Do OECD Economists Read OECD Data?
I had the opportunity to meet late last week with the OECD Policy Mission to Canada – the folks who write the country reviews. These meetings are usually interesting and useful, though I find the OECD Economics Department to be ultra neo liberal in their orientation.
Even so, I was a bit taken aback to read the following in their questionnaire (the original was in italics.)
“Although Canada remains in an advantageous fiscal position relative to most other OECD countries, the deterioration in the countryâ€™s public finances has been substantial. Years of expenditure increases above trend economic growth have led to high structural spending levels, and many jurisdictions are now on unsustainable fiscal paths, a diagnosis made starker when taking an even longer-term view that considers the implications of demographic change.”
The argument that there has been an unsustainable increase in program spending is often heard from the CD Howe, the National Post etc., but it just does not stand up to even a cursory glance atÂ OECD data.
If spending had been growing above trend growth, program spending would have been rising as a share of GDP. Yet, after bottoming out at 39.3% in 2005 (down from over 50% in the early 1990s) program spending had climbed to the heady height of 39.7% in 2008. (The pre recession period is the relevant end point.)
Over the same period 2005 to 2008, revenues fell from 40.8% to 39.8% of GDP.
The source of these data are the OECD Economic Outlook, which also show that Canada was running underlying and structural surpluses – as well as large actual surpluses – in each year 2005 to 2008.
So, government spending bottomed out in 2005. In the period following, Canada continued to run surpluses. The underlying surpluses were sufficient that program spending could be increased at the margin, but governments chose to cut taxes by even more.
So much for “high structural spending levels.”