September 9, 2011 – In today’s Globe and Mail, MLI Director of Research Jason Clemens discusses how purposeful action to eliminate budget deficits relying on spending reductions rather than tax increases can be a foundation for not only sound economic policy, but electoral success. He uses historical evidence from both Canadian provincial governments as well as the federal government in the 1990s to show that balancing budgets can be good politics and good policy.
The op-ed is based on his recently released MLI Commentary, Balancing Budgets: Good Politics, Good Policy. The Commentary was featured on iPolitics.ca on September 8, 2011 and Jason Clemens appeared on on CJOB’s Night Hawk with Geoff Currier on September 9, 2011. Read the full op-ed below.
The Globe and Mail, September 9, 2011
By Jason Clemens
In the wake of mounting evidence of a slowing U.S. economy and continued economic upheaval in Europe, the Harper government has reiterated its commitment to balancing the budget by slowing the growth in spending, hoping interest rates remain low and praying revenues rebound robustly. (While the announced strategic review of spending is designed to yield savings of $4-billion, it actually doesn’t cut spending but further slows the growth in planned spending.) Part of its steadfastness is grounded in a view that direct action to balance the budget sooner, namely through spending cuts, is a political loser.
Such a conclusion misses the lessons of the 1990s, when the federal and many provincial governments, spanning the ideology and geography of the country, cut spending and were rewarded with re-election.
The closest parallel is the 1995 federal budget, delivered by the Chrétien Liberals. The Liberals were facing a more difficult fiscal situation than the Conservatives. The deficit was more than 5 per cent of GDP, compared with today’s less than 2 per cent. The national debt was approaching 70 per cent of GDP, compared with today’s roughly 34 per cent. Interest rates were rising, and questions were being asked about Canada’s solvency.
The Chrétien Liberals responded with a historic budget. Program spending was reduced by almost 10 per cent over three years. The public sector declined by nearly 12 per cent. The electoral results were stunning. The Liberals won three consecutive majority governments. One has to return to the record of Mackenzie King to find the last government able to achieve three consecutive majorities.
A common response is that the 1990s are not comparable to today because of the divided opposition at the time. Recall that the Reform Party and Progressive Conservative Party were effectively splitting the centre-right vote. But far from distinguishing today from the 1990s, those are precisely the circumstances we now see: a majority government facing an opposition deeply divided, but this time between the Liberals and New Democrats.
There are additional provincial experiences to consider. Perhaps the most poignant example of electoral success from purposeful action to balance a budget is Saskatchewan, where the NDP took on its own constituents.
The NDP government of Roy Romanow was the first to tackle the province’s deficit and debt meaningfully. Beginning in 1991-92, the Saskatchewan government reduced program spending by 10.2 per cent over three years, cut its public sector and raised taxes. These actions led to a balanced budget in quick order.
This led not to electoral ruin – even though Mr. Romanow’s NDP challenged many of its own constituencies – but rather electoral victory. Mr. Romanow led his party to a second majority in 1995, capturing 72 per cent of the available seats. The NDP formed a coalition government after the 1999 election and returned to a majority in 2003.
Two conservative experiences are fairly well known. Mike Harris of Ontario and Ralph Klein of Alberta both reduced spending in order to balance their budgets in the 1990s and were rewarded with re-election. Mr. Klein, for instance, reduced program spending by more than 21 per cent and public-sector employment by more than 14 per cent. These deep cuts resulted in a balanced budget in just two years. The result of these determined and expeditious actions was improved electoral performance; Mr. Klein increased his margin of victory in both the 1997 and 2001 elections.
The Harris government reduced program spending by 4.1 per cent and the public sector by 11.3 per cent. Of the four examples, this may have been the most contentious and acrimonious, even though the figures are comparatively small relative to the reforms enacted in Saskatchewan, Alberta and federally. Nonetheless, the Harris Conservatives returned to office in 1999 with a majority. This was the first two-term consecutive majority government elected in Ontario since Conservatives achieved the same result in 1967 and 1971.
Concerted, focused efforts to eliminate budget deficits, particularly when spending reductions are relied on rather than tax increases, can be a foundation for not only better economic policy but also electoral success. Examples that cross ideological boundaries, political parties and the geography of the country show a link between reform-minded government and re-election.
Jason Clemens is director of research at the Macdonald-Laurier Institute.