “You make these banal, sweeping generalities about those with whom you evidently disagree and make unfounded assumptions about what they know, want, understand, believe, or accept.”
          Whereas progressive people would never ever dream of doing such a thing. Especially the self-styled progressives who populate these comment boards.

          • Exactly! You’re a quick study, Mr. Bean

    • I agree, but increasing transfers is the wrong way of doing it. Tax point transfers are the way to go.

  5. “As far as I can make out, the most important contributing factors to shift from structural surplus to structural deficit were:

    The Martin government’s increase in transfers to the provincesThe Conservative government’s reduction of the GST rate from 7 per cent to 5 per cent”

    Not to put words in SG’s mouth but is it that simple? Martin ramped up spending and Harper made it worse by cutting GST revenues? Doesn’t Harper get to share in both sides of the blame by continuing Martins policy of turning on the taps full bore to the provinces, while recklessly cutting GST revenues?

    Martin was at least restoring some of the cutting he had himself carried out[ helping his chances for reelection as well no doubt] while Harper hasn’t even attached strings. Martin provided useful political cover for Harper, but ultimately Harper should also carry that can [for prioritizing politics/ideology over good fiscal policy] as well, even if it fits his view of how confederation should work.
    Personally i see Martin and Harper as two side of the same self interested coin – both willing to recklessly commit to policies that fly/flew in the face of the best available evidence.

  6. I dislike politicians who promote the concept of “starve the beast”. The only reason you’d starve any animal, beast or nay, is to end its life. If you promote a ‘starving the beast’ philosophy, you essentially don’t think that Government has a right to exist – this beast must be starved into submission.

    But government is, in my opinion, a good animal and not a beast. It’s the workhorse of the farm that is life. If you start starving the workhorse, less stuff is going to get done around the farm. Fields get plowed less and poorly because the beast can’t walk as far or dig as deep for as long. This yields less grain to feed the horse over the summer, so you need to feed it less so less comes in and so forth… but then you say you recoup the losses on the workhorse because you sold the carcass for glue and paintbrushes. Sure, you sold the carcass but was it enough to get a new horse? Are you going to sell a healthy horse next year for glue if you need the money?

    The GST should be raised back to seven percent and surpluses should be encouraged until we pay down the debt – once we’re continuously in the black then issue a tax rebate and then lower the GST rate to six (see if you surplus that year) then drop it back to five if it’s sustainable. Don’t cut taxes – issues a tax rebate to each citizen if we do that well in a year.

    They cut taxes and scratch their heads as to why there are no government revenues to fend off deficits – *smacks own forehead*

    • Why not simply leave the GST where you put it back to[7%] and reduce income taxes/payroll taxes…possibly CIT? Although i’m not really convinced by current events that’s necessarily a good idea.

      • So which federal political party is it that is advocating putting the GST back at 7%?

        • None as far as i know. Let me know when someone gets the nerve up to correct dumbest policy move in last ten years at least, maybe longer?

    • The federal beast has to be starved so the provincial beasts have room to grow. The areas the country needs to spend are primarily in areas of provincial jurisdiction constitutionally (health and education). There is only one taxpayer. Unless the federal government becomes smaller there will be no fiscal room for the provinces to spend on health and education. Chretien starved the provinces of transfers for health and social programs, while keeping Ottawa basically whole. Harper is taking Ottawa on a diet and maintaining health and social transfers.

      • Neither needs to be ‘starved’. That’s silly.

        Plus health and education should be federal, so change it.

        • If one over taxes to try to remedy over spending it leads to economic collapse. See Greece, Spain, and with months and years, Italy and France.

          What are the two most important government priorities for the next generation? Health and education, which are primarily in the provincial constitutional realm. Which means the federal government should go on a diet so the provinces and hence the country can meet this challenge while still having a healthy economy.

          There are limits to both spending and to taxation, if one wants to maintain economic growth and prosperity. If one does not restrain one’s appetite for both spending or taxation in the relatively good times, it will inevitably lead to economic disaster.

          • No, it doesn’t and stop using Greece (or any other EU country) as an example of this nonsense.

            Dumping everything on the provincees breaks this country up into 10 separate countries. I’ve no doubt that’s what Harper wants.

            Do you?

          • I support equalization. Equalization is essential to a fiscal union, or you end up in the mess Europe is in.

            Monetary union requires a fiscal union. Monetary and fiscal union require equalization, or you eventually end up with the catastrophe that Europe is becoming.

            The trouble with the central fiscal authority taxing and distributing to the subnational governments to spend (apart from equalization), is that it allows the subnational governments to be delusional about their own spending for too long. Governments can sustain bad government for too long if the taxing and spending are directly connected.

          • Stop with the Europe-as-boogeyman crap. They are dealing with an entirely different situation than we are, and they will fix it.

            Focus on Canada.

            Provinces have been in surplus and in deficit for 145 years now…it goes up and down. Only Cons get hysterial about this.

          • My, those Cons that you talk about sure sound awful. Why, it sounds like they’re responsible for everything that’s wrong with this world.

      • I would argue that part of the problem are that health and education are in the provincial jurisdiction. Anybody who seriously thinks that’s the way it should be is essentially saying a province like PEI should have one room school-houses and a travelling doctor for their medical service — if they’re lucky.

    • Particularly with an economy that is heavily driven by non-renewable resources (oil, mining, etc.) we really ought to be investing in ways to produce long-term dividends once those things begin to run out or become less desirable to bring to market. Many nations in similar positions to us are building up massive sovereign wealth funds that will provide their governments with revenues long after those resources dry up. Moreover, there is much to be said for the added clout that such funds provide middle-power states on the international stage.

  7. Typical horse pucks from the CPC. “oh no no no…we don’t have a structural deficit…we have a cyclically adjusted budget balance….yeah…that’s right….”

    When you want to get rid of a problem without dealing with it or admitting to it just call it something else instead….magic!

  8. Is a balanced budget within the business cycle necessarily a “good thing” or is it a staple of an old-time religion? What is the purpose of a federal government running balanced budgets when we no longer have an international gold standard? To prevent the government from absorbing too many of the country’s resources? If that is the case, why shouldn’t we be making relevant concrete goals based on the real economy and let the books balance as they may?

    “I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, in every short period of time.”

    Paul Samuelson, interview with Mark Blaug 1995.

  9. Having the Finance Department agree with the PBO about the basic numbers and probable future trends and so on seems like a good situation.

    However, I’m concerned that the Cabinet might not be fully on board just yet.

  10. Interesting to see that some supporters of the current government prefer structural deficits over structural surpluses.

    Makes me wonder what happened to that old Debt Clock thing and the folks who rallied around it not so many years ago.

    • Oh no problem, they just make it run backward, or something like that.

      Seriously…cognitive dissonance…respecter of no particular political creed.

      • I suppose I should clarify…

        IF you’ve got a large accumulated debt – especially one that has some portions that are paying out steep interest – then running a structural surplus for a decade or two seems like the correct course of action.

        OTOH, IF (somehow) you’ve got a large accumulated credit – not sure how that would happen, or if it ever should happen – then running a structural deficit seems OK.

        Which is also to say that I wouldn’t be all that keen on intentionally running a structural surplus while out of debt with the goal of accumulating a ‘nest egg’ that would be used to ride through the next trough. Nope, not too keen on that at all.

        And, btw, personally I’ve never really been all that comfortable with this idea that shrinking away an accumulated debt by simply growing the GDP is appropriate.

        • Curious, but if we can do it, what do you find disturbing about the idea of growing past a debt?

          • Not totally sure why…..I suppose that once the debt has been eliminated (or even reduced to a microscopic level) then I start to agree with the “talking point” that citizens should be “allowed” to spend their money on whatever the heck they want, rather than have a hopefully benign government force them to save for some rainy day.

            Citizens already contribute to rainy day funds through EI payments and CPP payments and funding of RRSP tax breaks and so on.

            I think having the government conciously stockpile money without a definite, definite purpose crosses a line.

          • Except that talking point doesn’t actually exist other than as a theoretical construct by the hardcore libertarian crowd. Most people, when it really comes down to it, don’t mind the government showing forethought in collecting extra revenues. Proof? The Alberta Heritage Fund is an example of government collecting “extra” and just socking it away for when it’s needed. It’s development was lauded pretty much by all sides, and there were no serious debates about it being a symptom of over-taxation.

            However, I’ll go further and point to Ralph Bucks as proof of the flipside — if the government does collect to much, giving it directly back to the populace is widely regarded as a pretty stupid move. Nobody objected to getting the money, of course, but there was widespread condemnation of a government that couldn’t think of anything to do with that money — such as infrastructure investments.

            I mean, your feeling is your feeling and I won’t challenge that. I’ll just say that this whole “over-taxation” thing is mostly a theoretical argument. Most people really don’t notice.

            What people do notice is if government is collecting money but being ineffective with it. That’s different from investing it.

          • Isn’t it true that most, if not all, talking points are nothing more than theoretical constructs? ;-)

            And, not that it matters too much, I myself wouldn’t have attributed that idea so m uch to hardcore libertarians, but perhaps we should save that discussion for a different thread.

            Wrt the Heritage Fund and Ralph bucks, you make some good points.

            But I will suggest that the case of the Heritage Fund is different. In the big picture I completely understand that a dollar into the provincial treasury is a dollar in, and really the source doesn’t matter. Yet, it does matter. People can “buy into” the idea that natural resource revenue is different from income tax revenue, and that we should be directing a portion, even a good portion, of that income into a fund.

            Regarding Ralph bucks, I agree that much of the frustration around that plan was because even back then there were some obvious infrastructure projects that could have been started. But as well there was frustration around the method of returning that money – outright cheques just seemed so crass. Why not raise the basic exemption or something similar so that the money was targetted a bit more, rather than “vote buying”.

            Also somewhat agree with your last paragraph (witness the furor over Oda’s $16 OJ), but only to a point, and that point is different for all of us.

            Some folks, simply on principle would prefer to make all their financial decisions themselves, even while recognizing that working together through government, might actually be more cost effective. Other folks have a much higher acceptance for working together, at the cost of less freedom to make their own choices.

            I’m in the middle somewhere – no great desire to lower taxes from where they are (while still looking for those efficiencies), but not sure how many more things we should do together.

    • “some supporters of the current government”
      As evidenced by one or 2 anonymous internet trolls on this comment board. I guess that’s part of this evidence-based reasoning thing I hear so much about these days.

      • I see what you are getting at, sure, but there is more than just those comments as evidence.

        Basically since gaining power running a surplus (structural or otherwise) that could have been used to keep paying down the debt has somehow fallen out of favour, and I don’t recall a groundswell of opposition to that change in strategy from within the ranks of the CPC or its supporters. The move to reduce the GST and the response to that move is specific evidence that does reflect on more than just the two or three commenters here.

        The “government debt is bad” talking point has been replaced with the “a surplus means the government is taking too much out of your pocket” talking point, and again, we are not just hearing that from just two commenters on this site.

        So, what say you? Do you agree that back in the day it was all about the accumulated debt, and how that was saddling our children and our grandchildren, but now that doesn’t seem to be an issue anymore?

        To be clear, I’m not in favour of balanaced budget laws, at least not ones that require a balance to be achieved year after year after year, but at the same time I’m not in favour of carrying a sustained debt year after year after year – paying off debt is sensible at home, seems sensible for my portion of the government debt as well.

        Btw, I would be quite interested in some type of balanced budget laws that would require balance over a (lets say) 10 year time period.

        • I think in my case, you’re preaching to the converted. I am in favour of retiring debt, especially because once you do that, you’re able to get much more bang for every buck the government spends (i.e., it spends $ on programs that help people rather than paying back banks and bondholders). I opposed the GST cut and I was one of that distinct minority of Candians who supported the GST when Mulroney/Wilson brought it in in the first place.
          Of course, you will recall that opposition to that GST was spearheaded by the Liberal Party of Canada, who campaigned on an explicit promise to scrap the GST. But they were lying, and never did a thing about it once they got in office. It would be interesting to know what the LPC’s official stance is on the GST now.

          • Agree with all of that, including support for GST when it replaced the hidden manufacturing tax.

            At one time, IIRC, we were spending at least 25 cents of every dollar – and I have this inkling that it was actually over 30 cents – on interest. I’ve not heard what that figure is today, although it is likely quite a bit lower, not so much because the debt is smaller, but more because (I’d assume) a good portion of that high interest debt has been turned over and become low interest debt.

            Of cousre, some ‘economist’ might come along and remind us that much of that debt is held by Canadians as part of their savings, making it less of a problem. ;-)

  11. As far as I’m concerned, it makes little sense to point to one spending item or one tax item in a budget that is billions upon billions of dollars with many taxes and thousands of spending departments.
    You can point to the tax decrease, but then there may have been lots of items in the budget that were intended to cover the decreased revenue. Whether a budget is in deficit or not is really the sum of all its components.

    • Because if you can point out a few things that make up the bulk of the problem, it’s a hell of a lot easier (and less expensive) to fix then saying you’ve got to cut down paper-clip purchases in the Speaker’s office etc.

  12. I have been pointing this out ever since the Federal Government first went into deficit… cutting the GST was financially irresponsible and the only viable way to eliminate the deficit is to raise it again. It is commendable that they kept their campaign promise to lower the unpopular tax; but it was reckless and irresponsible to pretend that this could be done without cutting the budget down enough to match the lower revenue. If they really wanted to lower the GST, without cutting the budget they should have been more creative in how they implemented the reduction. They could have reduced it to 5% on some items to spur investment and encourage spending in key sectors of the economy (tools, energy efficiency, green energy production, and domestic travel, etc.) while leaving it at 7% or even raising it on higher priced items such as sports cars, international travel, fast food, luxury items and sporting events, etc.) to offset the cost of lowering it for other items to encourage spending.

    The GST sucks.. but it was brought in by the Conservatives back when they cared about being financially responsible and balancing the budget. It cost them the election, and split the party in two, but it worked. It led to surplus budgets for a decade, and allowed us to pay down the debt and save billions in interest. People had accepted it… and if they were honest about it with the public right now, people would overwhelmingly support going back to balanced budgets, even if they have to pay 2% more when they buy things.

    Thinking we can balance the budget in any other way is an exercise in futility. The Conservatives came up with the GST because there was no other way. They didn’t choose to implement the most unpopular tax in history and become a fractured opposition to a decade of Liberal governments, on a whim. If they could find any other way to balance the budget, they would have done pretty much anything to avoid implementing the GST in the first place… they knew then, and inside the closed door meetings in the PMO they know now, that there is no alternative balancing the budget by raising the GST.

    Every single day they refuse to admit this, and confront the public about the deficit is one more day we are paying more in interest than we would be spending on GST if they raised it up again. We may see a 2% lower price on our receipts when we go shopping, but we are paying just as much in interest collectively, on the money we are borrowing to pay for that 2% discount when we are shopping.

    Lets end this insanity, and get our budget balanced again. We were the envy of the world for our fiscal responsibilty, and now we are looking at every dollar the government spends and trying to pinch pennies.

    • You’ve identified the problem though. Within the Conservatives are those hard-reform/uber-libertarian types who really want the federal government to fail. They want to be in a collection of individual states (ideally no larger than their own living room) and anything which takes a dime of their money away for someone else that they didn’t personally approve of is to be fought as hard as possible.

      If the CPC raised the GST, it would simply cause that split to recur between the camps that want good governance for Canada, and the camp that wants no governance of themselves. Unfortunately (for them) there’s far too few of them to get elected on their own merits, so they get together with the more realist conservatives, who also have too few to reliably get elected, in order to achieve power.

      Doubly unfortunate (for us) is that it’s that first group who holds the power now, thanks primarily to our defence minister, who purchased his own political advantage within the party at the price of.. well.. the rest of us.

      • But surely there are a bunch of fiscally responsible Liberals and New Democrats who see the light as you do and are publicly advocating a GST increase? Aren’t there?

        • Yup. There are. At least among the ones I’ve talked to.

          More importantly, while that may not be any of the MP’s, the idea of raising the GST is not a wedge issue within either of the opposition parties itself, whereas I contend it is one within the current CPC.

          • You’ll note I said “publicly advocating a GST increase”. So presumably you should be able to provide a link. Because, you know, their advocacy of a GST increase would be a matter of public record. Right?
            Or is it a SECRET Lib/Dipper plan to increase the GST but not tell anyone until they’re elected?

          • You do know that publicly doesn’t necessarily mean “with media coverage”, right?

            These are just Liberals and NDP folks who are not at all ashamed to assert that the GST should be raised.

            Let me know once you’ve figured out the english language.

            However, beyond that, if you mean what other party is advocating it? Honestly. Don’t know. And honestly, it’s completely irrelevant.

            As I pointed out to Andrew the other day in an analogy, just because someone calls you an idiot doesn’t mean they’re saying anybody else is smarter.. they’re just calling you an idiot.

          • I guess you and I have different definitions of what “publicly advocates” means. In your books, if somebody tells you something at a cocktail party or at lunch or at a bar, that’s publicly advocating something — even though it doesn’t enter into the public record at all, and even though, mirabile dictu, this person may be an elected Member of Parliament.
            In my books, a politician or other partisan political figure can only reasonably be considered to have publicly taken a position on something if that position is a matter of public record.
            If what you’re telling me is that Liberals and Dippers are willing to tell you in private conversations with you that they would like to see the GST raised, but none of that sentiment is on the public record, well what does that tell you? It could easily be interpreted to mean that these Liberals and Dippers are unwilling to go on the public record and honestly state their position on a key public policy issue. Which says to me that they are spineless, to say the least.

          • Or perhaps that they’re not public figures?

            I mean, I guess I don’t move in the same circles as you, where everbody is an MP or government minister.

          • I think I lead as quotidian an existence as you do. All I can say is that if there are significant numbers of ordinary, rank-and-file Liberals and Dippers who think that the GST should be raised back to 7%, then it’s certainly curious that this groundswell of responsible fiscal sentiment has not percolated up to the MP or other senior levels of either party.
            Are these people scared to tell their MPs and party bigwigs what they think?

          • Now you’re changing the goalposts. First you were asking if there were any. Now you want significant numbers — enough to sway the party line.

            I never claimed there were that. And until now, you hadn’t asked for it.

            And once again, I’ll point out it’s STILL irrelevant. CPC were stupid for reducing it. I still contend it is impossible for the CPC, as it currently exists, to raise it again without risking a severe fracture. This is not the case for the other parties, however, so whether they advocate such a course of action now, later, or not at all, has absolutely nothing to do with my point.

          • I agree with you that the CPC were stupid, from a fiscal policy perspective, in reducing it. I also agree with you that the CPC have now painted themselves into a corner, such that they cannot do anything that even looks like raising the GST without severe political repercussions.
            But I think I disagree with you re: the other parties’ positions (assuming they have one; that seems very difficult to determine, for some strange reason). To me, the positions of the other parties are extremely relevant — it’s like the elephant in the room that everyone tries to ignore and nobody wants to talk about. And I think the reason for that is that Liberal and Dipper MPs and their leadership are scared sh*tless about raising the issue because they see it as a third rail — and they have the recent immolation of the BC Liberal Party over the HST to look at as a recent cautionary tale. I just wish somebody out there would grow a pair over this issue. But I’m not optimistic.

    • So which federal party is it that’s responsibly advocating increasing the GST back to 7%? I assume the Liberals are, because they’re awesome when it comes to fiscal stuff and all.

  13. “Canada’s Debt History” at debtclock.com informs us that HarperCons have wiped out an 8-year long $105 Billion debt repayment:

    Between 1997 and 2008, our deficit slowly declined to $458 Billion. Since 2008, during HarperCon control and leadership, our federal debt grew by:

    - $5.8 Billion in 2008-09;
    - $55.4 Billion in 2009-10;
    - $34 Billion in 2010-11; and
    - $31 Billion in 2011-12.

    In addition, our federal deficit is expected to grow by $21.1 Billion in 2012-13 and is expected to continue to grow until 2015-16, even with all the cuts!

    In just 3 years, from 2008 to 2011, HarperCons have completely wiped out all the debt repayment of $105 Billion that occurred during the previous 8 years.

    The incompetents obviously should not be in control of any budget anywhere. Or perhaps when the very effective Charbonneau Commission is finished in Quebec, it should be appointed to look into federal matters, too?

Sign in to comment.