Learning for the Past: How Canadian Fiscal Policies of the 1990s Can Be Applied Today

Studies in Fiscal Policy, 2011

130 Pages Posted: 31 Mar 2012 Last revised: 29 Aug 2013

Date Written: November 15, 2011

Abstract

This work provides a historical overview that identifies parallels between the fiscal challenges facing Canadian governments in the 1990s and those facing governments in 2011. It highlights how the federal government, as well as various provincial governments in the 1980s, failed to balance their budgets when they attempted to slow the growth in program spending and wait for revenues to rebound strongly enough to close the gap between spending and resources. But it wasn’t until the spending reductions of the 1990s that both the federal government and the provinces returned to fiscal balance and achieved declining debt and interest costs.

As the November 2011 budget update from Ottawa showed, the federal government is following the same plan as governments of the 1980s and now doesn’t expect to balance its budget until 2015/16, a year later than originally anticipated. Worse, most provincial governments are poised to make the same budget mistake as Ottawa: relying on rosy revenue projections while attempting to slow the growth in spending.

The study singles out Ontario and Quebec, Canada’s two largest provinces, as facing among the most serious debt and deficit problems while praising Saskatchewan as the only province currently showing a balanced budget.

The authors conclude that wishing for revenue growth will not balance the budget, but real spending reductions, based on the successes of the 1990s, will. They outline the decisive steps that Ottawa and the provinces must take to rein in spending and set the Canadian economy to rights.

Keywords: Government Spending

Suggested Citation

Veldhuis, Neils and Clemens, Jason and Palacios, Milagros, Learning for the Past: How Canadian Fiscal Policies of the 1990s Can Be Applied Today (November 15, 2011). Studies in Fiscal Policy, 2011, Available at SSRN: https://ssrn.com/abstract=2031645

Neils Veldhuis (Contact Author)

Fraser Institute ( email )

1770 Burrard Street
4th Floor
Vancouver, British Columbia V6J 3G7
Canada

Jason Clemens

Fraser Institute ( email )

1770 Burrard Street
4th Floor
Vancouver, British Columbia V6J 3G7
Canada

Milagros Palacios

Fraser Institute ( email )

1770 Burrard Street
4th Floor
Vancouver, British Columbia V6J 3G7
Canada

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