As much as I dilike the Liberals, the one thing I really respect about their time in office was they had enough fiscal restraint to produce a balanced budget. Excessive spending can be reversed as long as it hasn't been paid for with the unpaid wages of our children.

The liberals are quick to take credit for slaying the deficit dragon but never mention their role in creating it, Mulroney's role in turning around the operational defecit left by Trudeau and they never mention they reduced spending by savaging the military and down loading huge costs to the Provinces.

Never trust anyone who takes credit for other peoples work, inflates their own contribution and refuses to acknowledge the pain inflicted by their "good work"

And don't forget the 100's of Billions of $$$$$$$$ that ALL Western Countries saved from having to spend on defense with the fall of the Soviet Union!

That alone slashed deficits across the western world!

Am I the only one who remembers that the GST (which the PCs brought in) was specifically touted as being strictly to pay down the debt, with the implication (gawd, how naive I was to believe it!) that it would be removed once the national debt was paid.

The Liberals, despite election promises to the contrary, kept the GST and used all that lovely money to balance their budget. However, I've never heard that any, let alone ALL the national debt has been retired.

At least the Conservatives have reduced the GST down to 5%.

Everytime a government reports a "Surplus" they think they're supposed to be congratulated for strong fiscal management, when it actually means they're still OVERTAXING the taxpayers.

Fred,

There is no doubt that a lot of "heavy lifitng" to eliminate the deficit had been done before the Liberals were in power ... After all, the introduction of the GST and NAFTA probably did far more than anything else to eliminate the deficit in Canada. The reason I still give credit to the Liberals is because they didn't abandon this work and just continue deficit spending

Looks like that Scottish frugality that so many Canadians inherited from their ancestors finally paid off.

Captain:

We shouldn't be proud we should be ashamed.

That we don't have even vastly better surplusses is a Scandal.

We have let the US fight the global war on terror and we have seen the commodities that we sell abroad skyrocket in price. Yet our productivity growth continues to lag to the point where Americans earn approximiately 20 plus percent more per capita than we do.

I was recently at a national Chamber of Commerce convention where the entire theme of the event was essentially "Why aren't we doing better?". If I could be assured that it would be done responsibly I would support engaging a royal commission on the issue (Think Macdonald commission on free trade rather than the piece-of-communist-crap Romanow commission on healthcare).

The Liberals didn't put Canada into surplus....the Canadian taxpayer did.

I wouldn't give the Liberals too much credit. I remember at the time that the IMF told the Canadian Government (Liberals), to get rid of the deficit which they did by downloading all the agreed on expenditures to the provinces while jacking the EI rates.

Although I agree that a large budgetary surplus is a bad thing, I have to dissent on the point that Minnie made about any surplus being overtaxation. I am OK with a small surplus (the current trend of being around 2% strikes me as decent, feel free to chime in if anyone has numbers one way or the other). It offers the opportunity for the government to rebate that the next year in the form of sustainable tax reductions, apply it to debt repayment, keep it for a year when they are 2% off the other way, etc. Allowing the feds a very small bit of wiggle room isn't a totally bad thing. Beats having them jack taxes up "temporarily" to cover a shortfall.

I wouldn't be too smug, as a Canadian, about underfunding our military for 13 years or so. I wonder what our situation would be if we had to fund our military for that many years, all the while supporting unsustainable social programs.

How much money would the US have, for instance, if it didn't have to be the world's policeman for around 13 years and just let the world go to pot?

A budget, any budget, is a combination of income and expenditure.

The Federal gov'ts income ( taxes mostly) is high enough. It is time to curtail some of the heavy spending. Eliminate the yearly $Billion earmarked for the CBC.

Two birds, one stone. Helps to clean up the debt. Helps to clean up the propaganda.

Why does the end of the graph go below zero?

Giving the liberals credit for balancing the budget would be like me saying I balanced my budget and have a surplus because I defaulted on expenses where the party I owed, had no recourse for collecting the money owed. Just like the provinces and municipalities had no recourse when federal funding was slashed.

mid island mike

Minnie, that's not quite correct. Yes, the GST brought in large revenues, but it was replacing a previously existing tax, the Manufacturers' Sales Tax, which functioned as an export tax on all Canadian products. The major economic effect of the GST was to trigger a large jump in competitiveness of Canadian business, because the MST was about 25% or so at the time.

However, the government received much larger revenues from other sources to kill the deficit. First was the de-indexing of the tax brackets. This meant that the tax brackets, which formerly increased with the rate of inflation were now frozen. As Canadians wages increased, they paid proportionately more income tax over time. This was done in one of the Wilson budgets in the late 1980s and is still in place today. Effectively, the net tax Canadians paid increased by the inflation rate. Compounded over a decade, this amounted to huge revenues by the late 1990s.

Second, the federal government cut transfer payments to the provinces, which tilted most of them into deficit. The provinces immediately felt the pressure on things like their health care budgets. Within a few years, health care which had been effectively funded about 50/50 was no less than 30 per cent federal money. Mostly they responded by cutting or downloading programs to municipalities. For example, programs which in the province of Ontario had been entirely funded by the provincial government were now funded on a revenue matching basis from the municipalities or simply downloaded entirely, such as welfare. In the case of Ontario for example, one program cut by the Harris government was to abandon about two dozen highways across the province and dump the roads on the county budgets. The general result of this was municipal property tax rates soaring above the rate of inflation, and decaying municipal infrastructure, which is why we now have things like bridges falling down, sewage flooding the Ottawa River, and the TTC with the highest fare costs in North America.

These two measures of tax bracket creep and cutting federal transfer payments had much larger effects than the revenue generation of the GST. This was therefore a political two-step. The Mulroney government put in place the income and GST tax structures, while the Chretien government dealt with cutting the outflow of transfer payments to the provinces. Both steps were necessary to end the federal deficit.

POSSESSIVE ITS HAS NO APOSTROPHE.

Fer cryin' out loud...

Canadians should be a bit smug in their superior fiscal austerity over the US.

I suppose there is a little bit of Lloyd Robertson in all of us. (quiet chuckle).

I cast my mind back to the torpedo that sank Peterson's Liberals in Ontario. A chance remark that the budget had been balanced for the year, by a functionary. Alas, it was $3.84 billion deficit. An outraged electorate goaded on by the press, voted in Bob Rae. The first years deficit was $20 billion. Standard and Poors said the Ontario debt if repeated would give it a downgrade.

With great difficulty I accessed - finally, figures on
Ontario debt today.

www.ofina.on.ca

These are the figures of Ontario debt. As at May 2008.
Publically held debt 143.8 billion.
Non Public debt $22.2 billion.
Total $164 billion.

I dread to ask the cost to the tax payer of servicing this debt.

Canadians should be a bit smug in their superior fiscal austerity over the US.

I suppose there is a little bit of Lloyd Robertson in all of us. (quiet chuckle).

I cast my mind back to the torpedo that sank Peterson's Liberals in Ontario. A chance remark that the budget had been balanced for the year, by a functionary. Alas, it was $3.84 billion deficit. An outraged electorate goaded on by the press, voted in Bob Rae. The first years deficit was $20 billion. Standard and Poors said the Ontario debt if repeated would give it a downgrade.

With great difficulty I accessed - finally, figures on
Ontario debt today.

www.ofina.on.ca

These are the figures of Ontario debt. As at May 2008.
Publically held debt 143.8 billion.
Non Public debt $22.2 billion.
Total $164 billion.

I dread to ask the cost to the tax payer of servicing this debt.

The Federal Sales Tax was 12% not 25, and was applied at the manufacturing level, and fully embedded in the wholesale price of products. What it was for most distributors and retailers was pure profit. A typical sales formula of the day was a 2 level doubling of the cost to retail, ie. distributor doubled his cost (manufacturer's price, including FST)to the retailer, who doubled his distributor's cost to the customer. The tax portion was doubled twice -only the manufacturer had to pay it. e.g a $10 item at retail cost the retailer $5.00, the distributor $2.50, the manufacturer $2.20, .30 being tax.

Sorry, did that last bit of math wrong - manufacturer's cost would have been 1.10 +.15 tax.

Gack! Friday night brain strain - the original example was right, just badly worded - the distributor paid 2.50 to the manufacturer, whose breakdown was 2.20 distributor's cost plus .30 embedded tax.

Mike Harris gave Canada a surplus. The tax-cut stimulated Ontario economy gave federal revenues a real boost during that time. You can directly correlate the balance to the Ontario jump in tax contributions.

During the years of Federal Deficit slaying, by the Puffins, I watched the House of Commons because I did not trust the media to tell the truth about politicians or politics. The leader of the opposition was Preston Manning and prior to that it was the Bloc with Mr. Bouchard/Preston Manning with one less member than the Bloc. The Puffins stole their budget balancing ideas from both the Bloc and the Reform Party. They Puffins have never acknowledged this theft either...

cgh,

Tax brackets aren't indexed to inflation?? They changed that a few years back....now they are.

To all:

I'll ask this question here, just to get a riff on this general conversation.

If Canada is doing all these things right (no deficit, debt under control, solid banking system), why is the Canadian Dollar underperforming the USD.

You would expect that the Canadian $ should be doing better than the USD but we have dropped from $.97 to $.84 over the last 2-3 weeks.

Of the explanations I have heard:

1) Forget the fundamentals - The Canadian Dollar is heavily tied to commodity prices - drop in those prices drops the dollar (ie. We really are hewers of wood and drawers of water after all)

2) As bad as the US is right now, but the rest of the world is worse - The Europeans can't gloat as the EU is spending more on bailing out its own institutions. The US still looks like a better haven in a storm
(djb - yes I did note proper "its" usage)

3) Canada's economy is still too tied to the US - Doesn't matter what we do, if the US tanks Canada is going down too, but the US will recover sooner (see note 2) ) so the US$ remains stronger.

4) Other economic factors are more important - Even with the government spending under control, Canada still has very low productivity, so no gold star.

Any thoughts?

Dave

Dave: All of the above. The commodity linkage and flight to safety being the most powerful causes of late.

Gord: Thanks.

To all: The bonus question I forgot to ask, if these factors are true, any ideas on what Canada can realistically do to improve how the Canadian economy is viewed versus the US?

(Example: We can't change geography, we'll always be next door to the US - barring any severe continental drift that is. Would a free trade deal with the EU help?)

Other ideas?

That's right, JD, but they didn't roll back about 15 years of bracket creep, so they're still pocketing the increased revenues to this day. By re-indexing, all they did was stop the year over year increase.

Dave, Canada has the lowest investment p/c in research and development in the OECD. It also has business tax structures hostile to investment. The provinces also have less unrestricted trade in goods and services among them than they do with the United States. Fixing these things might do something about our pathetic productivity, because we're out of sync on virtually all of them with the rest of the OECD.

About the EU, probably not a huge effect, because neither of us will give up our agricultural sector protections. Nevertheless, freer trade is always better than current restrictions.

With respect to your 9:44 post, yes to the four points, but there's no reason to be unduly pessimistic. Unlike the US, our credit system is still working. Suddenly within a matter of about six weeks all five Canadian big banks are now in the top 15 or so in size in North America. They are all out now looking around the US for fire-sale acquisitions. One of the things which may emerge out of this recession is a much stronger Canadian banking system in the global finance community. Also, the drop in the dollar will provide a boost to Canadian exporters again which going over par hurt severely. It's bad for consumers, but good for exporters. So we keep more jobs even if they're lower paying ones. Gord's right about the flight to safety, but even that is somewhat futile as the price of gold has started to slip.

You asked about productivity. One of the factors contributing to low productivity was the sustained low value for about 10 years of the Canadian dollar. At 70 cents or less, no one had to invest in their businesses to remain competitive. Now, there's a long catch up period, and the Canadian tax on capital investment doesn't help.

No, Paul, Harris didn't put Canada into surplus. Like all tax cuts, it was spent, triggering consumer spending. What drove Ontario industry in the late 90s and first half of this decade was a low exchange rate, coupled with a year over year decline in new federal debt. Much larger factors than Ontario tax cuts were the consumer spending in the US on trucks and SUVs, all made in Ontario plants, the very ones now being shut down.

1. Re the GST: The promise was any revenue raised by the GST in excess of the revenues raised by the Manufacturers' Sales Tax which it replaced would be used to pay down the debt. However, a basic rule of government revenues and spending is ALL revenues go into the Consolidated Revenue Fund (CRF) and all spending is appropriated by Parliament vote from the CRF. It has been that way since the Glorious Revolution of 1688. A promise by one Parliament re revenues and spending cannot be forced onto another Parliament. Otherwise, why bother with elections.

2. The budgets have not been balanced. Balanced means Revenues = Expenditures. Lately revenues have exceeded expenditures. This condition is necessary to counteract all the years when Revenues were far less than expenditures.

3. The Chretien Liberals only cut spending when the gun was put to their head. A weekly T-Bill issue was not underwritten by Bay Street/Wall Street as the level of debt demanded an interest rate much higher than that being offered on the T-Bill issue.
A similar event was the trigger on the Road to Damascus Conversion by the Norma Bob Rae NDP in Ontario. Ontario government debt was on the verge of a downgrade to less than BBB+. If that had occurred, pension funds and insurance companies would have be barred by regulation from holding the debt. As pension funds/insurance companies are the principle source of funds, the NDP government would have had to turn to the speculative markets (so called junk bonds) to fund the existing $50+ billion of existing debt plus the additional $17 Billion of deficit financing planned.

Norm

Before all you Canucks get up on your high horse economically speaking, you must remember a couple of things.

Canada is an extractive economy based on natural pre-existing resources, just like Saudi Arabia. Canadians mine their wealth from the ground, forests and oceans. As such, Canada’s mega-wealth lies in the hands of very few privileged people who have the resources to exploit vast mineral wealth that is unobtainable by the average Canuck.

The USA is a productive economy, based on value added manufacturing and services. American produces their wealth through invention, innovation, competition and investment. America’s mega-wealth lies in the hands of the average person and the huge number of middle level millionaires and nouveau riche.

This means that (for good or bad) Americans rely on credit to fund new profitable enterprise. Americans take greater risks generally speaking with their money and demand and get bigger pay-offs.

Canadians on the other hand are notorious savers and scrimpers (see cheap as in cheaper than Scottish people) as is completely necessary in a socialist country. Canadians by and large don’t seek and use credit because innovation is not a prized ideal as it is in America. I don’t mean this as a bad thing, but just that as similar as our countries are on most things, our economies could not be any more different.

Credit is the seed corn of proletariat US wealth. Old money and natural resources are the seed corn of elitist Canadian wealth. By and large the Canadian proletariat does not attain “wealth”.

As a Canadian I do not take any comfort in the manner our fiscal affairs are managed. I would suggest that many Canadians hear that we are running surplus budgets and assume that our national debt is paid off! The level of ignorance that exists about our debt is staggering. Of all the valid comments that have been made on this discussion I would add the fact that each successive fedeal government increases spending above the increase in inflation. Canadians expect government handouts and now the Americans will be acclimitized to the same process as Obama opens the cheque book.

SDA is my daily bread for which I am truly thankful. Although no one likes having grammar/usage failings pointed out, it is jarring to see "it's - its" repeatedly misused in the leader lines. It is a distraction worth correcting.

excellent comments norm and kpd. Better than anything one could read in a newspaper or see on tv.

My addition -though not nearly as expert and well-put as the above points - to the productivity conundrum is that in cda we have huge sectors of the economy that are operated in near-Stalinist ways. I will lost just a few and as you read it think of how much our GDP is tied-up in these grossly inefficient systems:

The CWB

Quebec, BC, Manitoba, NL hydro and all of the other crown-owned power generation and transmission assets.

Supply-managed agriculture - eggs milk etc.

60 percent of the healthcare system

The telecom sector - crtc

Much of the auto insurance sector

The liquor retail sector

I am sure there are more examples and that we have only six charter one banks (if memory serves) whereas there are 15000 banks in the us that get money directly from the government should also be taken into consideration when one wishes to examine why cda is so un-entrepreneurial.

...

As for the it's / its issue I should point out that iPhone's spellchecker automatically turns its into it's so that may be what is happening on some cases.

I don't know if anyone is still reading this thread, but it is worth mentioning that 27 billion dollars of Martin's debt reduction was stolen (oops, "retired the surplus") of the Armed Forces and RCMP pension funds. Serving members had their contributions increased substantially since the money to pay for their retirements disappeared into Mr. Martin's coffers.

pride in excess taxation?

A lot of the budget cuts were on the backs of the Canadian military - I lived through those cuts (in the CF 1992-2002) - some did not live through them, thanks to shoddy equipment, repeated tours to the Balkans and under-funded training. Apparently those dead troops aren't as important as the ones killed in Afstan.