The Conservative Fiscal Record
At the five year mark, there is a lot of commentary on the Conservative record. Have they been true to their right-wing economic agenda, or shifted to the centre?
I find evidence for the former argument much more convincing.
The Conservative fiscal record spans the five full fiscal years, from 2006-07 to 2010-11 (which is now drawing to a close.) The Table below shows federal government revenues, program spending, the fiscal surplus/deficit, and debt, all as a share of GDP.
Did the Conservatives stop being fiscal conservatives as some on the right allege? I don’t think so. To be sure, they did not cut program spending as a share of GDP before the recession, opting to spend on increased transfers to the provinces and their security/crime agenda among other areas. But they did cut the debt as a share of GDP, from 35.0%Â in 2005-06 just before they took office, to only 29.0% before the recession. Despite three years of deficits, the debt still stands below the level of 2005-06.
Effectively the Conservatives gave the priority to debt reduction and tax cuts, and the modest underlying surplus they inherited did not go to spending at all.
Did the Conservatives respond to the recession? Yes they did, grudgingly, under pressure both domestically and internationally.Â But the deficit topped out at 3.6% of GDP last year, is falling quite rapidly, and is much smaller than those run in previous major recessions. (The federal deficit ran at aboutÂ 5% of GDP from the late 1980s until the mid 1990s.)
Have the Conservatives cut taxes? Why yes they have, big time. Revenues as a share of GDP fell from 16.2% in 2005-06 to 14.6%Â before the recession,Â and have since fallen further. This reflects cuts to personal and corporate income taxes and the two percentage point GST rate cut as well as a range of boutique tax cuts. Tax Free Savings Accounts (and corporate tax cuts) have not been hugely costly to date in terms of lost revenues as a share of GDP, but the cost will rise significantly movingÂ forward. These are classic “starve the beast” tactics.
Of course, the Liberals under Chretien and Martin cut program spending sharply to eliminate the deficit, ran surpluses thereafter to reduce the debt, and cut taxes by 1.9 percentage points of GDP from 2000-01 to 2005-06.
Have the Conservatives moved to the centre? No. Have they they have pursued the same priorities as the right-wing Chretien-Martin Liberals? Yes.
|The Conservative Fiscal Record|
|(In percent of GDP)|
|Source: Fiscal Reference Tables and Economic and Fiscal Outlook|