Federal Budget Watch: Waiting for the other shoe to drop…

Katherine's picture

Canadian 5-dollar banknotesWe’ve been warned. The next federal budget, expected in March, will be first and foremost about cuts to public programs, with the express goal of reducing the federal deficit over the next few years, and reducing the debt accumulated since the 2008-09 recession. Even as the economic news last Fall suggested that the recovery was losing steam, the Finance Minister was reconfirming the government’s intent to bring down the deficit as quickly as possible.

Indeed, the federal government has been laying the groundwork for a new austerity program in Canada for almost two years. The controversy about raising the age of eligibility for Old Age Security is the latest effort to frame what is a vitally important policy discussion as exclusively an issue about dollars and cents. Canada, we are being told, is no longer in the position to afford expensive frills like the OAS.

The austerity argument resonates because it reinforces Canada’s image as a successful deficit fighter in the 1990s, while obscuring the harmful impact of those measures on poor families. It also will appeal to those who believe that government is the root of Canada’s economic problems or, alternately, that government is incapable of effective action for the common good.

And so we can expect significant program cuts AND further cuts to revenue … the consequences of which will fall hardest of low income families. The neoliberal argument persists that low levels of public spending and rock bottom levels of taxation are necessary for investor and consumer confidence – which will in turn drive investment, jobs and growth – despite evidence to the contrary. Thirty years of tax cuts, program restraint and market deregulation has yet to produce the promised gains in productivity and economic security.Jim Stanford, “Canada’s innovation and productivity failures: Questioning the conventional wisdom,” Increasing Innovation and Productivity, The Canada We Want in 2020, Commissioned by Canada 2020, November 2011. http://canada2020.ca/canada-we-want/wp-content/themes/canada2020/assets/...

If this raises a vague sense of déjà vu, it should; it echoes the debate and fallout from the famous Martin budget in 1995. The context was certainly different with a Liberal government in power. Pressure was building to cut back expenditures in the face of the rising debt and debt servicing costs. The Social Security Review was to have been the centerpiece of the budget, setting out recommendations for strategic cuts designed to reinforce the government’s goal of getting the economy back on track. In the end, deficit reduction consumed the entire agenda, pushing aside plans for job creation, social security reform and child care.

Spending cuts in Canada were among the most severe among OECD countries. Between the mid-1990s and 2007, government spending as a share of GDP fell dramatically by 7.5 percentage point to 39.4% of GDP, while gross public debt fell by a third to 66.5% of GDP. Many of these costs were downloaded onto the provinces who, in turn, cut back on social programs, social assistance, education and health care.

As it happened, the global economy – and most notably the economic fortunes of the United States – helped turn Canada’s economic numbers around. Deficits readily turned to surpluses which were used to pay down debt. But millions of Canadians paid the price. These same people waited in vain to reap the economic benefits of the decade that followed – as those at the top of the income ladder prospered.

Today we risk making the same mistakes. Alex Himelfarb, the former Clerk of the Privy Council, makes the point that the talk about inevitable need for austerity today is not about fiscal prudence. If it were, we wouldn’t be proceeding with unaffordable tax cuts that only benefit the affluent.

The persistent emphasis on low taxes and cuts to services and public goods looks more like ideology masquerading as fiscal common sense. In this light, austerity seems rather to be about cutting back the state and rolling out the free market agenda. Less public, more private; less collective, more individual. It is, in other words, the fulfillment of the neoliberal counter-revolution rather than an economic plan for the future.Alex Himelfarb, “The Price of Austerity,” Alex’s Blog, January 16, 2012. http://afhimelfarb.wordpress.com/2012/01/16/the-price-of-austerity/.

Back in 1995, Finance Minister Paul Martin noted that the success of the budget was not that it would slay the deficit, but that it would irrevocably change "the definition of government itself."

The 1995 federal budget was a turning point in our understanding of government. We have been fighting a rearguard action ever since, attempting to make the case that the federal government has an essential role to play in supporting and enabling our collective well-being.

Canada’s economic performance since the 2008-09 recession has been mediocre at best.Jim Stanford (January 2012), “Canada’s Incomplete, Mediocre Recovery,” Technical Paper, Alternative Federal Budget 2012, Ottawa: Canadian Centre for Policy Alternatives. http://www.policyalternatives.ca/newsroom/news-releases/canada%E2%80%99s... According to a Pollara poll commissioned by the Economic Club of Canada, seven out of ten Canadians think that the country is still in recession.Michael Marzolini (Polara), Economic Club of Canada: 2012 Report, January 5, 2012. http://www.pollara.com/eclub2012/report.pdf EKOS reports more than half of Canadians believe the government is moving in the wrong direction.EKOS, “End of Year Survey,” December 2011. http://www.ekos.com/admin/articles/FG-2012-01-14c.pdf

We can’t be blinded by the calls for greater austerity and sacrifice. Opposing cuts to public programs and tax breaks for the wealthy is not an argument against wise fiscal policy and oversight. "Enabling all Canadians to participate in the economy is both a matter of justice and of good economic policy … the best way of achieving a sustained economic recovery is to ensure that all Canadians are able to participate in the economy."CPJ (August 2011), Building a Sustainable Recovery for All Canadians, Submission to Standing Committee on Finance, Pre-Budget Consultations. /sites/default/files/docs/FINA_Brief_2011.pdf

There are indeed hard choices ahead. It is time for a meaningful discussion about Canada’s future – and the steps needed to enhance the quality of life for all Canadians – not just the privileged few.

Katherine Scott is CPJ's Research Associate.

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