Thursday, April 24, 2008

Ghosts & Fiscal Responsibility

A report came out this week that predicted that government revenues may be less than estimated and could result in a deficit. The Liberals have seized the opportunity to blame the government for fiscal mismanagement. The fact they missed an opportunity to stop this budget for their own political gain will be glossed over if the doom and gloom ever comes to pass.

Newly elected Associate Finance critic Martha Hall Findlay decided to take her own shots by claiming all Conservative Prime Ministers since 1918 have run deficit budgets. This statement demonstrates a lack of understanding of Canadian history both economic and political.

Counter cyclical financing was adopted by the government with support from the economic community. The government would run small surpluses when times are good and deficits when the economy needed stimulation. While the consequences of such decisions can be judged by history it is unfair to blame governments for following the advise of experts at the time. In our more developed economy the Bank of Canada uses interest rates and other available fiscal and monetary tools to help control the rate of growth of the economy. There are still those who subscribe to the old philosophy, that the government should be running a small deficit to help counter the economic downturn resulting from the problems with the American economy.

The accounting processes used now are far more complex than they used to be. Statistics Canada has revised all the budget data since confederation through 1975 to better reflect today's accounting rules. This involved adding both revenue and expenditures from what were once considered non-budgetary accounts into their proper spaces. The conclusions from these revisions are that Paul Martin and Stephen Harper are the only two Prime Ministers in Canadian history to not have run a deficit while serving as PM. The trends also indicate that surpluses were a result of the economic times rather than which party was in charge. There were large deficits through WWI & WWII followed by the larger deficits under Diefenbaker and Trudeau as they helped advance the welfare state. Major surpluses were during the post war boom of the 1920s and 1950s.

One of the problems the Liberals have had slinging mud at the Conservatives is that they reach too far into the past. Placing blame on the current government for events that happened 15 -20 years ago does not change voter's perception on government performance. Bob Rae now sits on the Liberal front bench. People still remember the deficit he ran up in Ontario. In the debate in the last provincial election Premier Dalton McGuinty still blamed him for some of the problems his government is dealing with.

Martha Hall Findlay, enjoy your stay in Ottawa. There are plenty of valid points of reasonable discourse for criticising the government. Stirring up ghosts will not help bring the Liberals to power.

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