Budget lessons from Canada

Canada was called an "honorary member of the Third World" by the Wall Street Journal in 1995, and for good reason. Out-of-control spending, soaring debt and the government's bite of the country's gross domestic product (GDP) growing at a furious pace prompted the Journal's harsh putdown. Sound familiar? Those are exactly the trends that endanger America's economy and standard of living today, says Fred Barnes, the executive editor of the Weekly Standard.

Only with Canada, there's a difference. Beginning in the mid-1990s, Canadians came to grips with their fiscal crisis:

They cut spending at both the national and provincial (state) level, reduced the size and payroll of government, slashed debt, and produced what Paul Martin, then finance minister and later prime minister, called smaller, smarter government.

Canada is now in a far better economic situation than the United States – its unemployment rate is lower, its budget deficit breathtakingly smaller (after nearly a decade of balanced budgets), its debt burden far lighter, its banks more stable.

The Canadian dollar, once worth as little as 62 cents, is currently nearly at parity with the American dollar.

One lesson from Canada is that major fiscal reform requires bipartisanship, with the initiative better coming from liberals than conservatives. It was the left-of-centre Liberal party, facing what David Frum, a Canadian and prominent political commentator who lives in Washington described as "nightmarish debt and deficits," that led the way with an austere budget in 1995. Conservatives, divided at the time, were supportive.

There is a simple explanation for the need for liberal leadership. If conservatives propose to cut spending and downsize government, reflexive liberal opposition can be expected. However, if liberals advocate a similar approach, they're likely to be supported by many of their liberal allies and by almost all conservatives.

At least it worked that way in Canada, with impressive results. In Washington, however, the liberals in charge – that is, President Obama and Democrats in Congress – are moving in the opposite direction. Rather than retrench, they want to spend and borrow more, says Barnes.

Source: Fred Barnes, O Canada, Weekly Standard, June 7, 2010.

For text: http://www.weeklystandard.com/articles/o-canada

For more on Federal Spending & Budget Issues: http://www.ncpa.org/sub/dpd/index.php?Article_Category=25

First published by the National Center for Policy Analysis, United States

FMF Policy Bulletin/ 08 June 2010
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