Deficit

[Wild Bill]

I guess if you live long enough you'll see everything!

Here we have a long series of posts defending LIBERAL fiscal accountability!

If you had asked people about this subject in 1997 or so the very idea would have been inconceivable for all but the most Liberal partisans.

[August1991]

You can make a case that Martin largely undid what was accomplished under Chrétien. But the fact remains that under the stewardship of Jean Chrétien, government spending rose an average of less than 1% each year (much less than half the rate of inflation for the decade: 2.4%).

The Liberals cut, and cut deep my friend.

Your numbers show that federal tax revenues increased under the Liberals in the 1990s (which was one of the points I was making). The federal deficit fell because of a rise in revenues. The GST did this, as well as general economic growth which was a product of various policies in the 1980s.

Now then, federal government spending.

So, the federal government was "paying out less money" but this was not because of Chretien/Martin "cut[ting] government spending?"

...

Looks like Visionseeker beat me to the point.

Note some differences though - I only looked at total spending before debt servicing whereas VS looks at total spending after debt servicing.

I converted the numbers to 2008 $ because I presume the fiscal tables are presented using nominal $. VS does not adjust for this.

In the end, the point is more or less the same - spending was cut during the 1990's.

I prefer msj's numbers because they make more sense in terms of sensible comparisons.

msj (and visionseeker), I know the official numbers in real terms, in terms of programme spending and even in terms of non-transfer spending. I know that the Chretien Liberals presented a picture of declining expenditure and a balanced budget.

You guys should follow Quebec politics a little more. Bernard Landry also balanced the Quebec budget at the same time. Of course, it depends how you define a government expenditure, or a government revenue.

It's well known that the Chretien Liberals reduced "federal government spending" by simply declaring that some of this spending was now a "provincial expenditure". Or how about raiding the UIC fund or raising CPP contributions? (The US federal government is past master at including social security in budget calculations.)

The Chretien Liberals also created a series of quasi-governmental organizations that were not officially part of the government budget statement. For example, in the mid-1990s, the federal government tried to downsize the civil service with cash payouts (the accounting of these were strange) but then many civil servants were hired back as contractual employees.

The book that opened my eye to government budgeting is David Stockman's book "The Triumph of Politics". Stockman was a congressman who went on to be Reagan's budget chief. The book is a record of his experience trying to reduce government spending. It's a remarkable description of creative accounting.

And let's be honest, government budgets are not accounting exercices; they are all about the real world of politics.

So, when politicians as slippery as Jean Chretien or Paul Martin claim to have reduced government spending, I just don't believe it because they say so. Call me cynical if you wish.

Oh please no, none of that repudiation by deferral nonsense. The fact is that debt has to be serviced and the cost associated with that servicing can literally paralyze the fiscal capacity of the state if the debt rises too high or too quickly. Furthermore, increasing levels of debt represent a transfer of wealth from the generations who have to service it to those who presided over its rise. In effect, if generated by anything other than investment spending for the benefit of those who follow, increasing deficits are nothing more than theft from one’s children.

Visionseeker, it is so hard to get people to understand this. I'll try again.

Governments borrow at a very low interest rate. The burden is lower than any debt that you may have.

If governments cut taxes that leaves you with more money in your pocket that you can use to pay your high-interest debts so that you can leave to your children more money (if you choose). IOW, if we leave a burden to our children, it's not the government's doing.

Anyway, Canada as a whole (in part because of government borrowing and spending) is richer now than it was before. IOW, as a whole, we leave more collectively to the future than we inherited from the past. The idea that we are leaving a debt to future generations, in a country such as Canada, is absurd.

Future Canadians will have more and better stuff, be richer, than anyone posting here today.

----

It makes sense for an individual to pay off debts or pay down a mortgage. It's better to live debt free. The same logic does not apply to a society or to a government. There is microeconomics, and then there is macroeconomics. Going from one to the other properly means understanding how one individual's sensible actions, combined together, lead to completely different results at the level of the collective.

Canada will always be in debt and so to its government even if individual Canadians will always be paying off their debts.

Edited July 27, 2008 by August1991

[jdobbin]

I guess if you live long enough you'll see everything!

Here we have a long series of posts defending LIBERAL fiscal accountability!

It comes up when we see when we see the present Tory government spending like drunken sailors.

[jdobbin]

msj (and visionseeker), I know the official numbers in real terms, in terms of programme spending and even in terms of non-transfer spending. I know that the Chretien Liberals presented a picture of declining expenditure and a balanced budget.

It wasn't just how the Liberals presented it. It was how it ended up. This wasn't just a creative way to keep spending up while putting up pretend numbers. There was dramatic and drastic cutbacks. If it was all false, I'm sure that Harper would have emphasized it years ago. He hasn't because as an economist, he knows the Liberals cut back like no government has before and none since.

[WIP]

What argument is left to keep Harper in power, or give the Conservatives a majority if they can't do the number one thing that people elect conservatives to do - provide sound fiscal management! Conservatives aren't interested in the environment, pay lip-service to equal rights issues, and want this country to be nothing more than an adjunct of the United States, that supplies oil, fresh water and other natural resources!

The liberals and socialists can at least claim to be spending the money on income redistribution -- conservatives spend our money to reward corporate interests with rich defense and resource-development contracts!

[bush_cheney2004]

....The liberals and socialists can at least claim to be spending the money on income redistribution -- conservatives spend our money to reward corporate interests with rich defense and resource-development contracts!

Sure they can ...while this country still is nothing more than an adjunct of the United States, that supplies oil, fresh water and other natural resources!

[msj]

The Chretien Liberals also created a series of quasi-governmental organizations that were not officially part of the government budget statement. For example, in the mid-1990s, the federal government tried to downsize the civil service with cash payouts (the accounting of these were strange) but then many civil servants were hired back as contractual employees.

The book that opened my eye to government budgeting is David Stockman's book "The Triumph of Politics". Stockman was a congressman who went on to be Reagan's budget chief. The book is a record of his experience trying to reduce government spending. It's a remarkable description of creative accounting.

And let's be honest, government budgets are not accounting exercices; they are all about the real world of politics.

So, when politicians as slippery as Jean Chretien or Paul Martin claim to have reduced government spending, I just don't believe it because they say so. Call me cynical if you wish.

Of course you won't believe it.

It would be nice if you could prove anything using real facts rather than referencing deceptive accounting practices that have, and continue to take part, in the US.

Sure, I know about Paul Martin's use of trusts. If you can show me exactly how this does not get counted as part of government spending at least upon their creation then we can discuss this further.

I will only accept references that are specific to Canada and specific to the Federal government. And I mean real references - not your opinion or you paraphrasing what you thought you read at one time or another.

Otherwise I see no point arguing with someone who can so blatantly ignore hard facts to suit his ideological bias.

Any look at the fiscal reference tables - both the revenue and expense side - shows that you are full of ideological nonsense:

Government revenue hit a nice 15 year peak in 91/92 at 18.4%. It then declined (with various bumps up and down) in a trend towards the current 16.4% to 16.3% of the past few years.

Government spending (before debt servicing) was in decline from the 82/83 high at 20.9% to the 89/90 15.8% then it blipped up a bit to the 92/93 17.4% until it resumed its downward trend towards the current range of the 12-13% for the past 10 years. [Just so we are clear - this spending includes transfers to individuals, other governments, national defence, and other]

There is no doubt that Mulroney started this. But it was Chretien who finished it.

In both cases neither politician deserves much credit since it was finally the people of Canada who realized that something had to be done and it is their willingness to tolerate higher taxes and lower government spending that ultimately defeated the fiscal deficit and has led to the decrease of the federal debt (in absolute and relative terms).

-----------------------------------------------------

Apart from this lets also get some other facts out of the way - it was Mulroney who first started the "stealth tax" by deindexing the tax brackets from inflation.

Mulroney also turned many deductions into tax credits, raised the capital gains inclusion rate to 75% from 50%, ended the life time capital gains exemption ($100,000 limit) on real property [the Liberals would finish off this exemption in Feb./94], implemented a GST which replaced the MST where only the most ideological actually believe that it would be "neutral", and began the run up in EI rates as to use this tax to help reduce the fiscal deficit [in 1989 the EI rate was 1.95% - in 1992 it was 3% - in 94 it was 3.07% and then it started it's slow decline to the current 1.73%].

No doubt the Liberals were beneficiaries of such policies - but that's what happens when one government replaces another. And we should be thankful that the Liberals did continue with the policies of GST, free trade and reduced spending.... otherwise Canada would be poorer today.

[August1991]

It wasn't just how the Liberals presented it. It was how it ended up. This wasn't just a creative way to keep spending up while putting up pretend numbers. There was dramatic and drastic cutbacks. If it was all false, I'm sure that Harper would have emphasized it years ago. He hasn't because as an economist, he knows the Liberals cut back like no government has before and none since.

If you were Stephen Harper, and you were PM, would you see any political gain in confusing the public with more numbers about something that happened 10 years ago?

Of course you won't believe it.

It would be nice if you could prove anything using real facts rather than referencing deceptive accounting practices that have, and continue to take part, in the US.

Sure, I know about Paul Martin's use of trusts. If you can show me exactly how this does not get counted as part of government spending at least upon their creation then we can discuss this further.

msj, it is interesting that you often refer to changes in the calculation of the CPI but ignore changes in the calculation of government spending.

IMV, changes in the CPI are sound and have been transparent. (How could they be otherwise? Anyone can observe market prices?)

Government spending is far more murky. And no, I'm not going 9/11 conspiracy triateral commission here. Measuring government spending is very, very hard. For starters, many Canadians have three or more levels of government. Once we take into account various transfers, how much does "government" really spend? And how much does "government" merely shuffle between us? (I pay for my older neighbour's OAP or my younger neighbour's EI. Is that government spending or merely a transfer?)

In theory, the Auditor-General should verify all this but the A-G is primarily concerned with "fraud". She's not concerned with how our tax money is legitimately used.

msj, are you aware of the recent scandal at the National Gallery? The National Gallery is a crown corporation. It is funded outside of the government budget. It can borrow using a government guarantee but its accounts are not included in the numbers you posted above.

In Canada, we have many situations like this. So msj, what accounts are we talking about and if you were a competitive politician close to power, what accounts would you use? [Margaret Thatcher reduced unemployment in the UK by 2 points by redefining the term "unemployed".]

That's why I gave the reference to Stockman's book. It's a good (if depressing) read.

----

Dobbin, I lived through Chretien/Martin's attempt to "reduce government". Heck, I lived through Mulroney's attempt too. IMV, the Chretien/Martin was more sophisticated because the PR was better. Mulroney was, to choose an English expression, ham-handed with the bureaucracy. I'll give the Liberals credit - they do a good show.

I'm sorry if I sound cynical (because I'm not by nature). But part of my cynicism comes from al the PR about government deficits - government deficits don't matter. Government spending does and I would really love to see someone devise a method to calculate "government spending". I don't hold out much hope though. Government spending is part of the political game. Politicians make promises, and they like their promises to seem credible. What's the line of George Burns? "The secret of acting is sincerity. If you can fake that, you've got it made."

Am I naive? I happen to believe that Stephen Harper spends my money as if it were his own. Unlike Chretien and Martin, Harper's cheap but smart.

I also think that the checks and balances on government spending are better in the US than in Canada. In the US, there is more transparency. In Canada, we just don't know.

I have to say though that the Ottawa Citizen's investigation (Paul Gessell) impressed me.

Edited July 28, 2008 by August1991

[msj]

If you were Stephen Harper, and you were PM, would you see any political gain in confusing the public with more numbers about something that happened 10 years ago?

msj, it is interesting that you often refer to changes in the calculation of the CPI but ignore changes in the calculation of government spending.

IMV, changes in the CPI are sound and have been transparent. (How could they be otherwise? Anyone can observe market prices?)

The difference is that I am able to provide references to well researched articles explaining why there are measurement problems with CPI. But that is for another thread which anyone can find for themselves under Canada/US relations.

Government spending is far more murky. And no, I'm not going 9/11 conspiracy triateral commission here. Measuring government spending is very, very hard. For starters, many Canadians have three or more levels of government. Once we take into account various transfers, how much does "government" really spend? And how much does "government" merely shuffle between us? (I pay for my older neighbour's OAP or my younger neighbour's EI. Is that government spending or merely a transfer?)

Yes, and somehow starting in 1994 the Liberals just suddenly changed everything. Right

EI is a transfer and is included in the numbers. Check out what is included at Table 7.5 (see below table).

Either put up some links referencing hard facts or stop blowing so hard.

In theory, the Auditor-General should verify all this but the A-G is primarily concerned with "fraud". She's not concerned with how our tax money is legitimately used.

You can't even get this right.

Is there a fact that you will look up? I mean, seriously, it only takes a few seconds.

OAG - What we do

msj, are you aware of the recent scandal at the National Gallery? The National Gallery is a crown corporation. It is funded outside of the government budget. It can borrow using a government guarantee but its accounts are not included in the numbers you posted above.

You do know the NGoC has been around a while, right?

You do know the difference between guaranteeing a debt and spending, right?

You do know that the federal government gave appropriations which would be included in its spending, right?

Related to appropriation, you do know that the federal government does include crown corporations under direct program expenses (see Table 7.5 linked above), right?

You do realize that the link you provided above has little to nothing to do with the discussion at hand, right?

In Canada, we have many situations like this. So msj, what accounts are we talking about and if you were a competitive politician close to power, what accounts would you use? [Margaret Thatcher reduced unemployment in the UK by 2 points by redefining the term "unemployed".]

That's why I gave the reference to Stockman's book. It's a good (if depressing) read.

Fine, now provide a reference to something that deals specifically with federal government spending in Canada.

Put up or shut up, as they say.

----

Dobbin, I lived through Chretien/Martin's attempt to "reduce government". Heck, I lived through Mulroney's attempt too. IMV, the Chretien/Martin was more sophisticated because the PR was better. Mulroney was, to choose an English expression, ham-handed with the bureaucracy. I'll give the Liberals credit - they do a good show.

Yeah, they continued Mulroney's trend in decreasing spending and you call this a "good show."

Someone had to step up and bite the bullet. Thankfully, Canadians were willing to put up with federal spending at 12.1% of GDP in 00/01 (below the 13% for 2006/07) as compared to the 17.4% in 92/93.

I'm sorry if I sound cynical (because I'm not by nature). But part of my cynicism comes from al the PR about government deficits - government deficits don't matter. Government spending does and I would really love to see someone devise a method to calculate "government spending". I don't hold out much hope though. Government spending is part of the political game. Politicians make promises, and they like their promises to seem credible. What's the line of George Burns? "The secret of acting is sincerity. If you can fake that, you've got it made."

Well August, I tell you you can't fake it on this issue: put up some hard facts or stop wasting our time: show us the extent of the changes to government spending that you believe have happened. Once again, real facts, please.

Am I naive? I happen to believe that Stephen Harper spends my money as if it were his own. Unlike Chretien and Martin, Harper's cheap but smart.

I also think that the checks and balances on government spending are better in the US than in Canada. In the US, there is more transparency. In Canada, we just don't know.

This last part is particularly funny.

You complain about the National Art Gallery since it can enter into loans that would be guaranteed by the federal government (and take a look at their statements - ooh, so much to guarantee )

In the US they guarantee debt too, but it is called Fanny Mae and Freddy Mac - and they have over $5 trillion of mortgages for which many people believe, and the Bush administration has blinked and admitted, are guaranteed by the taxpayers of the US.

Oh, and it looks like soon the guarantee is going to become part of actual spending as the US taxpayer has to shore up homeownership in the US (home ownership was something the Bush administration was very proud of until it began to fall apart in 2007 and now home ownership is about the same as it was in 2001 - except now, if it is to hold at that level, it will require even more subsidies from the taxpayer to keep Americans in their homes.)

[peter_puck]

I don't think they problem is ideology. I think the reason the Liberals were able to wipe out the deficit is because the Conservatives had little chance of winning, so they could do the right thing for the country.

When the race became close, both the Conservatives and Liberals felt the need to walk arround with their cheque books instead of doing the right thing. They needed to buy votes and the voting public is too stuipid to punish this sort of behavior.

[Jerry J. Fortin]

I think not. The average citizen just wants to see a return in the form of benefits for their tax dollar. If the truth were known, most citizens would prefer that non tax paying citizens were simply cut off from benefits. I believe that a vast majority of citizens and even those here on this forum would prefer to see the elimination of public benefit for those who do not contribute to the system with tax dollars.

[msj]

Am I naive? I happen to believe that Stephen Harper spends my money as if it were his own. Unlike Chretien and Martin, Harper's cheap but smart.

No, you're right. Harper is spending our money "as if it were his own:" Ad budget doubles under Harper

Oh, and as if the money was the CPC's, too. (If Garth Turner is to be believed)

[Jerry J. Fortin]

What this proves is that the CPC is truly a smarter bunch of thieves than the LPC. All that is needed to oust Harper is to oust Dion. When the Liberals finally wake up to the fact that their leader has all the intellectual substance of a wet noodle, then the farcical rotund little weasel running the Conservatives will finally lose his arrogance. At that point little Steve will know both fear and reality.

[madmax]

No, you're right. Harper is spending our money "as if it were his own:" Ad budget doubles under Harper

Oh, and as if the money was the CPC's, too. (If Garth Turner is to be believed)

Steven Harper in Government is nothing like Preston Manning in Opposition.

Harper doubled spending in public works. The place where adscam started. He appointed his bagman, Fortier to operate without accountability. It is troubling that this is the same department which was used as a slush fund for Liberal Operatives, is being used for CPC propoganda, and excess spending.

A Party Bagman doubling the budget to promote his party. Now there's a surprise.

As someone said once..... "I can't believe I believed a politician."

The deficit shouldn't continue into the fall and winter...... Lets hope that is the case.

[Wild Bill]

Steven Harper in Government is nothing like Preston Manning in Opposition.

And the present Tories are nothing like the Reformers!

Isn't it ironic that the party which nearly drove the old Tories into oblivion meekly allowed the remaining rump to totally seize control in making the new party into a clone of the Progressive Conservatives?

Makes you wonder why Manning ever bothered.

I still can't believe that all that Reform/Alliance support has totally disappeared. Or that they support the new Tories as legitimate heirs. I think it far more likely that they only support the new Tories by default, for lack of any other choice.

This is actually a modern marketing concept. You don't have to offer a market new choices. It can be more effective if you can limit the existing ones to leave yourself the most competitive choice without having the trouble and expense of improving or altering your product.

If someone or some party is successful in tapping into Manning's legacy it might prove very interesting at the polls.

[Visionseeker]

I don't think they problem is ideology. I think the reason the Liberals were able to wipe out the deficit is because the Conservatives had little chance of winning, so they could do the right thing for the country.

There's some truth to this...

When the race became close, both the Conservatives and Liberals felt the need to walk arround with their cheque books instead of doing the right thing. They needed to buy votes and the voting public is too stuipid to punish this sort of behavior.

...A lot, in fact.

[Visionseeker]

And the present Tories are nothing like the Reformers!

Isn't it ironic that the party which nearly drove the old Tories into oblivion meekly allowed the remaining rump to totally seize control in making the new party into a clone of the Progressive Conservatives?

Makes you wonder why Manning ever bothered.

I still can't believe that all that Reform/Alliance support has totally disappeared. Or that they support the new Tories as legitimate heirs. I think it far more likely that they only support the new Tories by default, for lack of any other choice.

This is actually a modern marketing concept. You don't have to offer a market new choices. It can be more effective if you can limit the existing ones to leave yourself the most competitive choice without having the trouble and expense of improving or altering your product.

If someone or some party is successful in tapping into Manning's legacy it might prove very interesting at the polls.

IMO, the CPC took the best that the PC and Reform had to offer and consigned it to the garbage bin. As far as mergers go, this one is deplorable. Harper & Co identified a niche and are now stupidly wondering why they're defined by it.

I look forward to the day when I once again have a legitimate choice to make come election time.

[jdobbin]

From last week's National Post.

http://www.nationalpost.com/scripts/story.html?id=670368

The lazy, hazy days of summer are here and Conservative MPs are crisscrossing the country and showering it with money. According to news stories, the federal government has announced some $3-billion in spending priorities since Parliament recessed for the summer less than a month ago. That is roughly $100-million a day or more than $4-million every hour. Weren't the Conservatives elected to root-out waste in government and spend tax dollars judiciously?

[myata]

I guess if you live long enough you'll see everything!

Here we have a long series of posts defending LIBERAL fiscal accountability!

If you had asked people about this subject in 1997 or so the very idea would have been inconceivable for all but the most Liberal partisans.

Yes there will always be problems when thinking with "people's" brains (rather than owr own). Guaranteed.

[Wilber]

The Liberals ran monthly deficits quite a few times in years where they ended up in surplus. Wait for the year end. Impossible in a political forum I know.

[jdobbin]

The Liberals ran monthly deficits quite a few times in years where they ended up in surplus. Wait for the year end.

True, but then the Liberals were not spending at the rate the Tories are now.

[bk59]

From the start, sorry for the long post.

Umm... August1991... this subject isn't nearly as complicated as you make it out to be. Government spending may be hard to track, but it isn't "very, very hard".

For starters, this thread was talking about the federal government's deficit and budget. So any other provincial or municipal government does not factor in. If you want to have a discussion about spending by ALL Canadian governments then by all means go ahead. In which case things might approach "very, very hard". But if that is what you want to do then only talking about the federal Liberals will never accomplish that goal. You would have to take into account every single provincial and municipal government as well.

All federal government revenue and spending could be considered a "shuffle" (as you put it) if you want to define things in that way. But that really makes no sense. Just because the revenue comes from taxpayers and the expenditures go to taxpayers does not somehow change the basic ideas of income and spending. So to answer your neighbour's OAP dilemma... if you pay for your neighbour's OAP by actually handing your neighbour a cheque, then it has nothing to do with government. If you mean to say that you "pay" for your neighbour's OAP because you pay taxes, then what you are really saying is that the government paid your neighbour that money. That is an expense. And counts as government spending. Just as your tax money counts as government revenue.

I have no idea why you posted that link to the National Gallery. The fact that the top two bureaucrats at the National Gallery are feuding has NOTHING to do with deficits and the federal budget.

I believe that msj has (sarcastically) pointed out that there is a difference between guaranteeing a debt and an actual expense. Something only counts as a federal government expenditure when the federal government actually pays out money. Did they only guarantee a debt? Then there was no expense and this is not government spending. Did they have to pay money to cover the debt? Then the situation has moved beyond a guarantee and the government actually paid money to someone. That is government spending.

Your point about downsizing the civil service and hiring the employees back as contractors doesn't make sense. The government would still be paying the contractors. These payments would show up as federal government spending. So... what's the point? Not only that, but many companies have done the exact same thing to save money. Are you saying that the Liberals (on this matter) acted in the same way as a responsible business person running a for-profit company? (Sorry, couldn't resist closing the loop on your argument for you.)

I love that you think there is more transparency in the US system. American federal government expenditures get tacked onto huge pieces of legislation. In many cases this spending is attached to and hidden within legislation that has nothing to do with the actual expenditure. No system is perfect. The US system can be manipulated as well.

There is some irony in how you champion Mulroney and Reagan and vilify Chretien and Martin. Particularly when you then use a book by David Stockman as proof. This book was about how horrible some of Reagan's economic policies were and how they stuck by those policies even when they knew they were failing. So if I understand part of your point, Reagan = good and as proof that government accounting can be suspect see the book that says Reagan = bad.

[bk59]

Doh, forgot to mention this:

August1991, Visionseeker correctly called you out on your "repudiation by deferral nonsense." (Good term!) If you have links that prove your point then post them. Otherwise you just look like you are making stuff up.

But here's the thing. Budget deficits DO matter. Government debt DOES matter. Governments must still pay interest payments on their debt. Deficits equal bigger debt. Bigger debt equals bigger interest payments. Bigger interest payments means more tax money must be spent on those payments rather than on government programs or reductions in the tax rate. In the short term you may be able to run a deficit and cut taxes, and this may even be beneficial to the individual taxpayer. BUT this behaviour is not sustainable long term. Eventually services will be cut to an unacceptable level or taxes will have to be raised. And who pays for this? Future generations of Canadians generally. Which is what people meant when they talked about leaving a burden to our children.

Running a deficit is not necessarily a bad thing in the short term. In some cases it may be necessary. But this is entirely different from saying that deficits do not matter.

[Wilber]

True, but then the Liberals were not spending at the rate the Tories are now.

Any time you are in deficit, you are spending more than you are taking in. Doesn't matter if you are a Liberal or a Tory.

[jdobbin]

Any time you are in deficit, you are spending more than you are taking in. Doesn't matter if you are a Liberal or a Tory.

True. However, the way the Tories are spending looks to make it possible that we might see the first annual deficit in many a year.