Control federal spending

Blog, Equalization, Peter Holle

A disappointment I have with the Harper Government is that it has not managed to adequately control federal spending. Frontier has written at length about great research that shows that there is an optimum size of government. Spend too little, i.e. don’t invest in the core activities of government – courts to enforce property rights, good roads, police etc. – and you get little economic growth. Why would you invest if some gangster could take your property away?  Conversely, go the other way and spend too much with lots of transfer programs, crown corporations everywhere, overlapping bureaucracies – and you get the same thing – diminished economic growth because fewer will invest where there is high taxation (required to pay for oversized government). Somewhere between these two extremes lies an optimum point where economic growth is maximized – the optimum size of government.

The research out there shows that 20 to 30% is the optimum size of government. If we take the 30% from IMF research it means that Canada, which is presently at about 40% (Manitoba is about 50% which is why it is consigned to slow growth “have not” province purgatory), could trim spending overall by about 25% and increase the growth rate of the economy. Higher growth would more than make up the shortfall in a few years so that we would have a higher living standard yet a smaller burden of government. Ironically, we would likely have more government spending in absolute terms. I have argued that from an intelligent socialist perspective this “growing the pie” strategy would create more room and resources to help those that need it.

To conclude, let’s turn to the excellent report entitled “Zero in Two” just issued by the Canadian Taxpayers Federation which outlines where spending could be reduced to move Canada towards that optimium size of government. The stat which everybody, particularly the Ottawa Tories, should pay attention to is this:

“Had program spending been limited to the combined rates of inflation and population growth (2.7%) since Paul Martin’s first budget in 2003-04, there would be a surplus in 2010-11 of $25 billion.”

The Harper Government needs to take control of spending. Immediately. Of course, they need to go about reducing spending in a policy and politically smart way. For that there is plenty of material on structural reform of the public sector at many organizations, including the Frontier Centre. Start with this one.