Thursday, May 28, 2009

50 Billion Dollars Isn't Spent In A Day

Andrew Coyne is railing against the evils of government spending again. Mr. Coyne blames the eye-popping deficit on spending and spending alone. That is of course not true in the least. The reason this deficit is so troubling is not the stimulus and EI bills that have made it balloon but the irresponsible raiding of the federal coffers by this Conservative government. Let's go back to the first Harper deficit, the relatively modest 1.1 billion dollar deficit posted for the fiscal year 2008-2009. To be clear most of the money for this budget came in before the economic crisis exploded last fall, so this isn't really about a bad economy. When governments put out their annual budget they do forecasts for budgets going forward. Of course, these are reallly rough estimates but they do provide an interesting contrast. The last Martin budget, the spending laden, so-called NDP budget in 2005, had projections for the fiscal year 2008-2009. Here's what Ralph Goodale saw happening with a Liberal government at the helm:

Budgetary Revenues: $228.4 Billion
Program Expenses: $185.8 Billion
Debt Servicing: $36.1 Billion

Net Result: $6.5 Billion Surplus

Here's what actually happened after Tory irresponsibility:

Budgetary Revenues: $236.4 Billion
Program Expenses: $206.8 Billion
Debt Servicing: $30.7 Billion

Net Result: $1.1. Billion Deficit

Yes, spending is up to the tune of about $20 Billion, but that would have been affordable before the Tory tax cuts. But government revenues went up you say? Sure in terms of dollars but it shrank considerably when you look at it as a percentage of GDP. Here are government revenues as a percentage of GDP projected in 2005 for 2008-2009:

Personal Income Tax: 7.3%
Corporate Income Tax: 1.8%
GST: 2.4%
Other Taxes: 1.1%

Total: 12.5% (obviously some rounding here)

Here's what the Tories produced:

Personal Income Tax: 7.3%
Corporate Income Tax: 2.0%
GST: 1.6%
Other Taxes: 1.3%

Total: 12.2%

That 0.8% of GDP lost to the economically dubious GST cuts translates to a $10.5 billion loss in revenue. In other words, without the GST cuts, the government would have been in surplus even with the increased largesse in 2008-2009. The structural deficit, the one that is going to require either higher taxes or lower spending to get out of, is a direct result of irresponsible Conservative tax cuts. Short term investments in infrastructure do not create structural deficits, especially when you have ridiculously low interest rates to pay for them. A lack of sufficient government revenue does.

Side Note: I usually like Paul Wells, but the "they'll replace him with someone equally bad or worse" argument doesn't hold water. The idea of ministerial responsibility is that when you screw up, you resign or get fired. It doesn't matter who they get to replace you. Flaherty screwed up, he should resign or if he refuses, Harper should fire him. It's simple.

3 comments:

The Rational Number said...

That stimulus spending seems to be stalled points to lower revenues and structural deficits. If there is less stimulus spending, how can that be the cause of the deficit?

Mr. Coyne is laughable suggesting BOTH spending AND taxes could be held to 2000 levels. Imagine the government producing an annual $60B surplus while not increasing spending NOR cutting taxes - AND being re-elected! To be fair if spending were held to 2000 levels there would've been tax cuts (suppose a mythical 'fiscally conservative' Conservative gov't were in power). What happened (increased spending) is pretty natural, and both sides did some.

kursk said...

Let's not forget that these surpluses were artificially created by the Liberals siphoning from EI, slashing transfers to the provinces, cutting social services and gutting the military.

The Harper govt payed down the federal debt by over $30 billion dollars, increased funding for equipment to the cash starved CAF, balanced transfers between provinces, and now will have to cover the shortfall in EI, created by Chretien.

You can't suck and blow at the same time.

The Rational Number said...

kursk:

I agree EI shouldn't have been robbed and we'd be better off now if it hadn't been. However, that's a one-time robbery and couldn't have corrected a structural deficit (which I think is the gist of this post).

I work for DND and agree the CF needed more money. However, most CF/DND people haven't seen it. CF/DND infrastructure is as bad as ever. The Conservatives have introduced so many new restrictions on how that money can be spent, while at the same time money is needed to support Afghanistan. The net result is "what new money?". I'm OK with staying in Afghanistan, but remove the restrictions. For example, it's OK to spend money on 'boots and guns', but it's not OK to spend to train the new recruits? And what about force development? Without that we're continuing to build the cold war style forces rather than the flexible, anti-terrorist, disaster relief forces we need. Support the troops by letting them do their jobs.

And didn't the provinces balance the transfers? From a Nova Scotia point of view, Harper had no intention of honouring the Atlantic Accord if he could avoid it.

I don't know about that... Harper sucks. And boy, does he blow alright.

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