>From: "Chris Alders" <[log in to unmask]> >Reply-To: "Chris Alders" <[log in to unmask]> >To: <[log in to unmask]> >Subject: Paul Martin, the Deficit and the Debt >Date: Mon, 8 Mar 2004 02:48:14 -0400 > > >Greetings and salutations! > >The divide between political myth and political reality in Canada is very >stark. > >As Linda McQuiag and Isabella Bakker have successfully pointed out in their >writings, the creation and ballooning of the federal debt arose from two >principle factors. The first was the dramatic elimination of corporate >taxation between 1961 and 1991. This was a period over which taxes for >corporate entities declined by a factor of three whilst taxation for middle >and lower income Canadians went up by a factor of four. The second factor >was the high interest rate policies adapted by the Bank of Canada which >served to destabilize employment thus contributing to the growing divide >between rich and poor. > >Thanks to the embracing of policies by both Liberal and Conservative >governments which could have arisen from Dr. Milton Friedman and the >Chicago School of Economics (which in the 1970's espoused what is referred >to as monetarism) Canada now has a social deficit the likes of which has >not been in existence since The Great Depression of the 1930's. > >Below is a summary of a report written by Jim Stanford of the Canadian >Center for Policy Alternatives. The focus of this report deals with the >actions (as opposed to the words or rhetoric) of Paul Martin, the current >Canadian Prime Minister, who was its Finance Minister for upwards of nine >years. Hopefully such articles will wipe away the myth and deal with the >realities associated with Martin's policy-making. > >Take care and adios for now, > >Chris > >Paul Martin, the Deficit, and the Debt: >Taking Another Look, Summary > >By Jim Stanford > >There is no doubt that Canada faced a serious fiscal situation when the >Liberals were elected in 1993. There is no disagreement that the deficit >had to be dramatically reduced or eliminated, and more importantly that the >upward track in the federal debt burden had to be quickly arrested and >reversed. And there is no doubt that, by these indicators, Canada has been >a fiscal star among the group of industrialized countries since Paul Martin >became Finance Minister. But it may well be that Mr. Martin's stellar >reputation as a tough and prudent budgeter is not fully deserved. A broader >second look at Canada's finances during the Martin era suggests that >important errors may have been made on the road to the balanced budget, >producing unnecessary but lasting social and economic harm. >Canada's total public deficits (federal and provincial) from 1991 through >1993 averaged 8 percent of GDP - twice the OECD average. However, by 1996 >Canada's deficit was smaller than any other G7 economy but the U.S., and by >the next year the deficit was history (beating other G7 economies to a >balanced budget by one to three years). > >At the same time, the return to fiscal balance during the late 1990s was >experienced relatively broadly across the OECD. Indeed, a total of 18 OECD >countries balanced their budgets late in the decade (and most of the others >came within spitting distance of doing so), primarily because of the >acceleration in global growth and a steep decline in global interest rates. > >The one aspect of Canada's fiscal turnaround that is truly unique in the >international comparison is in the severity in the cuts to program >spending, which were much deeper than any other major industrialized >country. General government program spending, measured as a share of GDP, >declined by 10 percentage points in Canada between 1992 and 2002 while in >the OECD as a whole, program spending stayed roughly constant as a share of >GDP. Some countries restored fiscal balance with hardly any spending cuts >at all - and in some cases, while actually increasing government spending. > >Our analysis shows that Paul Martin could have overseen the quick >elimination of the huge deficit which his government inherited, in line >with his official timetable, yet without imposing a single dollar of >nominal program spending reductions. The fact that so many other >industrialized countries also eliminated deficits during the latter 1990s, >most of them more gradually than Canada, and most without dramatic >reductions in program expenditure, similarly supports the notion that real >choices were available, while still accepting the general goal of deficit >reduction. So Mr. Martin's decision to impose dramatic program spending >reductions to attain a uniquely fast improvement in bottom-line fiscal >balances must, therefore, have reflected priorities other than simply the >desire to balance the budget. > >As for the federal debt burden, fell by 26 points of GDP between 1995 and >2002, from 70.9 percent to 44.2 percent. Five-sixths of that decline was >due to the expansion of GDP. One-sixth was due to the repayment of nominal >debt, which declined by $50 billion during this time as a result of six >consecutive federal surpluses. In other words, if Ottawa had simply >balanced its books since 1997, instead of repaying $50 billion worth of >debt, the federal debt ratio at the end of 2002 would have equalled 48.8 >percent of GDP, instead of 44.2 percent. That would still qualify us as >having the second-lowest debt ratio in the G7. If that $50 billion had been >invested in repairing some of the damage that was done to public programs >and infrastructure earlier in the 1990s, it would have made an incredible >difference to the concrete quality of Canadians' lives. > >Going forward, the federal government will face similar choices regarding >the wisdom of discretionary repayment of its nominal debt. Mr. Martin has >indicated that he would prefer to see the debt burden shrink to 25 percent >of GDP. This will occur by 2012 if the government continues its official >practice of allocating $3 billion annually to debt repayment (in practice, >of course, Ottawa has allocated much more than this to debt repayment, in >which case the 25 percent goal would be achieved sooner). If the government >simply balanced its budget (rather than setting aside $3 billion annually >for debt repayment), the 25 percent goal would be obtained in 2013 - a >whole year later. Canadians should consider carefully whether these $3 >billion annual repayments are genuinely "prudent," or not. Which would they >consider to be the more important, and prudent, act of government: say, a >national public housing program which could help to eliminate homelessness >(a generous federal contribution to which would be $3 billion >per year), or making sure that our debt/GDP ratio declines to 25 percent by >2012 instead of 2013? > >Since Mr. Martin's first budget in 1994, Ottawa has beaten its own >bottom-line budget targets nine years in a row. This cumulative >"overperformance" (actual balance versus budgeted balance) now equals a >staggering $80 billion. It has become clear that there was nothing >accidental about this overperformance: it was preordained by a set of >artificial assumptions and practices all oriented toward making Ottawa's >fiscal situation look worse than it actually was. > >Instead of facilitating an honest debate among Canadians about how >available resources should most effectively be allocated, and to what >priorities, Finance officials expend more energy trying to convince >Canadians that those resources are not even there. As a result, the only >thing we now know for sure about official budget forecasts is that they are >not intended to be accurate. This aspect of federal budget-making is >perhaps Paul Martin's most dubious legacy as Finance Minister. > >Instead of concluding that Mr. Martin is a hero for leading Canadians in an >epic battle to eliminate the deficit (a battle which, after all, 18 OECD >countries in total accomplished), perhaps we should be asking why he >implemented such dramatic reductions in government programs that have been >enduringly painful yet, in retrospect, were unnecessary. Our incoming Prime >Minister might then be wreathed in a different aura indeed. > > >Chris Alders >24 Fairview Street >Kentville, Nova Scotia >B4N 1G2 > >902-678-0326 >[log in to unmask] > >"It is only with the heart that one can see rightly. What is invisible is >essential to the eye." > >The Fox in 'The Little Prince" by Antoine de Saint Exupery. _________________________________________________________________ Add photos to your messages with MSN Premium. 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