The Truth About Canada (38 page)

Now let’s look at Ottawa’s transfers to other levels of government. As recently as 1983/1984, these amounted to 4.2 percent of GDP. But by 2000/2001, they were down to only 2.3 percent of GDP, a decline of $23.4-billion, although they increased to 2.9 percent in 2006/2007. In the Harper government years, transfers to other governments have been and are planned to be only 2.8 or 2.9 percent of GDP through to 2012/2013.

The impact of these massive reductions in transfers has inevitably fallen, and will fall, mostly on the poor and on those in the lower-to mid-income levels, as you have already seen in the chapters on poverty, social programs, welfare, and distribution of income.

As I have said, the two largest components of Ottawa’s spending are transfers to persons ($69.7-billion in 2006) and transfers to provincial and local governments ($52.7-billion in 2006). In 2005, individuals on average received $15.54 in government transfers for every $100 of employment income.

The next time you encounter some anti-tax, anti-government slasher from the raging right, ask them which of the above two categories of transfers they would like to see chopped, and then ask them if they
would consider running for public office featuring such a policy in their campaign. Ask them for which of the following would they like to cut spending: health, education, the environment, child benefits, pensions, or defence.

While the provincial premiers constantly clamour for more money from the federal government, our cities are increasingly shortchanged by the provinces.
Globe and Mail
columnist Neil Reynolds has pointed out that while the revenue of municipalities is about 4.4 percent of GDP, they spend about 6.95 percent, while relying on the provinces for some 40 percent of their revenue.
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Again, how is Canada doing in relation to our central government’s debt and debt charges? There was a time, not too long ago, when every public opinion poll showed that these two items were near the top of the list of public concerns. But this has all changed. Back in fiscal year 1995/1996, Ottawa’s public debt charges were $49.4-billion. By 2006/2007, these were down to $33.9-billion, having declined for five years in a row, down from a high of 6.6 percent to 2.3 percent of GDP in 2006/2007. They are expected to fall further, to 2.1 percent of GDP in 2008/2009, or some $33.7-billion. Bear in mind that, in 2006, only 1 percent of GDP in Canada was some $14.4-billion. Of course, some of our reduced annual debt payments has gone to help fund health care, education, child benefits, and so on.

For decades, some people have worried, as they should, about the federal government’s debt and the money leaving the country to pay the large interest on it. At one time, non-residents held almost 28 percent of the debt. But today that foreign debt is down to only 13.1 percent and headed lower, a dramatic decline.

Some people (and some intentionally) confuse the gross debt and the net debt. The net debt is the gross debt minus government assets. As recently as 1999/2000, the gross debt was just under $716-billion, and the net debt was $576.3-billion. By 2006/2007, the net debt was down to $467.3-billion, and it is expected to be down further in 2008/2009.

As a percentage of all of Ottawa’s spending, debt charges have fallen from a high of 29.8 percent in 1996/1997 to only 15.3 percent in 2006/2007.

As indicated earlier, most Canadians place health care, the environment, education, and child poverty at the top of their list of concerns. Yet an October 2006
National Post
poll shows that Canada’s business leaders want to allocate government surpluses to paying down the debt. Corporate executives are three times more likely than other Canadians to support debt reduction, and five times more likely to support tax cuts. But when this
National Post
poll was taken, government’s net financial liabilities as a percentage of GDP were already at their lowest level in a quarter of a century and headed lower — and as we have seen, they were by far the lowest of any of the G8 countries.

In 2007, the OECD projected that Canada’s general government debt interest payments would be a lower ratio to GDP than in 18 other OECD countries and well below the OECD and the Euro area averages.

Moreover, most economic projections indicate that even with no further paydowns of the federal debt, it will continue to shrink substantially as both a percentage of GDP and as a percentage of all government spending.

One interesting but sad development in government revenues in Canada is the rapid rise in gambling revenues. In 1992, these amounted to $2.73-billion. By 2006, they had ballooned to $13.3-billion.

Now, for the benefit of Thomas d’Aquino of the Canadian Council of Chief Executives and his continentalist colleagues who are so determined to adopt American standards, values, and policies, and are so gung-ho for greater Canadian harmonization with and integration into the United States, let’s look briefly at the debt situation there.

When George W. Bush became president, the U.S. federal debt was $5.7-trillion. By the end of 2006, it was an astonishing $8.5-trillion. The head of the U.S. Government Accountability Office in Washington has warned that unless major corrective steps are taken, the U.S. debt will increase by many trillions of dollars in the foreseeable future.

Nevertheless, despite such warnings, more than a few reputable economists are forecasting U.S. deficits of hundreds of billions of dollars a year for as far as they can see into the future, and even worse trade deficits.

By the summer of 2006, the foreign holdings of U.S. government debt were increasing rapidly. U.S. government interest payments to foreigners long ago passed all government spending on education, social services, and job training combined.

About $2.2-trillion (U.S.) of the American public debt is owned by China, Japan, and the OPEC countries. By the time George W. Bush leaves office, the national debt is projected to be $9.4-trillion.

Lester R. Brown of the Earth Policy Institute writes:

China is now becoming our banker. This developing country, where income levels are one sixth those in the United States, is financing the excesses of an affluent industrial society. What’s wrong with this picture? …

If China’s leaders ever become convinced that the dollar is headed continuously downward and they decide to dump their dollar holdings, the dollar could collapse.
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As
The New Yorker
put it,

More than any other nation in history, the United States depends economically, on the kindness of strangers. Right now, Asian investors are very kind. Asian central banks already own trillions of dollars in American assets.

Of course, the Chinese and the Japanese could decide that costs of the falling dollar are too great, and suddenly stop (or, at least cut back sharply) their lending to the United States.
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And, if they did this, what would be the result? For certain, it would be a very “hard landing,” with terribly high interest rates, high inflation, a plunging stock market, and even more depressed house prices. Not just a recession, but possibly a prolonged and serious deep depression.

Meanwhile, in the 10 years from 1996 to 2006, the U.S. current account deficit grew from less than 2 percent to almost 7 percent of GDP, while in 2007 Washington’s debt stood at just under 37 percent of GDP.

As well, the American trade deficit in 2005 was $725.8-billion (U.S.), and it was $763-billion (U.S.) in 2006, the fifth consecutive record trade deficit. The last U.S. trade surplus was 32 years ago, in 1975.

In 2006, there was a fifth consecutive record combined current account and fiscal deficit. In January 2006, the president of the Federal Reserve Bank of New York, Timothy Geithner, warned that the soaring deficits were not only a significant threat to the United States, but also a threat to the global economy that could not be sustained.

Please keep these U.S. figures in mind when you read in the conclusion of this book how Mr. d’Aquino and friends want to integrate us even further into the United States.

One last point about Ottawa’s transfers to the provinces for social programs. As the Canadian Union of Public Employees has pointed out in their comments on the Harper government’s 2007 budget, if these transfers were only set to keep pace with the increase in population and inflation, they would be a huge $4.4-billion higher in 2008/2009. Imagine what some of that money could do for child poverty, foreign aid, social housing, post-secondary education, or cancer research.

And one last reminder about total Canadian government revenue and spending as percentages of GDP compared to the other 29 OECD countries: In revenues we’re in 19th place, in spending we’re even lower, down in 20th place.

Now, please go back and look at the Stephen Harper quote that opens this chapter.

34

DECENTRALIZATION

MEECH LAKE AND CHARLOTTETOWN, WHETHER YOU LIKE IT OR NOT – A GUARANTEED RECIPE FOR DISASTER

I
s Canada, as so many claim, a badly over-centralized country?

Not so. Follow the money. All of the following 22 OECD countries have a higher share of all tax revenue going to their central government than Canada: Australia, Austria, Switzerland, the Czech Republic, Denmark, Finland, Greece, Hungary, Iceland, Ireland, Italy, Korea, Luxembourg, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Sweden, Turkey, and the United Kingdom. Only six OECD countries had a lower share going to the central government.

Beginning in the 1960s, and in every decade thereafter, the federal government’s share of all government income has been shrinking. Where Ottawa was once receiving over 65 percent of all government revenue in Canada, by 2006 that was down to 39.2 percent (well below the OECD average of 49.4 percent for federal central governments). Today, in a list of the top 50 developed countries, 34 central governments do a larger share of all government spending than Ottawa.

In his
Globe and Mail
column on November 10, 2006, Jeffrey Simpson referred to the “decentralized political system” in the United States. “Decentralized” in some ways, true, but certainly not in government spending and in the control by Washington of huge areas such as resources, education, and social policy. In 2005, Washington was responsible for 64 percent of all government expenditures in the United States,
and only 9 percent of this was in the form of federal grants to state and local governments. As percentages of GDP, Washington spent 20.4 percent in 2005, while state and local governments combined spent only 13.5 percent.

The decentralization of Canada has been progressing rapidly since the days of Brian Mulroney. And it’s clear that Mr. Harper, if he remains in office, will not only continue this process, but accelerate it. This despite the fact that many thoughtful and knowledgeable Canadians believe Canada is already so decentralized it is close to being ungovernable.

In 2006, looking at total government spending, provincial expendiures were 47.8 percent of the total, and local government spending was 16.7 percent, leaving Ottawa with only 35.5 percent.
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Bear in mind, Ottawa’s transfers to the provinces and local governments in 2006 came to almost $56-billion, while provincial transfers to local governments were $39.4-billion. Subtracting these two numbers, the provinces and local governments spent over twice as much as Ottawa’s total.

How does that compare with the ignorant claims from Alberta and Quebec, and from some our right-wing business leaders and newspaper columnists, about Canada being “over-centralized”?

As for Ottawa’s ability to introduce new pan-Canadian programs, Tom Walkom of the
Toronto Star
has it right:

In February 1999, Chrétien’s Liberal government signed a deal with all provinces except Quebec in which it promised not to introduce any more programs in areas of provincial jurisdiction (such as health and education) unless a majority of provinces agreed.

This so-called social union framework agreement did not lead the television newscasts the next day. Nor did it give rise to “the world is ending” headlines in the daily press.

But, by limiting Ottawa’s capacity to create new pan-Canadian social programs, it carried far more real weight than Harper’s Quebecers-are-anation resolution.

If Chrétien’s social union framework agreement had been in place in 1968, for instance, it is not at all clear that Ottawa would have set up a national medicare system. At the time, only two provinces were unequivocally willing to join up.
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Subsequently, the Paul Martin government negotiated a list of one-off deals with the provinces. Now Stephen Harper is intent on entrenching shared-cost programs, allowing any province to opt out, yet receive full compensation and proceed to set their own rules and standards. As
Globe
columnist John Ibbitson has written (January 2006), this and other plans Ottawa has to gain favour in Quebec are “the essence of the Meech Lake and Charlottetown accords, the failed social union negotiations.”

Jeffrey Simpson says that “open federalism” is the order of the day in Ottawa: “It began under Prime Minister Paul Martin who cut so many one-off deals with the provinces that his style became known as ‘delicatessen federalism.’ Open federalism is essentially a vision of Canada in which no national objectives are established that have not previously been vetted and okayed by the provinces.”
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And then, Simpson continues, came Stephen Harper: “This Prime Minister argued that people should build their own ‘nations’ or provinces, even to the point of ‘autonomy.’ He is implicitly, therefore, rejecting any idea that Canada might be something more than the sum of its parts.”
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