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A shameful federal-provincial spending spree

In his remarks at a Canadian Club luncheon in Montreal last week, former Liberal finance minister John Manley described fiscal restraint in the years ahead, by federal and provincial governments together, as Canada's "anchor." Note the use of the singular noun. We have plural governments in this country but a singular fiscal restraint. Speaking now as president of the Canadian Council of Chief Executives, Mr. Manley makes an important point. We should express all government spending in this country as a single number and all government debt as a single number. Let the delusions end.

These fiscal restraint delusions permit the federal government to boast that its debt is reasonable and perhaps even laudatory. It can assert that its debt-to-GDP ratio is a modest 35 per cent - in contrast to other Western countries with debt-to-GDP ratios that approach 100 per cent. Yet add federal and provincial debt together and things look quite different. Our federal debt by year's end will be $574.7-billion. Our provinces' debts will be $417.5-billion. Our combined debt will be $992.2-billion - 76.4 per cent of GDP. And this doesn't count territorial and municipal debt.

Acting independently, the federal government and the provinces say it will take them several years to eliminate their Great Recession deficits. This means that our all-government debt will increase inexorably for several years. Based on federal projections, federal debt will reach $690.8-billion by 2014; based on provincial projections, provincial debt will reach $486.3-billion. Thus our honest-to-God minimum debt will soon exceed a trillion dollars: $1.17-trillion, an all-time record.

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Although we have only a foggy notion of the increase in GDP by 2014, we can safely assume that government debt will exceed it. Notwithstanding marginal increases in GDP, this much is almost certain: a Canadian debt-to-GDP ratio of 100 per cent - or approximately the same relative debt that we now associate with the so wickedly profligate United States. (The real U.S. national debt equals 93 per cent of GDP.) The federal and provincial governments' frequent assertions of exemplary debt-to-GDP ratios are mostly happy talk. The fact is that these deficits could be ended by simple, slight decreases in spending. The problem arises only because governments perversely and illogically insist on trying to decrease them later by increasing them now. This transforms an easy assignment into an impossible assignment. Mr. Manley was himself a senior cabinet member the last time the federal government - in desperation, as a courageous last resort - ended a structural deficit by the most logical action, a reduction in spending.

This excess spending, by federal and provincial governments, can be easily calculated. Consider, for example, the increases in government spending, per capita, across the past 30 years. Start with British Columbia. In 1982, B.C.'s government spent $2,585 per capita; the federal government spent $2,734. Combined, they spent $5,319. This number can be expressed in 2010 dollars simply by doubling it: $10,638 per capita. But in 2010, B.C.'s government spent $8,334 per capita; the federal government, $6,998: for a combined spending of $15,332 per capita - an above-inflation increase of roughly 50 per cent.

These calculations are simplistic and require the absurd assumption that the federal government distributes its per capita spending, from province to province, in an impartial manner. In real life, it distributes its spending in a discriminatory way. But then provinces do, too. So let's proceed - from west to east - where the really big spenders are found: Alberta and the federal government spent $13,016 per capita in 1982; $16,888 in 2010.

Saskatchewan and the federal government spent $10,554 per capita in 1982; $16,335 in 2010.

Manitoba and the federal government spent $9,944 per capita in 1982; $17,070 in 2010.

Ontario and the federal government spent $9,522 per capita in 1982; $15,324 in 2010.

Quebec and the federal government spent $11,148 per capita in 1982; $14,760 in 2010.

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New Brunswick and the federal government spent $10,672 per capita in 1982; $16,680 in 2010.

Prince Edward Island and the federal government spent $10,632 per capita in 1982; $16,943 in 2010.

Nova Scotia and the federal government spent $10,500 per capita in 1982; $15,673 in 2010.

Newfoundland and the federal government spent $10,564 per capita in 1982; $19,623 in 2010. This spending in 2010 is by far the largest increase in federal-provincial spending, both in percentage terms and in absolute dollars, in the country.

Was all this inflation-plus spending really necessary? Yes, it includes health costs and education costs but does every man, every woman and every child in this country really require $15,000 a year in government support? A few years from now, will every Canadian require $30,000 a year in government support? Was life so intolerable in the 1980s (and since) that federal and provincial governments were compelled, year after year, to ramp spending by inflation-plus margins? It is preposterous and fiscally perilous to think so.

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About the Author
Neil Reynolds

Neil Reynolds is an Ottawa writer whose columns on national economic issues appear in Wednesday's and Friday's Globe and Mail. He is the former editor-in-chief of The Vancouver Sun and the Ottawa Citizen. More

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