Thursday, August 27, 2015

Stephen Harper and the Elusive Fiscal Balance Mantra

The Harper campaign's mantra is that, in these uncertain times, Canadian voters need to stay the course and vote for the Conservative Party, the only political party that has the ability to steer the Canadian economy through uncertain waters as shown on this video:


Let's take a look at what has happened to Canada's federal financial picture since Stephen Harper first stepped into the Prime Minister's Office on February 6, 2006.  Please keep in mind that the late Finance Minister Jim Flaherty presented his first budget on May 2, 2006, covering the 2006 - 2007 fiscal year.

Here is what the federal budgetary balance looks like since fiscal 2006 - 2007:


Since fiscal 2006 - 2007, the Harper government has spent $122.22 billion more than it brought in as revenues, including a $13.752 billion surplus in fiscal 2006 - 2007 that was largely a relict of the Martin government.  Please note that this total deficit includes a projected $1.9 billion surplus in fiscal 2015 - 2016 which is far from a sure thing given the collapse in oil prices and the slowing of the Canadian economy into near-recession.

Here is what happened to the net federal debt since fiscal 2006 - 2007:


The net federal debt has increased by 23.88 percent over 10 fiscal years.

Like other nations around the world, Canada's central bank has performed a great service to the federal government since the Great Recession as shown on this chart:


The yield on 10 year Canadian government bonds has fallen from around 4 percent in 2006 to its current level of just under two percent.  In fact, if we go back further in time, the yields on Canadian government bonds ranged between 6 and 9 percent during the years between 1992 and 1998 and yet, by fiscal 1997 - 1998, the Chretien government was able to run a small surplus as shown on this graph:


Over the years between fiscal 1997 - 1998 and 2005 - 2006 when interest rates ranged between 4 and 6 percent or between two and three times the current level, the Canadian government of the day was able to reduce the federal debt from $559.9 billion to $481.5 billion.

If interest rates had remained at the elevated levels seen prior to the Great Recession, there is no way that the Harper government would have been able to achieve any semblance of fiscal balance in 2015 - 2016.  It will also be increasingly unlikely that any political party will be able to achieve fiscal balance on a going forward basis if/when interest rates on the outstanding debt rise by even a modest amount, particularly if the economy continues to underperform.

Let's close this posting with a quote from a speech given by newly minted Reform MP Stephen Harper to the National Citizens' Coalition way back in June 1995 about Alberta Premier Ralph Klein's attempts to balance budgets and reduce deficits:

""Although I can't speak of the details because it is not my area of expertise, what Mr. Klein is doing in Alberta is, in principle, what governments need to do.  He is taking a look at a situation that is unsustainable financially and he is taking the steps necessary through expenditure reductions to eliminate that financial uncertainty on a permanent basis within the life of a single Parliament.  That is the only way it ever gets done.  Any politician who says he is going to do it over two Parliaments is never going to do it.  That's the golden rule.  That's something that you can learn from Ralph Klein." (my bold)


Apparently, our current Prime Minster has either forgotten his golden rule or is just ignoring it in the face of the economic reality that he has created for Canadians.  Three strikes and you're out Mr. Harper?