This morning, we have the news that the Government are planning on cutting spending and getting the deficit down by emulating Canada's example. The Telegraph reports that:
"At the height of the Canadian debt crisis in 1994, the country had a budget deficit of around 9 per cent of GDP.
The following year, Jean Chrétien, the Liberal prime minister, unveiled what became known as the "bloodbath budget", in which departmental spending was reduced by an average of 20 per cent."
It is good news that the coalition are looking at the lessons from successful fiscal adjustments abroad. But Canada's public finances are much less centralised than ours and a lot of the cuts took place at the provincial level; Jean Chrétien passed a lot of the difficult decisions on to provincial governments. That raises a number of important points:
- Is it a coincidence that, out of the four countries in the OECD where local government raises the least of its revenue from local taxes, three are facing dire fiscal crises (Ireland, Greece and the UK)? In order to emulate Canada's successful fiscal adjustment and sustainable public finances, might it help to emulate their fiscal decentralisation as well? TPA Research Fellow Mike Denham has argued that fiscal decentralisation helps build better value in public spending and higher economic growth in a research note, and at more length in a chapter for How to Cut Public Spending (and Still Win an Election).
- If the coalition want to understand the approach that delivered a fiscal turnaround, they need to look beyond the Chrétien government and at the achievements of Mike Harris in Ontario and Ralph Klein in Alberta. There robust governments were elected on a platform of low taxes and low spending and set about delivering both with gusto. Scott Hennig and Tasha Kheiriddin wrote a chapter in How to Cut Public Spending (and Still Win an Election) about the experience in those provinces. And Tasha Kheiriddin wrote an article on the subject for City AM.
- The need to control spending at the local level clearly needs to receive more attention. The TPA is the only organisation that has done lots of disaggregated research on local spending. We are now working on following that up with new research into how local authorities can deliver cuts.