The second factor, occurring at almost exactly the same time, was a slow destruction of government’s tools for ensuring financial accountability. Sequentially, our system of public financial checks and balances was eroding. The second trend allowed the first trend to progress unabated. Government could spend money, confident that there existed inadequate (and, eventually, virtually non-existent) effective oversight. Parliament’s eight-hundred-year-old role in authorizing expenditures of the Crown and controlling the public purse strings was effectively coming to an end.
The consequence would be a federal state, with combined federal, provincial, and territorial debt of $1.2 trillion.
1. The Entitlement State
In the last half-century, Canada has transformed itself from a welfare state to an entitlement state. Mark Milke of the Fraser Institute defines an entitlement state as one “where everyone feels they are entitled to a handout or a guaranteed income or a perfect life courtesy of other people.”[7]
In 1962, in my home province of Saskatchewan, doctors went on strike and picketed outside of the Saskatchewan Legislature to protest against socialized medicare. A half-century later, almost any cut to any social program or even perceived inadequacy in the provision of that program (such as protracted surgical wait times) would result in public outcry and probable protest by the group or special interest affected. Our collective attitudes toward the role of the state in our lives have certainly seen gargantuan shifts during my lifetime.
Those changes continue today. The welfare state policies of the 1960s and 1970s, such as medicare, old age security (OAS), and Unemployment Insurance (now called Employment Insurance) have been joined by more-recent entitlement programs. Welfare-state programs were designed to provide necessary services and programs to those who were truly disadvantaged or were imperilled through no fault of their own. Entitlement programs, however, seek to improve the human condition irrespective of the group lobbying for the project’s situation, financial or otherwise. Museums, art galleries, opera houses, and arenas to house professional hockey teams, cater disproportionately to the most, not the least, fortunate members of society.
Moreover, there appears to be a real disconnect between government and the taxpayers it is pretending to represent. Fiscal conservatives understand intuitively that government does not create wealth and has no money or resources except for that which it taxes from its citizens and corporations. Fiscal spendthrifts believe, erroneously, that government can magically create resources of its own, and therefore can spend its fairy dust generously on all projects and programs without consequence. Most Canadians would likely fall into this latter category. But government has no fairy dust and does not create wealth; it merely redistributes wealth. It spends only resources taxed out of the private economy. When a government offers to a build an electorally popular project, it is bribing the electorate with its own money. As Margaret Thatcher famously said, “there’s no such thing as an entitlement, unless someone has first met an obligation.”[8]
This reality would be sustainable if government spending grew only in proportion to the growth in the economy. Both income and corporate taxes increase as GDP increases, and if government spending grew in sync with economic growth, there would be no public debt. But it is when the former grows unchecked, without sufficient regard for growth in the latter, that we find ourselves with over $600 billion of federal government debt.
The predominant economic theory of the 1960s and 1970s was that of John Maynard Keynes. According to Keynesian theory, society can borrow its way into prosperity. More precisely, during times of recession or minimal economic growth, governments can stimulate demand by borrowing, thereby creating economic growth. That may or may not be true economically; regardless, it is imperative that if borrowing occurs during recessed times that the monies be repaid during prosperous times.
However, reckless politicians, supported by special-interest groups, began attempting too much, and once a program was provided, it became politically difficult, if not impossible, to take it away. Moreover, convinced that the good economic times were here to stay, the same reckless decision-makers reneged on the obligation to repay debt when the economy was strong, preferring to delude themselves into believing that good economic times meant they could spend even more recklessly, frequently doing so “like drunken sailors.”
The provinces, municipalities, public-sector unions, and eventually even private business lobbied government to share the wealth during good times and stimulate demand in bad.
The result of bad political choices, based on a misunderstanding of economics, was decades of expensive and inefficient multi-level funding arrangements; a growing public sector, with pay, benefits, and pensions in excess of the private sector workers paying them; and, most troubling, industrial subsidies and corporate bailouts that took taxes from functioning parts of the economy to subsidize non-functioning sectors.
Industrial subsidies and corporate bailouts are perhaps the most troubling contributor to public debt. The public interest in supporting private enterprise is dubious, and there is growing economic data to show that subsidies and corporate welfare create neither economic growth nor stimulate jobs.[9] As the dollars used were originally taxed from sectors of the economy not requiring subsidy, the effect of industrial subsidy is to remove wealth from the functioning economy to prop up the parts working not quite so well.
Regardless, Industry Canada has disbursed $22.1 billion over the last half-century.[10] Again, $22.1 billion have been transferred from wealth-creating portions of the economy to support private, for-profit businesses apparently requiring subsidy to survive and/or grow. Of that money, $8.8 billion was dispersed in grants without even the prospect or expectation of repayment. Some dubious recipients of industrial subsidy, besides the giant car manufactures, include a bakery in Edmonton — it was given $1 million to develop gluten-free product lines of bakery items; other recipients include hot dog vendors, ice cream shops, pizzerias, and gas bars. A perusal of the list confirms numerous recipients received more than one grant, indicating that these subsidies become virtually permanent and the recipients dependent upon them. Why run your business more efficiently if Industry Canada has a program to subsidize your inefficiency?
Keynes understood that during times of recession, government spending could stimulate the economy; however, he never fully contemplated that future generations would endure reduced demand and investment due to its obligations to pay for the consumption of the previous generation. Paying back debt usually necessitates difficult and unpleasant actions, none of which are likely to improve the popularity of a government, so it is little wonder that governments rarely stop borrowing and even more infrequently pay back debt.
In 1970, all Canadian public spending (federal, provincial, and municipal) equalled 35 percent of GDP. By 1992 it had ballooned to 52 percent, but has been reduced to 41 percent currently.[11] However, the debt is growing again and is on track to do so for the foreseeable future. As a result, future generations will be forced to pay not only for the programs and services they consume; they will also be required to pay an excess of taxes to cover the debt of previous generations.
2. The Death of Fiscal Accountability
The public may feel a sense of entitlement and have an insatiable demand for government programs and services. Social-engineering bureaucrats and vote-seeking politicians might want to satisfy every craving and spend, spend, spend. But Parliament controls the purse strings. Parliament must authorize spending for the government to legally spend.
Surely Parliament, as guardian of the public purse strings, will ensure that government spending is appropriate and that taxpayers receive value for money.
However, tragically, Parliament’s oversight of public finances is almost non-existent. Concurrent to the demise of responsible government generally,