“Canadians’ household debt climbs to highest in G7 in world-beating borrowing spree!!!!!” read the recent headline in the Financial Post. Okay, there actually weren’t five exclamation marks, but a lot of conservative readers probably read them in. What’s wrong with Canadians today?, they wonder. Have they completely forgotten the frugal lessons of the Dirty Thirties? Well yes, in fact, they have. Debt is no longer a four letter word. In governments and households, spending is trending.
The desire for more is a constant and primal characteristic of the human condition. Human beings are hard-wired for ambition, acquisition, and prosperity – though not necessarily in that order – and this is reflected more than ever in the post-industrial, consumer-driven society we’re living in. Mortgages, car loans and multiple credit cards are the financial fabric of everyday life. Most people think this way of life isn’t too bad…perhaps even quite good! So why shouldn’t their politics reflect this?
Many older conservatives grew up watching liberal governments build debt mountains that led to all kinds of economic turmoil including high inflation and unemployment and double digit interest rates. They saw the conservative political resurgence of the late 20th century was built on the principles (if not always the practice) of fiscal rectitude. Younger libertarians signed on hoping conservative austerity would mean smaller government.
I hate to break it to both groups, but their transitory electoral success was a political aberration. The preponderance of historical evidence shows that most Canadians, in most circumstances, will vote for political parties that offer them the most. They will continue to vote for these political parties whether their promises are affordable or not. Eventually, when lenders slam the door, most Canadians will reluctantly vote for fiscally conservative measures or have austerity forced upon them by reluctant politicians. The measures will ultimately…painfully…prove effective, the problem will be corrected, and then the spending and borrowing will resume. It’s like a miniature Tytler Cycle played out again and again across the country. What follows are a few prominent examples.
“It was a crisis for us in 1993.”
~ Roy Romanow, former Premier of Saskatchewan
In the early 1990’s, Saskatchewan had the highest per-capita deficit and debt of any province and was facing insolvency. Prime Minister Brian Mulroney provided secret emergency funding to save the province from defaulting on debt payments and Romanow was forced to enact deep cuts. There were massive cuts to schools and municipalities. The birthplace of socialized medicine closed 52 hospitals and sent rural communities into a tailspin. There was no other choice.
In neighbouring Alberta, when the provincial debt passed the $20 billion mark in 1992, voters knew the day of reckoning was nigh. In the 1993 provincial election both the incumbent Progressive Conservatives and opposition Liberals campaigned on fiscally conservative platforms. The PCs won by promising to cut the most. Their leader, former free-spending Calgary mayor Ralph Klein, became the most zealous convert to fiscal conservatism in Canadian history. His “Klein Revolution” not only slashed government spending deep and wide, it also cut taxes. Within a few years these actions had not only eliminated the deficit, but also the entire provincial debt.
Between 1985 and 1995 Ontario’s debt quadrupled to almost $130 billion. At its peak, the provincial government was spending over 16 percent of its revenue paying debt interest alone. (For a point of reference, last year the European Union went to great lengths to ensure Greece had a 15 percent ceiling on debt servicing costs because anything above that was viewed by the International Monetary Fund as potentially catastrophic.) After witnessing what had happened in Alberta and Saskatchewan, Ontario voters resigned themselves to a fiscal course correction.
“We had numerous policy conferences and that document is the culmination of what we heard and what we believed to be the fix for what was ailing the province.”
~ Leslie Noble, Ontario PC campaign manager in 1995
The document was the “Common Sense Revolution” that functioned as a platform for Mike Harris and the Progressive Conservative Party of Ontario. It was righteously conservative and advocated balanced budgets and smaller government. The PCs won a majority mandate in 1995 and immediately set about butchering a whole herd of sacred government cows, including a wildly oversubscribed welfare system.
“We told him you are still a Liberal, but you have to be a small “c” conservative to be a nice good Liberal.”
~ Scott Clark, federal associate deputy finance minister on his discussion with Paul Martin in regards to Canada’s 1995 budget.
After a series of credit downgrades, Canada was named “an honorary member of the Third World” by the Wall Street Journal in 1995. The debt-to-GDP ratio was over 100 percent and Ottawa was having trouble selling its increasingly junky bonds. Everybody knew something had to be done. Thus a centre-left government was forced to drastically slash public spending. By 1997 the budget was balanced and the national debt was on the decline.
These are the stories fiscal conservatives point to as examples of hard lessons learned in the name of good governance. Budgets got balanced and deficits got eliminated, but what was the political aftermath?
Saskatchewan: Roy Romanow balanced the budget, but it hurt. Saskatchewan’s economic performance between 1990-2007 was among the worst in the country. The province only began to prosper with an uptick in the commodity cycle. The NDP paid the price for administering all the unpleasant fiscal medicine and Brad Wall’s Saskatchewan Party took over. Wall, heading into his third election this April, will be campaigning with massive deficits, ballooning debt and not a balanced budget in sight. He is currently miles ahead in the polls and expected to win in a landslide.
Alberta: Ralph Klein famously appeared at the Calgary Stampede in 2005 with a sign announcing the elimination of Alberta’s debt that read, “Paid in Full”. Payback for Ralph was a palace coup and replacement by successors who turned their backs on balanced budgets, ratcheted up spending, and ran enormous deficits. They should have at least thanked him for creating all that fiscal room for vote-buying.
Ontario: Mike Harris won two terms, but he too went from deficit-slaying hero to tight-fisted zero over the course of his premiership. His Tory successors couldn’t figure out whether they wanted to be slash-and-burners or tax-and-spenders. The Liberals promised to open the vault and they’ve been in power ever since, proudly presiding over a doubling of the provincial debt.
Canada: The Chretien-Martin Liberals implemented deep cuts, slayed the deficit and won a couple more elections at the expense of the divided right. But Canadians again soon hungered for tax cuts and increased spending. (They also noticed that Liberal spending was not headed their way, but to bureaucratic boondoggles like the gun registry and to Liberal-connected Quebec advertising agencies.) Voters elected Stephen Harper’s Conservative Party in 2006, largely on a promise to cut the GST. The Tories were denied a majority until 2011, when they were rewarded for racking up record deficits to pay for stimulus spending in the name of defeating the Great Recession. Four years later the Conservatives tried to run on a balanced budget. So did Thomas Mulcair’s NDP. Both were soundly rejected in favour of Justin Trudeau’s Liberal promise of big deficits and lots of new spending.
In this week’s first budget from Trudeau’s new Liberal government, Canadians got even more than they bargained for. A modest $10 billion-a-year deficit promise tripled into a $30 billion-a-year deficit reality. And when will the “budget balance itself”? Not in the current mandate, apparently, but does anybody care? Current polls indicate that if an election were held today Canadians would give Trudeau an even bigger majority than he got last October.
Of course many factors influence election wins and losses as well as policy decisions and outcomes, but the point in recounting this recent Canadian political history is to illustrate the limitations of fiscal conservatism as the core of any political brand or strategy. A party can keep it in its noble list of principles if it likes, but its application in campaign platforms and government budgets should be strictly situational. If conservatives want to win, and provide the best government possible government for a polity that generally prefers their votes bought with other people’s money, here are three rules for guaranteed political success.
Cut less, spend more
Campaigning on taking money away from people or most programs is a recipe for failure. When it comes to public spending, never promise anything less than spending increases at the rate of inflation plus population growth. Widespread spending cuts, or even mere freezes, will inevitably be reframed by your opponents as an attack on the public good. This puts fiscal conservatives forever on the defense and forsakes the votes of everyone who works in or is directly or indirectly dependent on government.
Milton Friedman’s “starve the beast” strategy needs to be modified. History has shown that the beast (government) can’t be starved, but it can be put on a diet. Instead of railing about government obesity, highlight the virtues of fiscal fitness. Just cutting government spending by 15 minutes a day can make the body politic healthier and happier.
Let budgets not balance themselves
If deficits are inevitable they may as well be directed toward conservative purposes. Tax cuts fit the bill, as conservatives of all stripes believe keeping more earned wealth encourages independence, hard work, and individualism. Perhaps arresting Canada’s demographic decline with more generous baby bonus cheques would be advisable. The late Harper government made some moves in both these directions. Had it doubled down on them in the 2015 campaign platform, they might still be in power. Government money would also be well spent adapting and expanding British Prime Minister David Cameron’s Big Society platform. Ditto for new war ships and fighter jets. And every one percent cut in the GST is surely worth at least its weight in popular vote share.
There are plenty of conservative-minded policies or projects to spend money on, but the exact items are only important in that they effectively conservatize deficit spending. Better to run deficits for tax cuts now rather than wait for future left-wing governments to run deficits for dubious green schemes or Soviet-styled day-care programs.
Don’t demonize debt, wallow in it
Centre-right politicians need to stop thinking about paying down debt and focus instead on building it up. Run those deficits right up to the brink of a credit downgrade and then back off just enough to allow some leverage for transitory crises like recession or natural disaster. By using up total debt capacity and having it function effectively as a debt ceiling, the cyclical nature of fiscal conservatism as an emergency measure will be broken. Future centre-left politicians will be hampered in the implementation of their own wish-lists and if they decide to raise taxes or cut spending on things they don’t like, they’ll have to answer to the voters. This removes tug-of-war debt debates from the realm of transient legislators and sets limits using the cold hard math of free-market bond raters.
The pay off
Fiscal conservatives need to get over their obsession with balanced budgets, eliminating deficits and paying down debt. Without fail, over many decades, at every level of government, Canadians have sold their votes to the highest bidders. They only ever embrace fiscal conservatism temporarily, to be jettisoned as quickly as possible when a crisis passes. Preaching and practicing fiscal restraint for its own sake is pointless when you know your opponent is going to defeat you by calling you a tight-fisted meanie and promising caviar in every pot. And then spending every nickel of budget surplus or borrowing room you created.
Conservatives of all stripes need to stop functioning as the parsimonious scolds of the political world and build a more ambitious and salable 21st century fiscal conservatism. They can do this by offering voters lower taxes, targeted spending increases and a promise not to cut anything. They need to allow deficits to grow into debts and then govern permanently on the razor’s edge of solvency. Should an election be lost, incoming progressive governments will be left with empty cupboards, little opportunity to expand the state, and bleak re-election prospects. Just ask Alberta NDP Premier Rachel Notley.
This isn’t a new idea. The left has been campaigning and governing this way since forever, with the right perennially positioned as grumpy old janitor – the guys periodically brought in to clean up fiscal messes. If conservatives want to govern more often, for longer periods, so they can achieve more of their objectives, they should learn to love debt.
Jeff Hodgson is a freelance writer specializing in politics and public policy. His columns are published monthly at the website Poletical.