On April 8th, Joe Oliver stood up before the Economic Club in Toronto and delivered what can only be described as one of the greatest” economic fanatasy” speeches in decades.  

In reading his speech, one can only conclude that Mr. Oliver, and by extension the Prime Minister, live in some kind of “parralel economic universe” quite distinct from the one most Canadians actually live in.

Mr. Oliver’s selective view of fiscal history for the last 30 years and his claim that the Conservatives have been sound fiscal managers, although the evidence is clear they haven’t been; their claims of promoting economic growth and job creation in spite of completely contradictory economic facts; and, their claims that they are adopting policies that help canadian families despite overwhelming evidence that this is not true; this is their “fanatasy world” and it is one that will not only underly the upcoming budget on April 21st, but also the government’s 2015 election campaign.

Not surprisingly, Oliver, in his speech, started by targeting Justin Trudeau for the “fiscal sins” of his father during the “pierre Trudeau Decade”. According to Joe Oliver, federal spending tripled between 1969 and 1979, driven by “the ideology of the man at the wheel and on the reckless assumption that commodity prices would remain high”.  Just so as not to be confused, this is not Stephen Harper Oliver is referring to.

How bad a fiscal manager was Pierre Trudeau?  Program spending did indeed triple between 1969 and 1979. But measured appropriately as a share of GDP, program spending only rose from 15.4% in 1969-70 to 16.7% in 1979-80. As a share of GDP, revenues actually fell from 17.6% in 1969-70 to 15.5% in 1979-80.

According to Oliver, “trudeau-era debt clung to Canada like a bad flu”. But under trudeau, the federal debt burden only rose from 23.0% to 27.7 % over the ten year period. It rose further to 37.5% in 1983-84, but this was due to the effects of the 1980-1981 recession.

In fact, the fiscal record of Trudeau Senior is pretty good especially when compared to Mulroney. Under Trudeau Senior, the average annual defcit was 2.9% of GDP between 1969-70 and 1979-80; under Mulroney the averafge annual defcit was 6.7% of GDP between 1983-84 and 1994-95.

Between 1983-84 and 1994-95, program spending under Mulroney fell from 18.4% of GDP to 15.7%, while the revenue share actually rose from 15.6% to 16.6%. This weak performance, along with rising interest rates resulted in the debt burden dramatically increasing from 37.5% in 1983-84 to 66.6% in 1994-95.

Mulroney did balance the operating budget, as Oliver claimed, but that was not nearly enough to solve the fiscal problem facing the government. In retrospect, the Mulroney government was simply reluctant to take the fiscal actions needed to stop the country from going into a fiscal crisis in the early 1990s.

In 1984, the Conservative goivernmdent actually published a document “Agenda for Economic Renewal” which stated that, without major action to cut program spending and/or raise taxes, the federal debt burden would double by the end of the decade. And that is exactly what happened. (Notice: both of us were heavily involved in the preparation of all of the Mulroney budgets).

Finance Minister Michael Wilson did his best to warn Canadians about the dangers of not aggressively addressing the fiscal problem.. His May 1985 Budget did raise revenues and reduce spending. However, after the confrontation between the “senior from Vanier and Mr. Mulroney” over changes to old age security benefits, Mr. Wilson lost not only the support from the Prime Minister for further measures to reduce the deficit, but also from the business community. After that there was little public support for deficit reduction and without public support, Mr. Wilson was on his own.

So what about the Liberals? No surprise; Joe Oliver is definitely not going to give any credit to Chretien and Martin for getting the Federal government out of the worst fiscal crisis the federal government ever faced.

According to Oliver, the Liberals balanced the budget “by hiking taxes, cutting vital programs and slashing billions in transfer payments.”  (Notice: both of us were very involved in the preparation of the Liberal budgets in 1994-1995 and subsequent years.)

As far as we can remember, the Liberals only “hiked” taxes on banks. That was it. There were no higher taxes on the elderly as the Conservatives have claimed. Certainly, the Liberal government benefitted from the actions taken by the Mulroney government to introduce the GST and to partially de-index the fiscal (tax and expenditure) system in 1984, but they did not increase taxes in 1995. In fact, the Liberal government eventually implemented the largest income tax (personal and corporate) reduction in Canadian history in the 2001 budget.

There was no slashing of vital programs in the 1995 budget. Quite the opposite; for the first time, the government introduced a process to carefully review what program spending the federal “was” doing and what program spending the federal government “should” be doing. The program review” process was transpafrent and accountable, unlike the spending reviews undertaken by the Conservative government since 2010, and for whichthe government has refused to provide the information to the Parliamentary Budget Officer.

Granted, the Liberals did cut transfer payments to the provinces.  But with debt as a percentage of GDP at a post War II high and with ever increasing interest rates due to a lack of confidence by financial markets, everything had to be put on the table.  Once the federal government achieved a balanced budget, that interest rate risk premium quickly disappeared and all levels of government benefited through lower borrowing costs. The Liberals then introduced a 10-year plan which put the major transfers to the provinces on a sustainable and growing track.

In 1994-95, the federal deficit was 4.7% of GDP. By 1997-98 the deficit had been eliminated and the federal government then ran surplsuses for the next nine years. The federal debt was actually reduced by $90 billion; the debt burden fell from 66.6% in 1994-95 to 31.4% in 2006-07.

How does this compare to the Harper Government fiscal al record? In 2006-07, the Conservatives inherited a surplus of $13.8 billion, which they quickly turned into a deficit of $5.8 billion within two years. Since then, they have been in deficit each and every year. In 2009-10, the deficit reached its peak of 3.5% of GDP.. They are desperate now to show a surplus in 2015-16; one surplus in nine years. Since being elected the federal debt has increased by over $150 billion, wiping out the reduction in federal debt achieved under Chretien and Martin.  not much of a fiscal record for a Conservative government.

Joe Oliver has announced that the gocvernment will intruduce balanced budget legislation. Perhaps this is in response to this government’s complete failure to live up to their Conservative fiscal ideology. This proposal completely exposes their incapability of living up to their political commitments and ideology.

Legislation won’t help you if you don’t have the political will to do it.  As it turns out, Canadians were fortunate that they didn’t have the political will. If they did we would all be worse off to-day.

What about the government’s committment to economic growth and job creation?  Who hasn’t heard about the 1.2 million jobs created since “the depths of the recession”? We need a reality check here for sure.

The number is correct but so what? It certainly doesn’t describe the performance of the economy since 2006 and the labour market situation in Canada. Since 2006, economic growth has declined in every year since 2010 and averaged only 1.7% per year. In the previous nine years, economic growth averaged 3.4% per year. In 2014, only 120,000 new jobs were created and this was less than in 2013.

At the end of 2014, the unemployment rate was higher than at the end of 2008; the labour force participation rate was lower than in 2008; the employment rate (I.e. the percentage of the adult population employed) was lower than at the end of 2008; the youth unemployment rate was higher than at the end of 2008. The employment share of full time jobs was less than in 2008; and, the quality of jobs had sunk to its lowest level in a quarter of a century.

Then there is the claim by Oliver that his government has put money back in the hands of Canadians through its commitment to reducing taxes. This government has definitely cut taxes for high income one-earner families with children under 18 (15% 0f families); for families with teenage children who apparently need “child care”; and for families who can afford to put their kids in sports leagues and camps and music lessons. They have also cut taxes for high income seniors who can split their pension income to a spouse.

But that is not all. They have announced that in the upcominbg budget they will double the contribution limits for the TFSA despite research by the PBO and others that this will not primarily benefit high income Canadians, but it will also leave a growing unfunded liability to be paid for by all Canadians in the future.  Despite Oliver’s concern for his grandchildren, this appears to be OK.

The Conservatives believe that despite the current economic and fiscal situation, existing members of athletic clubs should be given a tax credit so they can buy more smoothies after their workouts.

The biggest tax cut was the two point cut in the GST, which every economist recommended against.  This was a major factor in putting the government into a deficiit.

None of these tax cuts have contributed to economic growth and job creation. They definitely did not contribute to tax fairness.

Finally, Mr. Oliver appeals to the concept of the Canadian family to justify everything the government has done. Families have to pay their bills; they cannot continue to borrow. Governments have to do the same. 

Debt is evil. Debt is bad. Governments must not leave our grandchildren debt. First, the Conservatives have left our grandchildren an additional $150 billion in debt since being elected. What have you got to say about that Joe?

 Second, we now know that the Conservatives actually think that running a governmdent is like balancing the family budget. Time to get a reality check. Running the government’s budget and econimic policy to support economic growth and job creation is not like a family budget!

This “fantasy speech” by Joe Oliver and the high likelihood that all political leaders will indulge themselves in a bit of “fact fantasy” suggests to us that there is a need for an “official fact checker” to keep a little bit of honesty in the political debate. Perhaps some organization will come forward and fullfill that roll; perhaps the major media outlets will step up?  In the Netherlands, an independent agency prepares the economic and fiscal projections in the lead up to an election.  This agency also costs the policy initiatives proposed in each party’s election platform.

Lets hope so because right now we are off to a bad start.