Winnipeg Free Press - PRINT EDITION

Flaherty's stay-the-course budget needlessly risky

  • Print

VANCOUVER -- The key litmus test for the Harper government's 2013 budget was always going to be how realistic it was with respect to achieving a balanced budget by 2015-16.

The governing Tories have staked both their economic and political credibility on being able to balance the budget. The current plan, which mirrors previous budgets, relies on controlling the growth in spending and hoping revenues increase sufficiently to balance the budget.

The governing Conservatives plan to increase program spending by a restrained 0.8 per cent and remain tight-fisted for the next two years, increasing program spending by only 1.2 per cent and 2.6 per cent respectively in the coming years. Last year, program spending increased by 2.9 per cent but, to their credit, the Conservatives have been able to restrain the growth in program spending over the last three years, increasing, on average, by only 0.9 per cent.

As in previous years, the risk lies mainly on the revenue side. The Conservatives are expecting revenues to grow by 3.8 per cent this year compared to 2.2 per cent last year. They expect even stronger growth in subsequent years: 5.9 per cent in 2014-15 and 5.5 per cent in 2015-16.

The Conservatives' record on forecasting revenues raises concerns. The actual revenues collected have been less than the amount budgeted in every budget since 2008 except one. The average difference between budget and actual revenues has been almost $5 billion. Relying on strong revenue growth to balance the budget is risky since events outside of Canada, particularly the U.S., can knock the budget off course.

The less risky approach to balancing the budget relies on spending reductions. Actual program spending spiked in 2009-10, increasing by $37 billion in one year. The key to understanding the deficit today, however, lies in the spending post-2009-10.

One of many problems with stimulus spending is the spending never stops. It simply becomes the base from which future spending grows, and that's essentially what happened in Canada.

This shouldn't be surprising. Almost all governments that enacted stimulus subsequently spent from the new, higher levels because it is very difficult politically for governments to reduce spending.

Had the federal government returned to its prior spending levels, the 2013-14 deficit would come in at about $3.1 billion rather than its expected $18.7 billion. And deficits don't come in isolation: Higher deficits become higher debt levels, and higher debts become a greater burden for the population to pay off in future years.

Another consideration, and one that is included in the budget albeit in a limited way, is the opportunity for improved economic growth through tax reform. The economy can be improved by strengthening economic incentives. Reducing or eliminating special privileges, loopholes, and other goodies in the tax code allow the government to reduce marginal personal income tax rates, which remain internationally uncompetitive and a key impediment to additional investment, work effort and entrepreneurship.

Since 2006, for example, a number of new tax-credit programs have been introduced, ranging from credits for children's fitness to employment to public transit. These tax credits alone cost an estimated $7.9 billion in 2012. Reducing or eliminating these programs provides resources to reduce marginal tax rates without affecting the overall deficit. The government indicated a willingness to close some loopholes but the resulting revenue gains, an expected $4.4 billion over five years, will simply augment existing revenues. In other words, the government is closing these loopholes to gain revenues.

The status-quo budget delivered on Thursday was largely as expected. The basic plan calls for spending restraint coupled with the hope of rising revenues. A less risky approach and one that would certainly entail less debt would actually reduce program spending to bring it in line with revenues, achieving a balanced budget sooner and with less risk.

Jason Clemens wrote this piece in collaboration with fellow economists Niels Veldhuis, and Milagros Palacios at the Fraser Institute ( A version of the commentary originally appeared in the National Post.

Republished from the Winnipeg Free Press print edition March 25, 2013 A9

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes


  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.


Make text: Larger | Smaller


Winnipeg police comment on two officers that resuscitated baby

View more like this

Photo Store Gallery

  • Hay bales sit under a rainbow just west of Winnipeg Saturday, September 3, 2011.(John Woods/Winnipeg Free Press)
  • JOE BRYKSA/WINNIPEG FREE PRESS Local- A large osprey lands in it's nest in a hydro pole on Hyw 59  near the Hillside Beach turnoff turn off. Osprey a large narrow winged hawk which can have a wingspan of over 54 inches are making a incredible recovery since pesticide use of the 1950's and  1960's- For the last two decades these fish hawks have been reappearing in the Lake Winnipeg area- Aug 03, 2005

View More Gallery Photos


Will the closure of Future Shop affect your shopping?

View Results

Ads by Google