Government budgets about more than dollars and cents

March 23, 2004

It is government budget season again. The provincial government that a year ago claimed "Nova Scotia is in better shape than it has been in a generation" is now forecasting more difficult choices. The federal government, after surpluses of $50 billion over the past 5 years, is still claiming that the cupboards are bare.

Claims of tough times have become part of the budget cycle in Canadian politics. But there is more at stake here than political rhetoric. Warnings of bare cupboards and difficult choices have played a crucial role in the implementation of a broader agenda.

Both Paul Martin's and John Hamm's objective all along has been more about redesigning and reducing the role of government than about being fiscally responsible. The problem for Hamm and Martin is that most Canadian's don't share this objective. Polls have repeatedly shown that while Canadians want their governments to be fiscally responsible, they don't share Hamm's and Martin's enthusiasm for cuts to social programs and public services.

Changing the role of government should not be implemented under the guise of fiscal responsibility. However Hamm and Martin have doing just this. They have steered away from arguing the merit of decreased social programs, public services and regulation of the economy, and have justified their policies by the claim that they had no choice. Each proclaimed that public finances were on the verge of collapse, and drastic action was needed in cutting expenditures.

And cut they did. As finance minister, Martin implemented the largest spending cuts in Canadian history, Within 5 years federal program spending as a portion of the economy dropped from 15% of GDP in 1994-95 to 11% in 1999-2000. The average for the previous decade was 16.5%. During his first term John Hamm decreased program spending as a portion of the economy, from about 20% of GDP to 18.5%.

But the real solution to both the federal and provincial government's finances was the increased revenue generated by the growing economy. Had Martin not made the dramatic cuts he did, it would have simply taken longer to balance the budget. Doing so would have caused a lot less suffering and damage to public services.

What to do with new found surpluses. Within 5 years of claiming that finances were on the verge of collapse Martin began doling out tax cuts that cost $100 billion over 5 years and cutting off revenue that could have been invested in programs and services. Surpluses still kept coming and the finance minister's new budgeting strategy was to under-project revenues making the financial picture look worse than it actually was. Over the past 5 years the federal government has under-estimated surpluses by $36 billion, all of it going to debt reduction rather than program spending.

John Hamm had less money to work with but cuts to programs and taxes rather than fiscal prudence were clearly the priority. After 3 years of justifying cuts to programs by claiming there was no money available to invest in programs, the Hamm government has implemented a 10% income tax cut. This will cost the province more than $700 million over the next 5 years. Nova Scotia already has the lowest per capita program spending in the country.

But John Hamm may have gone too far. I suspect he had many Nova Scotians on side when he set off after the deficit, and many may have followed him as he moved on the debt. But the tax cuts just do not fit with pronouncements of fiscal responsibility and this has undermined his credibility.

Had the Hamm government not implemented the tax cuts it could have been the only province other than Alberta to balance its books this year without dipping into reserves. The provincial government's claims that current financial difficulties are the fault of the federal government would carry more weight if it had not implemented the tax cuts.

Government claims that they have no choice but to cut spending have lost credibility. But in their attempts to resist calls for increased program spending, we can now expect claims of empty pockets to continue as governments shift their focus on reducing the debt. We can also expect continued deterioration of public services and calls by some for a greater role of the private sector in the provision of services and building of infrastructure.

There may well be valid arguments for redesigning government to make expenditures more effective and accountable. But determining the appropriate role for government is of central importance to the promotion of the public interest. It has implications for social justice, the ability of government to regulate the economy and protect the environment. To side-step this debate is to undermine democracy. Thorough informed public debate is warranted and should not be deflected by contrived notions of fiscal responsibility.

I could be wrong about Hamm's and Martin's agenda, in fact I'd like to be proven wrong. The Hamm government could do the socially and fiscally responsible thing and reverse the income tax cut. Paul Martin could for once come clean about the actual size of the surplus and make much needed substantial investments in social programs, public services and the protection of the environment. We shall see.

John Jacobs is the Director of the Canadian Centre for Policy Alternatives in Nova Scotia (CCPA-NS).