Monday, February 28, 2011

How to Create a Structural Deficit

A fantastically clear post from Stephen Gordon on how we went from persistent surpluses to a structural deficit. Really should go read it, or at least have a look at the graphs. Ends with this conclusion:

Here are the policy decisions made between 2005 and 2008 that generated that swing in the pre-recession budget balance:

Transfer payments increased by roughly 1% of GDP.
The GST cut reduced revenues by roughly 0.75% of GDP.

Put the two together, and we get a trend towards a deficit even before the recession hit.

3 comments:

  1. Shiner, I'm certain you know of the 'Starve the Beast' theory from south of the border. My own theory, this is the ground work being laid for when/if Harper should ever sleepwalk into a majority. Coupled with blinding our ability to recognize if spending on any program is effective or not, thanks to the changes with the census.

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  2. Yes, and I accept it as something the CPC would love to do... but I'm not sure it's quite as easy as some might make it out to be. Harper is restrained in what he can do with a minority and if he ever got a majority, I think he'd only have one kick at the can. I mean not even Reagan or Thatcher were able to accomplish the sort of wide ranging institutional reform needed, and people actually liked them.

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  3. Reagan had to deal with a Democrat controlled House and Senate. He also raised taxes, many time actually, as even he realized a structural deficit was far more dangerous for economic prosperity than high tax levels.

    Thatcher's micromanaging did not go over well within her own party (unlike the sheep in our CPC) so she had plenty in opposition amongst Conservatives, which eventually lead to her being ousted. That and the UK was shoved so far to the left thanks to old-Labour, that Thatcher could only do so much. Most of her battles were over deregulation and weakening the trade unions.

    Harper has an obedient Senate, a fractured opposition, and a civil service that shuts up and keeps their heads down. If he won his majority, I couldn't predict how far he would take things (nothing along the lines of Wisconsin, as a spectacular example) but I'm very certain he would begin dismantling programs on a piecemeal basis.

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