How to cook up a fiscal crisis for political gain
The most important fiscal action the Conservative government took after being elected in 2006 was to cut the GST by two points. At the time — and ever since — every credible economist in Canada said it was a bad, bad idea. With a general election less than a year away, now seems like a good time to run a ‘what-if’ scenario.
The Conservatives for years vowed that they would eliminate the deficit of $55.6 billion recorded in 2009-10 by 2015-16. And the government has been aggressively cutting government spending on programs and services since 2010. Despite recent declines in oil prices, the federal deficit will be eliminated in 2015-16 — possibly even a year earlier.
On the surface it looks like good fiscal stewardship, but the surface hides a few unsettling facts: Those program cuts weren’t necessary and the deficit could have been eliminated earlier. And it all comes back to that bad, bad idea.
In 2006, the Conservative government inherited a structural surplus of $13.8 billion, just under one per cent of GDP. This represented a major correction from the $39.0 billion deficit (5.5 per cent of GDP) Ottawa was carrying in 1992-93. The debt-to-GDP ratio had dropped steadily from a high of 67.1 per cent in 1995-96 to 28.2 per cent in 2008-09. Program spending had fallen to a record low of 11.9 per cent of GDP in 1999-00, down from a high of 17.0 per cent in 1992-93.
In other words, the heavy lifting was done already. Never before in Canada had a newly elected government inherited a sustainable fiscal structure — a structure that had produced 11 years of surpluses and a declining debt burden. The fiscal situation could not have been better for the Conservatives.
READ MORE: http://www.ipolitics.ca/2014/12/08/how-to-cook-up-a-fiscal-crisis-for-political-gain/
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