Flaherty poised to eliminate deficit but what about the $135 billion in new debt he rang up?

Finance Minister Jim Flaherty
TORONTO – Finance Minister Jim Flaherty adjusts his glasses as he talks to the media prior to holding pre-budget consultations with the business community in Toronto last November (REUTERS/Mark Blinch)

Conservatives, if you ask them, believe, above all else, in smaller government. U.S. conservative Grover Norquist once said government should be small enough you could strangle it in a bathtub, a line I’ve heard repeated by Canadian Conservatives.

But often enough, the rhetoric of these conservatives does not match what nominally conservative governments do in office. Case in point: The current Conservative Party of Canada government in Ottawa, led by Prime Minister Stephen Harper and his finance minister Jim Flaherty.

When Harper took over from the Paul Martin Liberals in 2006, Ottawa’s spending on everything except public debt charges totalled about $190 billion a year or 12.83 per cent of the country’s gross domestic product. As of the end of fiscal 2013, the Harper gang had increased that spending by nearly $56 billion a year to $246.4 billion or 13.54 per cent of Canada’s GDP. That, folks, is a government that is growing not shrinking. You won’t find many Liberals or New Democrats giving Harper the gears for that but it is not too hard to find some grassroots Conservatives who will grumble about all that spending.

Even before the Harper government decided to turn on the stimulus taps in the name of fighting off the recession, it had grown the size of government, boosting program spending in Budget 2007 — the second one from Finance Minister Jim Flaherty delivered, it should be pointed out, when the global economy had not yet melted down — by nearly $12 billion and increasing to 12.94 per cent of GDP from 12.83 per cent of GDP in the last year of Martin’s government.

The Harper government has, of course, added billions to the national debt, something it has never apologized for and why should it? Spending billions on stimulus programs to fight off the worst effects of the recessions was popular with voters and with the pundits. There were some minor brushfires about Tony Clement’s gazebos but overall, the government’s massive spending plan did what the Conservatives hoped it would do: Showed that they could shelve ideology when enough economists convinced them to do just that, something that helped them remain politically popular and, if you ask me, was one reason why Canadians trusted them with a majority government in 2011.

But here’s the tale of the tape on the debt — our accumulated deficit at the end of 2013 stood at $602.4 billion which is $135 billion more than when Harper took over from Martin’ s Liberals. Think about that for a second: Nearly one-quarter of Canada’s debt is thanks to the current Conservative government. Relative to the size of our economy, the Harper government has seen debt increase as well, from 31 per cent of GDP back in 2006 to 33.1 per cent at the end of FY 2013. That said: Public debt charges — the interest we pay on all of that — was about $34 billion when Harper took over. It was down to $29.2 billion last year, a decrease of 14.1% over 7 years.

On Tuesday, Finance Minister Jim Flaherty will present his latest budget.  So far, in all but two, a Flahety budget has meant a budget with a deficit. Tuesday’s budget will also have a deficit so make it eight for ten deficit budgets. (In 2011, Flaherty presented two budgets. The first failed to pass the House and after the 2011 election, Flaherty presented a slightly amended version of the first budget. Both were deficit budgets) But Flaherty will tell us that next year — an election year — the deficit will be eliminated. Fair enough. But many small-c conservatives will be more curious about how Flaherty will get rid of the additional $135 billion in debt his government has racked up during its time in office. Getting rid of the deficit is just the first step …

10 thoughts on “Flaherty poised to eliminate deficit but what about the $135 billion in new debt he rang up?”

  1. Flaherty has been fortunate with the low interest rates, but that will not last forever. Paul Martin took a sizable chunk of our debt and brought it down to a point where the interest we would have been paying on it was actually helping to pay it down even more.

    If Flaherty’s past is a signal of the future, look to increased sales of government assets to hide his deficits. That’s what he did with Ontario Hydro, and left Ontarians holding the bag for Hydro’s accumulated debt.

    I hate to think what he’ll leave Canada.

    1. Factually incorrect. While Ontario Hydro went through a restructuring that resulted in Ontario Power Generation, Hydro One, etc., it was not privatized (i.e., there was no sale of a Crown assets). Federal and provincial governments should privatize all commercial Crown corporations (e.g., LCBO) and invest proceeds in economically productive infrastructure (e.g., transit).

      Harper & Co.’s biggest economic mistake was reducing the GST from 7% to 6% to 5% prior to the Great Recession. The federal deficit would currently be non-existent and the debt would be lower as well.

      What the federal and provincial governments need to do is reduce/eliminate payroll taxes that dampen employment growth and increase the G/H/PST and put in higher marginal income tax rates for $1M, $2M, $3M…

      1. I have never understood the references made over time about the governments lowering of the GST. This is a tax based on consumer spending behaviour, applied to purchases one determines are necessary for them, as well as a tax on essentials such as hydro, heat etc.
        Political actions on all levels have resulted in less disposable income for millions of Canadians, be it higher taxes, higher product or services costs, including the ongoing base household costs. The loss of hundreds of thousands of jobs has also cost a considerable amount of people not spending as they normally would. Had governments been astute, they would managed our monies more appropriately, and thus used incomes from the GST in better fashion. It is a non-starter to say the reduction of the GST was problematic.

  2. While the US federal government has been considering indexing social security benefits to the chained CPI rather than the CPI-U (the Consumer Price Index for Urban Workers) there has been no similar proposal for Canada. That is because we have no chained CPI series. There is no reason for it.We have had an annual Survey of Household Spending from 1997 forward, and since 2011 we have continuous estimates of food expenditures at the detailed level. We could easily have an annually linked CPI with a formula that satisfies time reversal, not necessarily the Törnqvist formula used in the US chained CPI. Its use would reduce expenditures by virtually eliminating upper level substition bias in the CPI and reducing new goods bias. thereby reducing indexation of benefits. If used to index income brackets it would also increase tax revenues.

  3. I “second” Bear Cat. If interest rates had not been so low the last many years, then the debt repayment picture would be quite different. So, again, Flaherty has benefited from circumstances that he didn’t create. Yet, he is first in line to claim credit for anything positive. He is a grand hypocrite. And, yes, he did leave a negative legacy as Ontario Finance Minister. All I see is that he is doing the same thing at the federal level.

    PS: David, you really surprised me with the tone of this story. Are you one of the disgruntled grassroots Conservatives?

  4. Maybe our glorified Prime Minister should stop trying to build up his
    legacy on the backs of the Canadian Taxpayers and giving away millions of dollars to foreign countries like it’s manna from Heaven. We have enough issues here in this country and Harper should cease and desist.

  5. This is like an awakening for people. This party isn’t conservative, liberal or whatever you want it. They are Conservative with a capital ‘C’. They just spew a bunch of bs all day about personal responsibility and how the opposition “will tax and spend, tax and spend”.
    Meanwhile, this government has “borrowed and spent” so to speak. At least the Liberals had the balls to tax to pay for the things they undertook.
    These guys promise unicorns and cake and whatever and all the sheep believe them because they are the “Conservative” party and the opposition are a bunch of “socialists”. Anybody that votes for this party of “whatever to get your vote” needs to open their eyes. They have been fed so much bs the last 8 years and don’t have any clue.
    This government has no vision and don’t even believe in the very government they are supposed to govern.
    I could go on all day but google is your friend.

  6. Things will not change in this country as long as we have the political system that we have. We are asked to vote for a Party with a limited platform every four years. They most likely will never follow thru with their promises for all kinds of excuses. If I elect Joe from here to look after our local/ regional issues unless he/she is a cabinet minister or it is in the Parties favour it will never see the light of day. Why should we have to keep our rep if he is not doing the job he was hired to do? We should let him/her go and hire someone else regardless of party stripe who comes up with a better plan to get the job done.

  7. If only there were some major global economic event that could help explain all that deficit spending. However, according to this completely intellectually honest analysis of the Conservative’s budget performance, apparently there is not.

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