Balancing Budgets: Good Politics, Good Policy
Purposeful deficit reduction can result in electoral success
September 7, 2011, Ottawa, ON – Contrary to the conventional view that deficit-cutting governments court political unpopularity, history shows that vigorous action to balance the budget and keep it balanced is both good economics and good politics.
Yet, apparently inspired by the conventional wisdom, the current Conservative government is pursuing a weaker policy of balancing the budget by slowing growth in spending, hoping both that interest rates remain low, and that revenues rebound robustly. This slow, incremental action on deficit reduction is grounded in the view that more direct action to balance budgets sooner through spending cuts is a political loser. According to Jason Clemens, director of research of the Macdonald-Laurier Institute (MLI), historical evidence from both Canadian provincial governments as well as the federal government in the 1990s shows that this is not true. In his new MLI Commentary released today, Balancing Budgets: Good Politics, Good Policy, he discusses how purposeful action to eliminate budget deficits relying on spending reductions rather than tax increases can be a foundation for not only sound economic policy, but electoral success.
Clemens first uses the 1995 federal budget delivered by the Chrétien Liberals to show that resolute action to eliminate deficits can result in sound public finances and electoral success. This historic budget reduced federal program spending by almost 10 percent over three years. The result was three consecutive majority governments, a feat unmatched by any other prime minister since William Lyon Mackenzie King's string of majority victories between 1935 and 1945.
Such success stories can also be found at the provincial level. Saskatchewan's NDP government of Roy Romanow tackled the deficit in 1991-92 by reducing program spending by 10.2 percent over three years, reducing its public sector, and raising taxes. The result was a second majority government with 72 percent of the seats in 1995.
Other examples include Premiers Harris of Ontario and Klein of Alberta who both reduced spending in order to balance their budgets in the 1990s and both were rewarded with re-election. Premier Klein reduced program spending by over 21 percent and public sector employment by over 14 percent, achieving a balanced budget in just two years. The result, Premier Klein increased his majority in 1997 and 2011.
Premier Harris' reductions in spending were less dramatic, but more contentious. Still, Harris achieved the first back-to-back majority government in Ontario since the late 1960s.
Clemens concludes, "The Canadian public, and more narrowly the Canadian electorate, understand both the short and long-term costs of running deficits, accumulating debt, and increasing interest costs. Canadian political culture now demands balanced budgets, fiscal prudence, and a path towards lower taxes. Such actions, when done deliberately and in accordance with a thoughtful plan, have led to electoral success at both the federal and provincial levels."
Jason Clemens is the director of research and managing editor of the Macdonald-Laurier Institute. Prior to joining MLI, Mr. Clemens held a number of posts with both U.S. and Canadian think tanks over a 14-plus year period.