By John Koopman
Twenty-five years of heavy federal taxation-and-spending fiscal policy has allowed the U.S. economy to surge ahead of ours. However, for every political action there is generally a reaction. A perception of injustice surrounding the uneven distribution of spending has fanned regional tensions and seriously compromised our sense of national unity. The same economic factors that drove voters to accept excessive deficit spending in the Trudeau and Mulroney years are today at the source of the balkanization of our national political scene.
Taxpayers loved “tax and spend” as long as the “spend” portion exceeded the “tax” portion. In 1984, the government spent about $1.25 on programs and services for every dollar it took in taxes. In fact, throughout the Trudeau years, as the Liberals drove up the national debt, total spending on programs and services regularly exceeded tax revenues.
As late as Brian Mulroney’s last budget year, taxpayers still received roughly $1 of benefit for every $1 paid. In 1993-94, the federal government raised $116-billion in revenue and spent $120-billion. Unfortunately, ever-burgeoning interest payments on accumulated debt left the government with a final deficit of $42-billion.
As long as government had the ability to deliver services to the public in line with revenue raised, there was no public support for broad-based spending reductions. The Mulroney government’s timid attempts at reductions were met with public outrage.
When capital markets grew increasingly reluctant to fund government debt, Jean Chrétien’s Liberals were forced to slam the brakes on new spending. The result is that for every dollar the Canadian taxpayer pays in taxes today, he or she receives about 70 cents back — the rest pays interest on the national debt.
The villain in the piece is how the picture varies from region to region.
Central and Western Canada are large net contributors to the federation. Is it any wonder then that the Canadian Alliance, which is united in its opposition to what it perceives as profligate federal spending, dominates Western Canadian politics and is making significant in-roads in Ontario?
Perceptions about the economics of federalism drives many Québécois to the separatists. The vast majority of Bloc Québécois voters believe that Quebec pays far more into the federation than it gets back.
Atlantic Canada is heavily subsidized by the rest of the federation. According to the Atlantic Institute [for Market Studies], at their peak, net transfers to Atlantic Canada were 40 per cent of the area’s gross domestic product. Even in today’s restrictive fiscal environment, transfers still amount to between 20 and 25 per cent of local GDP. For each dollar of federal tax paid by the Atlantic Canada taxpayer, he or she receives a multiple of this in return. Should we be surprised that the traditional dolers of grants and graft, the Liberal and Progressive Conservative parties, still rule supreme in the Maritimes?
Trudeau/Mulroney economics have spawned powerful regional parties and turned our two former national parties into mouthpieces for other parochial concerns. Fault for this must be laid squarely at their feet.
The growing conservative reaction to those excesses will remedy the economic challenge. We must pray that our economy regains some of the lost ground that separates us from our southern neighbour, before these regional tensions irreparably damage the federation.
John Koopman is a principal with Heidrick and Struggles, an international senior executive search firm in Toronto.