The Canadian Model for Fiscal Reform

October 30, 2012

In the Washington Post today, Brian Lee Crowley discusses the still little-known story of Canada’s

tremendous budgetary turnaround achieved in the mid-1990s. Over just a few years, between 1995 and 1998, Canada transformed a $32 billion federal deficit, equivalent to 4 percent of its gross domestic product, into a $2.5 billion surplus. This achievement was followed by a full decade of surplus budgets, with debt, tax and poverty rates all falling as growth, investment and employment rose.

Crowley discusses the reasons the success happened, from bipartisan (actually multipartisan) agreement to rallying public support. He promises six reasons, but lists only five. Maybe that’s part of the cutbacks. It’s an inspiring story: if Canada could cut federal spending from 22 percent of GDP to 15 percent, why can’t we?

And it’s a story you could have read in Cato Policy Report in May. Long-ago Canadian Chris Edwards, Cato’s director of tax policy studies, wrote:

In just two years, total noninterest spending fell by 10 percent, which would be like the U.S. Congress chopping $340 billion from this year’s noninterest federal spending of $3.4 trillion. When U.S. policymakers talk about “cutting” spending, they usually mean reducing spending growth rates, but the Canadians actually spent less when they reformed their budget in the 1990s.

And he offered this graphic depiction of the diverging fiscal picture in the United States and Canada:

Members of Congress: take note. Washington Post readers: You could have read it here first.

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