Canada’s Budget Numbers

Commentary, Role of Government, Frontier Centre

The headlines after last week’s federal budget blared out one word: spending. And when it came to tallying the billions of dollars involved, there was plenty of it.

Many in the media had fun with one comparison. The budget included the biggest single-year increase — more than 11 per cent — in federal spending on programs in two decades, which takes us back to the free-wheeling days of Pierre Trudeau’s governments. Plug the numbers into a slightly different grid, though, and they look much different.

This year’s spending on programs works out to 12.2 per cent of gross domestic product, compared with 11.4 per cent a year ago. That’s a significant increase to be sure, but the comparable figures for two decades ago show that the big bump then pushed spending to 19.2 per cent of GDP from 16.9 per cent. That’s a very large difference, relative to the size of the economy, in both the level of spending and the size of the increase.

Spending is up, to be sure, but aside from the fiscal years ending in 2000 and 2001, when programs accounted for just over 11 per cent of GDP, this year’s 12.2 per cent is the lowest since 1950. And the budget projects that the figure will fall to under 12 per cent in each of the next two fiscal years, although skeptics rightly note that further new spending is likely to push the final figures for those years higher. Still, we’re nowhere even close to the big spending years of the 1970s, 1980s and the first half of the 1990s, when programs routinely amounted to between 15 and 20 per cent of GDP.

Comparisons with the early 1980s are far more apt when it comes to some of the budget’s other key measures. Federal revenue, at 15.7 per cent of GDP this year, hasn’t been this low since 1984. It peaked at 17.8 per cent in 1992 and will fall to 15.2 per cent by 2005. Interest payments on the debt now amount to 3.3 per cent of GDP, the lowest since 1980. They peaked at 6 per cent in 1996, but lower interest rates and a reduced debt have cut them dramatically.

Another comparison underlines that point. In 1996, interest payments gobbled up 37 cents of every dollar Ottawa raised in revenue. The figure is now down to 21 cents, the lowest since 1980. Total spending — the sum of spending on programs and interest — is also down sharply from the 20- to 25-per-cent range that was common in the 1980s and early 1990s. At about 15 per cent of GDP, it is back to levels not seen since the early 1950s.

Ottawa’s debt, which peaked at 67.5 per cent of GDP in 1996, is already down to 44.5 per cent and expected to fall to 40 per cent by 2005. You have to go back to 1984 to find figures that low. (The recent numbers have been revised lower because the government shifted to a new accounting system, one recommended by the Auditor-General, but a full set of historical revisions will likely show the same result.) Cast the data net across the G7 leading industrial countries and Canada’s recent fiscal showing is nothing short of spectacular. Counting all the provinces, as well as Ottawa, Canada racked up the biggest improvement of all in its budget situation during the past decade. We’re now the only G7 country with government surpluses.

The emergence of governments that pay their own way has doubtless contributed to gains in some other indicators that are often used to compare economic performance in the G7 nations. The finance department drew a few together in its budget documents. Canada’s net foreign debt — everything we owe to foreigners minus everything they owe to us — is now lower than that of the United States. Here, the debt peaked at about 44 per cent of GDP in 1993, which looked dreadful compared with the U.S. figure of less than 5 per cent. Last year, Finance estimates that the Canadian debt was down to 16 per cent of GDP, well below the 22-per-cent level for the United States.

Productivity growth — and this might surprise you — has been another bright spot, although one thing Finance doesn’t mention is that our overall productivity, defined as GDP per worker, is still about 20 per cent lower than it is in the United States. There’s a similar story in the conventional measure of living standards — GDP per person. From 1980 to 1996, Canada also ranked sixth in the G7, but from 1997 to 2002, Canada placed first.

It’s all very good news, but it leaves a rather depressing thought. How much better would some of these measures have been had we not spent 25 years running deficits and accumulating debts that have been so painful to reduce? We’ve all paid a huge price for that generation of fiscal madness. Perhaps in a decade, we can look back on further rewards from our newly acquired fiscal good sense.