Montreal, December 13, 2005 – Contrary to popular belief, there is no correlation between the state of public finances and the party in power in Ottawa, according to a document published today by the Montreal Economic Institute (MEI). Observing the tendencies of the last four decades, it is impossible to determine who, between the Liberals and the Conservatives, are more likely to control spending and the tax burden.
Pierre Lemieux, associate professor in the Department of Management Sciences, University of Québec in Outaouais and an associate researcher at MEI, notes that federal spending in constant dollars has almost tripled between 1961 and 1985 to reach almost $6,000 per Canadian resident. The amount more or less reached its maximum until the mid nineties then decreased to about $5,500, a level maintained since 2004.
As for federal revenues, they reached a maximum from 1974 and the early eighties and only saw a slight increase until the beginning of the 1990s, bringing about a budgetary imbalance and an accumulation of deficits during that period.
Beginning in the mid-nineties, the gap of over $1,000 per capita between expenditures and federal revenues was filled as much by an increase in revenues (+13,8% between 1993 and 1997) than by a reduction in expenses (-13,7% during the same period). The reduction of federal spending since 1996 was aided by the decline in transfer payments to the provinces as well as the reduction in interest payments on the national debt.
Even excluding interest payments and provincial transfers, federal spending nevertheless decreased slightly for a few years starting from the beginning of the nineties. However, a new upward trend seems to be materializing since the end of the nineties.
“Given the data, there appears to be no correlation between the progression of federal spending and revenues and the political party in power,” said Lemieux.
Comparison with the United States
In evaluating the federal government’s success in controlling spending and taxes, researcher also drew up a comparison with the U.S. federal government.
“Since the early eighties,” writes Lemieux, “the Canadian federal government has been more successful in controlling its expenses than has its American counterpart. Even under Ronald Reagan, expenses continued to rise, whereas the Mulroney government restricted its spending during the second half of the eighties. From the early nineties to day, the Canadian federal government has maintained its per capita spending, while those of the American federal government increased.”
American revenues have been relatively stable since the late sixties to the early eighties. However, and contrary to Canada, it is only through the increase of revenues that the American federal government succeeded in eliminating its deficit in the late nineties. Income tax cuts and increased spending under the Bush administration have brought back the deficits since 2000.
“The Canadian federal government was more efficient than its American counterpart to cap the State’s growth,” concluded Lemieux.
Canadian spending and revenues nevertheless remain very high. In 2004, revenues were $5,657 per capita, more than two-and-a-half the level in 1961 and almost 50% more than thirty years ago. “From this point of view, the federal government has not succeeded in controlling its growth”, concludes Lemieux.
Titled Federal Government Revenues and Expenditures, this Point de l’IEDM is available in French only on the Institute’s Website.
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