Oh Canada! ... Role-Reversal in North America?
From the desk of Marc Huybrechts on Mon, 2009-05-18 17:23
1) Government Spending
Over the last twenty years or so, consolidated general government spending, i.e. spending at ALL levels of government (federal, state/provincial, local) has steadily declined in Canada from a peak of about 53 percent of GDP (gross domestic product) in 1992 to just below 40 percent in the last few years (2004-08).
By contrast, in the USA, over most of the same time period, general government spending has tended to fluctuate narrowly around 35-36 percent. However, in recent years (2006-08) it has turned sharply upwards to reach the current ‘Canadian level’ of just below 40 percent of GDP.
So, the (downward) Canadian trend line is now breaching this year the (upward) American one and, given what we know today about the fiscal intentions of the Obama Administration and the dramatic (if not absurd) size of its misnamed “stimulus package” which should more accurately be called “government-expansion package”), we can reasonably assume that the size and role of government (as measured against the size of the overall economy) is now larger in the USA than in Canada. It is also reasonable to expect that the size of this gap is going to widen further over the next few years, with the USA on the road to ‘West-European’ government spending levels and with the Canadians maintaining more fiscal sanity.
2) Government Debt
The contrasting trends are even starker when comparing government debt levels, rather than government spending levels. The general implication is that Canadians are more responsibly financing their public spending with taxes rather than borrowing, compared with Americans.
Canada’s FEDERAL public debt peaked in the mid 1990’s around 70 percent of GDP, and has steadily declined EVERY year since, to reach 32 percent in 2008. In the USA, the federal debt peaked also in the mid 1990’s around 50 percent of GDP and some fiscal consolidation was achieved in the economic boom period of the late nineties. However, the effort stalled during the first term of the GW Bush Administration, and the federal debt level shot up sharply during the second Bush term to reach nearly 60 percent of GDP in 2008. One can safely predict that over the next few years the American public debt level will be more than double the Canadian one in relation to their respective GDP’s.
3) Government Deficits
Naturally, the respective trends in (annual) government deficits are mathematically linked to the trends in spending and debt described above. The most remarkable feature is that Canadian governments have managed to at least balance their budgets EVERY year SINCE 1998, and even managed to have small surpluses most years. By contrast, the US government has incurred renewed deficits of several percentage points of GDP most years over the past decade, and is now projected to reach an ‘astronomical’ deficit level of over 10 percent this year, and perhaps next year as well.
4) Social Security
Today, both Canada and the USA spend about the same percentage (4.5 percent of GDP) on publicly-funded retirement benefits. However, the US system is not solvent and has large unfunded liabilities, which will require difficult policy actions – most likely higher taxes, and/or benefit cuts - in the future. The Canadian system is considered solvent as its government has been building up assets to pre-fund future retirement benefits (just like private pension plans do).
While retirement benefits have always been a major component of ‘social security’, in many countries today there are other major components as well that relate to a variety of ‘welfare’ payments, to unemployment benefits and especially to health care. The Obama Administration’s plans concerning health care are clearly moving in the direction of the Canadian system.
5) Federalism
In recent decades, federal power has been growing in the USA at the expense of the individual states. In Canada, the trend has been in the opposite direction. Contrary to what many might think, the share of federal government spending in general (or total) government spending is about 20 percentage points (of GDP) higher in the USA compared with Canada (about 60 percent versus 40 percent). Obviously, the issue of autonomy/independence for Quebec-in-Canada has been a major underlying factor, but also Canadian provinces have greater control over their natural resources (e.g. Alberta) which helps to explain relatively larger (average per capita) income differences between Canadian provinces as compared with US states.
Obviously, many factors might be considered under the heading of ‘federalism versus centralism’. Education is often one of the largest expenditure components of lower government levels. Over the past decade, the Bush Administration has continued to expand federal control over primary and secondary education in the USA. In Canada that remains in the domain of the different Provinces.
6) Corporate Income Taxes
At the beginning of this decade, the Canadian and US corporate tax rates were nearly the same. Today, the US (federal) corporate tax rate remains unchanged at 40 percent, whereas the Canadian federal rate has been lowered over the decade to 28 percent. In Canada provincial corporate rates vary, but the joint (federal+provincial) rate for the largest Province (Ontario), at just above 30 percent, compares favorably with the US rate. Obama is planning to increase the latter.
7) Individual Income Taxes
Canada still has higher income tax rates than the USA. However, after the ‘Bush tax cuts’ will expire at the end of next year, the top marginal tax rates in the US (state and federal combined) will be on average about 46 percent, the same as in Canada today. For investors, the federal capital gains tax rate is lower in Canada than in the USA.
Conclusion
The old stereotype of Canada as being more socialistic does no longer appear valid, at least from an economic perspective. At the same time, some might argue that Canada remains more socialistic than the USA from other perspectives. For example, freedom of speech is clearly still more protected south of the world’s “longest undefended border”. But, formal restrictions on freedom of speech are not the special preserve of socialist societies and regimes. They can be found in countries with both leftist and rightist regimes. By contrast, the share of general government spending in total spending of an economy is a simple but clear economic measure of socialism. It is a measure of the relative size of the resources in an economy that the government controls directly. This is not to deny that governments can indirectly exercise control over nominally ‘private’ resources in other ways.
The current Canadian government is a ‘conservative’ one, but its hold on power is tenuous because it is also a ‘minority’ government (in Parliament). It has little to do with the positive trends outlined above, since it came only to power fairly recently. That means that the credit for these positive trends goes largely to the center-left governments that have governed Canada for much of the past two decades and who have implemented major fiscal and some structural economic reforms that have made these numbers possible. And there are also indications that the Canadian banking system is in much better shape then the American one. Meanwhile, in the USA, many Republicans have been profligate with the public purse in recent years, and much of the political left marches today in the opposite direction from the one taken by recent Canadian center-left governments. And Obama-mania on the part of the mainstream media is not going to make matters better…before the next election cycle.
Not so surprised. Part 3
Submitted by Maple syrup on Tue, 2009-05-26 02:01.
"do you really believe for a moment that the liberals are not socialist?"
No they aren't. Most are opportunists who would defect to the Conservatives if they felt it worthwhile. The NDP is Canada's socialist party and even they are more into "cultural" socialism. State planning is no longer in fashion in any party.
"Yep, all you need to be is Anglophone."
No. To enrol your kids in an English school, you or your spouse must have been at least partly educated in English somewhere in Canada. There's an 'English' school down the road from where I live. About 70% of the children have French as their mother tongue.
There was an exodus of Anglophones between 1976 and 1980. That was before my time, so I can't speak knowledgeably about it. To be honest, there is very little nationalism among Francophones today, at least not among the young.
"You are right-- at the expense of the "rest" of Canada"
If the price for acceptance is extinction, most Quebecois will leave Canada. As for fiscal freeloading, just look at southern Ontario. But that kind of freeloading doesn't seem to bother you, does it?
"Where else in the world would a country have a federal party receiving doled out taxpayer money for its support"
All parties are eligible for funding if they get a certain number of seats in parliament. I agree that this support is too generous, but I am definitely AGAINST limiting funding to "ideologically appropriate" parties. The potential for abuse would be too great.
Not so surprised Part 2
Submitted by B. English on Sun, 2009-05-24 18:12.
Another reason is that socialists in Canada are honest enough to call themselves socialists
Snort. Give me a break. Socialist Canadians define their outlook as 1) not American, 2) not Conservative, 3) progressive. Even our Communist lite calls their party the "New Democratic Party"-- do you see socialist in the name? BTW, socialism holds a large following, or do you really believe for a moment that the liberals are not socialist?
Quebec has a publicly funded English school system at the elementary and high school levels, as well as three English-language universities and a dozen or so English-language junior colleges.
Yep, all you need to be is Anglophone. Oh, but most left after 1976 for Toronto, etc. The french quebec citizens must attend french public schools. Oh, and how about those few English speaking hospitals in the province?
Yes, the Quebecois wish to preserve their language and culture.
You are right-- at the expense of the "rest" of Canada. So much so, they keep alive the threat of separation from Canada. I don't see other provinces banning, policing any display, use of any language including french. Funny how a dying language, fading from our country, is forced upon the Anglos. French is mandatory in: school (french class), government work place (federal managers must be fluent, even when cases never appear in french), packaging + documents (great for translation industry-- another expense for the consumer/ taxpayer).
Yes, in fiscal terms, Quebec gets more out of the pot than it puts in . . .
Your right on Sap, they just tug our leash, and they get their goodies. Where else in the world would a country have a federal party receiving doled out taxpayer money for its support, a party who's whole intent is to break up our county through seperation of quebec?
I'm shocked; Canada's federal spending is improving!
Submitted by B. English on Wed, 2009-05-20 11:33.
Fascinating essay, insightful comments! I am shocked regarding the study's indications. As a life long Canadian, I have witnessed (and winced) at our left of centre Liberal party which has held a grip on the nation for far too long. Who would have thought the Trudeau/ Crétien/ Martin Liberal governments (plus the Conservative Mulroney government) would have brought us here!
Frank, I thought the same thing about the military. Yes, Canada's military faces "rust out", due mostly to Liberal paranoia of all things military. Our ancient Sea King helicopter fleet is a perfect example. However, Canadian soldiers are still on duty, and die in action in Afganistan. Therefore I cannot wholly agree that our nation is taking a free ride to protect our sovereignty. The flip side is that the United States is very fortunate to share an immense border with a country that is:
• peaceful (in the sense of stable government and civil citizens)
• same language (different spelling at times)
• same culture
• same values
• founded by subjects of the United Kingdom
• same aspirations
and so on (sorry if this list runs on, I just never thought through the commonality about our "cousins" to the south).
One topic that I cannot expect non Canadians to understand is the Québec issue. That significant sized province is a massive emotional drag and financial expense to the rest of the country. They demand to stubbornly remain French, with generally no interest in anything English. Can you imagine prohibition of English in public schools, regulations governing signs in English, even a language police? Its all there in Québec! Although not as bad, this is Canada's version of Mexico.
My 2¢.
O's adventures with the United States is encouraging great essays and comments in the blog sphere. Until recently, I've had difficulty articulating the dangers of liberal thinking and its damaging results. Current conservative writing helps greatly to understand and put into words not only recent events in the U.S.A, but also nearly 40 years of corrupt left wing government in Canada!
Not so surprised
Submitted by Maple syrup on Thu, 2009-05-21 22:11.
This analysis confirms my own impressions. Canada seems to be moving steadily to the right while the United States is moving steadily to the left. One reason is that Canadians have long been exposed to socialism. It no longer holds the mystical allure for us that it does for so many Americans. Another reason is that socialists in Canada are honest enough to call themselves socialists, whereas their American counterparts call themselves 'liberals' (or even 'Republicans').
"One topic that I cannot expect non Canadians to understand is the Québec issue. That significant sized province is a massive emotional drag and financial expense to the rest of the country. They demand to stubbornly remain French, with generally no interest in anything English. Can you imagine prohibition of English in public schools, regulations governing signs in English, even a language police?"
Nonsense (and I'm a Canadian). Quebec has a publicly funded English school system at the elementary and high school levels, as well as three English-language universities and a dozen or so English-language junior colleges.
Yes, the Quebecois wish to preserve their language and culture. They think it's normal for people to share a common cultural identity. And perhaps they're right. Maybe, we Anglos are the ones who don't get it.
Yes, in fiscal terms, Quebec gets more out of the pot than it puts in, but not by a large margin. The worst freeloaders are the Maritime provinces and now ... southern Ontario.
Beyond the surface
Submitted by marcfrans on Mon, 2009-05-18 23:08.
@ Frank Lee
You raise two additional issues that are interesting, and the first one certainly is a reminder that one should always attempt to look beyond the surface of aggregate numbers.
1) There is no doubt that Canada, in defense terms, has been getting an "enviable subsidy" from the USA for a very long time. At the same time, most European countries and some non-European ones alike have been receiving even bigger subsidies in that respect. Unlike the Canadians, most of these others have NOT been willing to effectively fight with the Americans in recent times to contain totalitarian forces in the world. So, Canada and a few others (mainly the British, the Australians and the Dutch) have been 'exceptions' in terms of providing effective military support in return for the American 'subsidy'.
The American defense effort in recent years has been around 4 percent of GDP (and Obama plans to lower that, although the 'world', i.e. events, may not let him). Even if we assume that the Canadian effort has been smaller, at say perhaps 2 percent of GDP, it could hardly explain the dramatic CHANGE and reversal in the respective fiscal positions of both countries. Moreover, judging the "socialistic nature" of different categories of government spending is very tricky. For example, to put it crudely, a lot of military spending makes more 'social' sense than direct welfare payments. A country is better off with a significant part of its youth under discipline and arms than on the dole and in crackhouses. I would take ROTC any time over 'striking' Sorbonne students as a measure of 'social health'. But, this subject is inexhaustable, and I believe that the overall size of government, relative to GDP, provides a good simple measure of the degree of socialism of a place.
In terms of geography, Canada is extremely lucky of having a democratic super-power as a neighbor (even though the leftist Canadian media often seem to forget that, as do the American media). Besides Mexico, nobody else in the world has been that lucky in recent history. But, against that, consider the rigours of Canadian winters (except for British Columbia).
2) The issue of the quality (or lack thereof) of immigration policies is a totally different subject. Your points are well taken, but they paint the picture of a self-inflicted wound that the American left (and part of the right too) are inflicting on the United States. One can hardly blame Canadian 'socialists' for being, on the whole, less stupid in this area than American socialists.
What he failed to mention . . .
Submitted by Frank Lee on Mon, 2009-05-18 18:52.
The author (or the authors in the Washington Post) raises many valid points, but he neglects to mention what share of government spending in both countries is devoted to military defense versus "socialistic" programs. The Canadians have been getting an enviable subsidy from the Americans on defense for some time, which they can then devote to nationalized health care, thought-crime tribunals, or whatever they choose to spend it on. If you subtract military spending, the American figure shrinks quite a bit. At the same time, America must absorb half a million to a million illiterate peasants every year, many of whom come to the States with histories of poor or nonexistent health care. They place a burden on the American social services not felt in Canada, where the government selects immigrants based on youthfulness, good health, education and skill levels, and so on. The Canadians may still be more socialistically inclined, but they don't face as heavy a burden as the Americans, who may still be less socialistically inclined. That said, the Obama budget is certainly going to bust the bank.