Balanced budget legislation is bad public policy

June 7, 2000

Who knew BC's NDP government was into bondage? What else can explain the strange desire to handcuff itself with proposed balanced budget legislation (BBL)?

BBL may make for trendy public policy, but it is not good public policy. Balancing the budget is an important goal, however, it is only one of many, and should not be enshrined in legislation to the exclusion of other worthy goals.

BBL currently exists in four Canadian provinces: Alberta, Saskatchewan, Manitoba and New Brunswick. BBL makes running a deficit illegal, and in some cases requires that tax increases be put to a referendum. Alberta's and Manitoba's BBL is very stringent, while Saskatchewan's and New Brunswick's is more flexible. But in all cases, the actual purpose of BBL is quite clear: to bind the hands of government. BBL encourages public sector downsizing, forecloses on new public programs (like universal child and home care), locks in place spending and tax cuts, and prevents governments from providing an economic stimulus during times of recession.

This may sound pretty good to some (indeed, it is a neo-conservative's dream). But consider the following scenarios:

Scenario #1: The Canadian Alliance (or Paul Martin for that matter) wins a future federal election and implements drastic cuts in provincial transfer payments for health, education and welfare (as happened in 1995). The provincial government is caught. They would like to absorb these cuts by running a deficit, but BBL outlaws this. So the province is left with no choice but to pass the cuts on. Spending on important public programs is slashed.

Scenario #2: Another Asian economic crisis. BC exports plummet and the province is pushed into recession. The province would like to stabilize the situation--provide an economic stimulus and extend social assistance to those hardest hit--but BBL prevents this. Instead, the government is required to match the decline in revenues with equivalent cuts in spending in order to keep the books balanced. The result: government spending cuts exacerbate the recession.

Scenario #3: Recurring health care crises and even some deaths caused by government cuts (e.g. the Walkerton water scenario) convince much of the public that cutbacks have gone too far--more spending is needed. But no political party is willing to campaign on tax increases, for fear of the backlash from business groups and the corporate media. BBL does not allow deficit spending, even if such collective spending means citizens spend less on bottled water and private health care, or on inequitable user fees. So the crises remain a permanent fact of life.

Scenario #4--The California Scenario (based on a true story): A provision of the BBL requires a referendum before tax increases are permitted. But the demand for public services increases (more older people requiring health care, more school age kids, more unemployment--the potential reasons are numerous). Unable to run deficits, the government is forced to cut back on services to the poor, sick, elderly and students, and sell-off libraries, court-houses and drug rehab centres.

You get the picture. BBL is bad policy because it rules out doing what governments should do during times of economic recession or depression. The federal government of R.B. Bennett prioritized trying to balance the budget through much of the Great Depression of the 1930s. For this we do not applaud them; rather, we rightly hold them responsible for unnecessarily deepening and prolonging the Depression. They failed to heed the advice of the great economist John Maynard Keynes, who recommended that in times of economic downturn, good policy prescribes running a deficit in order to give the economy a needed boost.

If, however, the government chooses to draft legislation that is sufficiently flexible to avoid any of these dismal scenarios, then it is merely a cynical political gimmick, and should be recognized as such. Meaning, BBL is either bad policy or bad politics----a fiscal straight-jacket or smoke and mirrors--take your pick.

BBL is perhaps most damaging because of how it defines the role of government. Good government and budgets are about more than balancing the books. Good budgets should equally be about smoothing out the inevitable boom and bust cycles of market economies; offsetting the growing gap between rich and poor by engaging in some redistribution of income and wealth; caring for the poor and elderly; helping the unemployed; building up a society's infrastructure; providing for people's health and education; and protecting the environment. BBL limits a government's ability to properly perform all these functions.

Finally, I have to ask, why BBL now? Of all the things an NDP government would want to put in place during what will probably be the final year of its mandate, why this? Why not a "Right to Free and Comprehensive Medical and Home Care Act"? Why not an "Anti-Poverty Act" that would commit all future governments to meet clear targets for the reduction of poverty? Why not an "Adequate Income Act" that would guarantee the right to income assistance when in need? Why not a "Post-Secondary Accessibility Act" guaranteeing a steady decline in tuition and a steady increase in spaces? What about a "Child Care Act" to ensure the government's recent initiatives evolve into a comprehensive system, or a "Minimum Wage Act" promising to tie the minimum wage to the poverty line?

So many hopeful and exciting possibilities. But no, in our cautious age of little imagination, good government just means balancing the books.