The Canadian experience shows that a government needs to get much more creative and draconian than that - but the UK anything near the level of intergovernmental transfers ripe for the cutting.
Our guest writer is Eugene Lang, co-founder of Canada 2020: Canada’s Progressive Centre; he was an adviser to ministers in the governments of Jean Chrétien and Paul Martin, including one of the ministers on the Cabinet committee on ‘Program Review’
Word has drifted across the pond that the Cameron-Clegg coalition government is looking seriously at the Canadian “Program Review” experience of the mid 1990s as something to emulate to wrestle the British government’s deficit to the ground. The Canadian experience at deficit elimination is worth looking into, but don’t be fooled by the mythology.
In the mid 1990s, Canada faced a severe fiscal crisis. The Wall Street Journal called Canada a banana republic. At one point it looked like the government might fail to successfully float a bond issue.
So beginning in 1994-95, the federal Liberal government, led by prime minister Jean Chrétien and Finance Minister Paul Martin, started to get serious about deficit reduction. And much to the surprise of the experts and the markets – not to mention the government itself –Canada put an end to 25 years of red ink within 3 years of serious effort.
But ‘Program Review’ – a process designed to examine rigorously every federal departmental programme and apply a series of tests to determine if they should be reduced, devolved, or eliminated – was a relatively small part of the effort.
After nearly a year of painful bureaucratic and Ministerial introspection into the Canadian federal state, a total of about $7 billion per year in departmental savings was yielded through ‘Program Review’, against a federal deficit of $38 billion, or about 7 per cent of GDP.
To be sure, ‘Program Review’ resulted in a litany of programme reductions and tens of thousands of fewer public servants, mostly through attrition and generous buy-out packages. A few departments were fundamentally changed, notably the industry and transport departments. But ‘Program Review’ did not live up to its lofty goal of re-defining the Canadian federal state or contributing massively to deficit elimination.
That effort was achieved on a parallel track, on a train driven by the department of finance and the prime minister’s office, with the Cabinet as the caboose. The deficit was eliminated largely outside the ‘Program Review’ process, principally through a re-structuring and deep cutting of Canada’s system of fiscal transfers from the federal government to the provinces, as well as a reduction in unemployment insurance benefits.
It didn’t hurt that at about this time – 1995-97 – the North American economy started firing on all cylinders after the brutal recession of the early 1990s. This produced a substantial revenue boost, enhanced by a new value added tax – which turned out to be a cash cow – that had been put in place a few years before by a previous government.
So by all means look at the Canadian “Star Chamber” experience as a model. But be under no illusions; when you are running a big structural deficit – as Canada was in the 1990s and as Britain is today – the road to serious deficit reduction is not via paring back programs and firing bureaucrats. The Canadian experience shows that a government needs to get much more creative and draconian than that – and the last time I checked the UK did not have anything near the level of intergovernmental transfers ripe for the cutting.
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10 Responses to “Reality check on star chambers and fiscal deficits: A view from Canada”
Juderobinson
RT @leftfootfwd: Reality check on star chambers and fiscal deficits: A view from Canada: http://bit.ly/cq0uVG
LockPickerNet
Reality check on star chambers and fiscal deficits: A view from Canada: http://bit.ly/cq0uVG via @leftfootfwd
Shamik Das
Former Canadian special adviser writes for @leftfootfwd: Reality check on star chambers and fiscal deficits: http://bit.ly/cq0uVG
Billy Blofeld
“The Canadian experience shows that a government needs to get much more creative and draconian than that”
It is really going to hurt us to fix Gordon’s crashed economy.
Mandy Meikle
It’s not just “Gordon’s crashed economy” that’s going to hurt but the world’s crashed economy. I’ve only just found this site but have been speaking about peak oil and the energy crisis for 6 years now. Our economy only functions thanks to the surplus energy from oil. Peak oil is the point at which global production of conventional oil (i.e. the ‘cheap’ stuff) reaches a peak and then declines. Oil is not running out but it is going to get a whole lot more expensive and that means rising costs for power, food, transport, everything really.
I’ve started a blog (http://mandymeikle.wordpress.com/) to try to get some debate going. We really have to start thinking how the future is going to look without abundant supplies of cheap energy.