Budget 2009: The Tories' Colossal Spending Spree
Say what you like about the Tories: they don't do things by halves. When they spend, they spend. When they go into debt, they do it $100 billion at a time. And when they decide to finish off what remains of conservatism in Canada - as a movement, as a philosophy - they go out with a bang.
We can safely say that the strategy of "incrementalism," at least, is a thing of the past. With this week's historic budget, the CONSERVATIVES' already headlong retreat from principle has become a rout - a great final leap into the void. Understand: there will be no going back from this, for the party or for the country. Whatever the budget's soothing talk of "temporary" this and "extraordinary" that, and for all its well-mannered charts showing spending obediently returning to its pen, deficits meekly subsiding, multi-billion-dollar "investments" repaid in full, we are in fact headed somewhere we have never been before. We are on course toward a massive and permanent increase in the size and scope of government: record spending, sky-high borrowing, and - ultimately, inevitably - higher taxes. And all this before the first of the baby boomers have had a chance to retire.
Whether it will prove the country's undoing, and not just conservatives', will depend upon events. In its simplest terms, the budget is a "stimulus package" that spills money every which way: $12 billion over two years for infrastructure; almost $8 billion meant to kick-start housing and construction; billions more in forestry, auto and manufacturing aid. The much feared broad-based income tax cuts amounted to lifting the income threshold for the middle and lower brackets. If everything the budget foretells comes to pass, we might not come out of it too badly. A $34-billion deficit next year, after all, is barely two per cent of GDP, and even four years and $85 billion worth of deficits, if the budget's projections hold, would barely budge our debt-to-GDP ratio. But if they do not - if the ECONOMY fails to recover on cue; if inflation spikes when it does, and interest rates soon after; if all those billions in new spending, once in place, do not prove so easy to trim back; if the assets the government acquires with all of its borrowed money do not turn out to be worth what they cost - then we will head into the approaching demographic storm loaded down to the gunwales. It's a monumental, even reckless gamble.
And whatever its likely consequences for the debt, its effect has already been to ratchet up expectations, to tilt the political landscape toward greater and greater interventionism, to change the very language in which we discuss these things. Again, this is unlikely to be easily reversed. Among the consequences of the end of conservatism will be to make it difficult, if not impossible, to muster a constituency even for restraining the growth of government, let alone rolling it back. When the "right" is defined as $34-billion deficits, record spending, and bailouts for everything in sight - when every other party is to the left of that - people lose the ability to think in any other way. They forget there was ever a contrary view.
Conservatives, then, should think hard about whether they can afford to support this government any longer. Its sole contribution at this point is to limit debate, to rule out of bounds any serious discussion of alternatives, since "even" a Conservative government now believes in an all-pervasive, ever-expanding state. The Conservative experiment - the whole enterprise of "uniting the right" in which conservatives have invested much of the past decade - has reached a dead end. They have not succeeded in replacing the LIBERALS. They have only succeeded in becoming them. Perhaps, some conservatives will conclude, it would be better if this government were defeated - if the party were to lose power, that it might find itself.
Start with matters that require no prediction, with the fiscal facts on the ground. The coming fiscal year, according to the budget's own numbers, will see the largest annual increase in spending (with one arguable exception) since at least the Second World War. The $22 billion the Harper government will pile on top of program spending this year, adjusted for INFLATION and population growth, amounts to an increase of more than 10.1 per cent. That's a larger rise, in real dollars per citizen, than anything the TRUDEAU governments ever mustered, even in the heady days of the early 1970s, when they were putting in place the institutions of the modern WELFARE STATE. (Its only possible rival is 2005, when spending increased by a similar amount - though its abrupt decline the following year suggests this was as much an accounting achievement as anything else.) For the record, it's more even than in the infamous first budget of Bob RAE's Ontario government.
No government in our history has spent this much, this fast. Before this budget, no government had spent more than about $6,000 per citizen, in 2008 dollars - no, not even in the depths of the 1982 recession. This budget blasts through that ceiling, all the way to $6,500, and stays there: four years from now, after the recession is presumably a memory, the government will still be spending nearly $6,400 per capita. At the start of this decade, it was spending just $4,800. Somehow the federal government is now finding ways to spend a third more inflation-adjusted dollars on each of its citizens.
Two points are worth noting about this latest explosion in what was already a supernova of spending. One is the sheer aimlessness of it. Supposedly the government's dilemma was how to balance short-term "stimulus" with the need to improve the economy's productive capacity in the long run - a contradiction to begin with, since the kind of spending that can be shovelled out the door in time to claim credit for the recovery is unlikely to be subject to especially searching scrutiny, such as would ensure these funds were put to their highest and best use. But the laundry list of spending in this budget shows scant evidence of any thinking at all.
Absolutely everything, it appears, now counts as "stimulus" (as earlier "public works," a phrase that had acquired a certain odour in this country, was rechristened "infrastructure"). On and on it goes, for dozens and dozens of pages: an extra five weeks of EI benefits for everybody (try taking that away in a couple of years), a 100 per cent tax writeoff on business purchases of computers (apparently, Canadian business has yet to hear of these miraculous devices, or at least must be led by the hand to buy them), $12 million a year "to promote international cruise ship tourism along the St. Lawrence and Saguenay Rivers."
In pursuit of its declared aim of ensuring "all regions prosper," the budget adds new regional development agencies for those few remaining parts of the country not already blanketed in federal cash, including - yes, it's come to this - southern Ontario. Another section commits the government to provide "short-term" support for "key" sectors. These temporary hardship cases turn out to include such perennial wards of the state as farming, forestry, mining, and ... shipbuilding. "In recent years," the budget notes laconically, "the industry has experienced declining demand," the remedy for which is apparently to increase supply ("Budget 2009 provides a catalyst to increase activity in the sector"). Then it's off to automotive bailouts, support for the cultural industries, permanent increases in equalization (inequality among the provinces may go down, but equalization always goes up), tax credits for home renovations (you thought it was hard to get a contractor on the phone now?), "an improved rail system," slaughterhouses, hockey rinks, broadband, the Manege Militaire drill hall in Quebec City ... The government will be everywhere, and everything.
And why not? When there is no longer any budget constraint, when deficits are not evidence of incontinence, but "stimulus," why should any project, any sector, any region be denied? More to the point, when there is no political constraint - when no party is pulling to the right, while four pull left - spending can only go in one direction. And for the foreseeable future, that's where the action is going to be: sucking money from the gushing spigot of the state. Starting a business? Only a chump would spend his time worrying about pleasing the consumer. It's the politicians you want to keep happy, mate.
The other point to make about all this is that the budgeted numbers are only the start. The $34-billion official deficit is barely a third of the more than $100 billion in new debt issues the government will bring to market, this year and next. Billions more will be borrowed and lent out off-budget, through a flotilla of CROWN CORPORATIONS - the Export Development Corporation, the Business Development Bank, and so on - while the existing program to airlift mortgages off the balance sheets of the nation's banks will be bumped up from $75 billion to $125 billion. The need for this is not in dispute - this is at its roots a problem in the credit markets, remember, and should be addressed there - and it is true that much if not most of these funds will be recovered, or never drawn upon. But at a time when the government is already taking on tens of billions in new debt to stabilize the financial sector, it hardly seems wise to be piling $34-billion deficits on top.
Is it all bad? Of course not. The cuts in tariffs on imported machinery are a real boost to the competitiveness of Canadian industry, the very opposite of a subsidy. The bumped-up Working Income Tax Benefit will help lower the "welfare wall" that prevents the long-term unemployed from taking work (for fear of being cut off welfare). Freezing EI premiums, likewise, at a time of rising unemployment, seems only sensible, rather than allow them to rise and price more people out of work. Raising income-tax thresholds can't hurt, and might help - if it weren't paid for with borrowed funds. It can hardly serve as a pretext for the Liberals to defeat the budget, however: tax cuts account for just one dollar in 10 of the alleged "stimulus" - one in five, if you count the foregone increase in EI premiums.
More broadly, how in good conscience could the Liberals, or the NDP for that matter, vote against a budget they might have written? Every line of it seems to have been composed in a kind of haze of Keynesian nostalgia. We are back to the bad old days of the 1960s and '70s, when savings were a dirty word and consumption was thought to "drive" the economy, when economies were "pumps" to be "primed" by wise and far-seeing policy-makers pulling levers on the wall. And in another 20 years or so, when we are drowning in debt and the new-old wisdom has been discredited again, perhaps a new political philosophy will arise, and a new party to give voice to it. We might call it conservatism.
Maclean's February 9, 2009