Conservatives' long view on debt — and smaller government

The Conservative Party of Canada has launched a new fundraising drive that amounts to saying, 'Give us money so we can protect you from the government.' Odd, coming from the governing party until you consider: Conservatives want smaller government — and are setting the table for success.

Harper has set future controls by returning expensive programs to the provinces

Finance Minister Jim Flaherty has said he will balance the federal budget by 2014-15, but he is also setting the stage for a dramatic drop in federal debt, unless he takes further steps to cut federal revenues and further limit future capacity to spend.

The Conservative Party of Canada has launched a new fundraising drive that amounts to saying, "Give us money so we can protect you from the government."

It's an odd angle coming from the governing party until you consider this: the Conservatives want smaller government — and after a financial crisis and a recession, they are in a position now to do that.

Their strategy has been to constrain the government's future costs for services on which Canadians rely on a nearly daily basis: health care, education, social services — programs that also happen to be very expensive.

Because of moves in the last two years by Ottawa in those areas, the Parliamentary Budget Officer says the federal government is on track to be debt free by 2044.

Let’s think about that for a moment. At that rate, Canadians who took out 40-year mortgages when the Conservative government relaxed the rules in 2007 will still be paying off their houses after the country moves into the black.

That's with no further cuts or tax increases.

Before debt hawks get too excited, however, the PBO has not factored in some very expensive promises the Conservatives have made — including income splitting and pension splitting.

Making such moves, using up the breathing room it has built, would make it very difficult for future governments to launch new programs without resorting to the politically toxic move of raising taxes.

Regardless of whether the Conservative government decides to pay off its credit cards or spend the windfall, a report the PBO released Thursday says the fiscal good fortunes are attributable almost entirely to one thing.

Much to the chagrin of provinces, the federal government unilaterally announced in 2011 that the growth of future health and social transfers to the provinces would be tied to economic growth.

This ensures Ottawa's obligations, as a percentage of the economy, are buffered against shocks. In the words of the PBO, they are "sustainable."

National debt still climbing

Of course, health care costs don't grow in line with economic growth. In fact, some experts argue the opposite is true.

The aging population, the higher expense of technological advances in health care, the unpredictability of pandemics or disasters — Ottawa has largely shielded itself from all of it.

Not so the provinces.

If no changes are made, the PBO estimates the combined debt of provincial, local and aboriginal governments is at the foot of a steep, dangerous slope.

 Debt-to-GDP ratio — arguably the most important indicator of debt to monitor — could hit 359.9% in 75 years.

 It's a serious problem with a simple solution, according to the federal government: raise taxes. Not federal, taxes, of course, but provincial.

Finance Minister Jim Flaherty argues his government has cut taxes across the board for all Canadians. "This, in turn, creates tax room that provinces and territories can consider filling for their specific needs and purposes."

Flaherty said that to a business audience in 2008, two years after cutting taxes and boosting equalization and transfer payments to the provinces, and the message to the other members of the Confederation was clear: you want jurisdiction, take responsibility.

"Governments need to be accountable to Canadians for their taxing and spending decisions," he continued. "That clarity of roles and responsibilities is essential by ensuring that Canadians can hold governments accountable for their actions."

Flaherty was setting the table for today's argument: if Canadians are unhappy with the state of health care, blame the provinces, because it is not a federal responsibility (except for aboriginal communities and veterans).

It's similar to what the government did with the GST.

Room for HST

The undoubtedly popular (and populist) move to cut the tax by two-points had a severe impact on federal coffers, but would be very difficult politically to undo.

It also allowed provinces “room” to adopt the HST, which meant billions in extra revenue for them.

It is only recently, in the new age of austerity, that the appropriate restraints are being made at the federal level to pay for the tax cut.

To pay for the next round of “goodies” for voters, the government has made the cuts already and will “slay the surplus” later.

It's all in line with Prime Minister Stephen Harper's stated purpose of focusing on "core responsibilities," such as national defence, foreign affairs and the economy.

And if Conservative fundraising tactics now are a rehearsal for the next election, one campaign theme could be protecting Canadians' tax cuts from those federal bureaucrats that would see the government take on too much else.

About the Author

James Fitz-Morris

Parliament Hill

James Fitz-Morris covered federal politics in CBC's Parliament Hill bureau from 2006 to February, 2016.


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