Smart Economics: Canada Teaches US Lessons in Fiscal Responsibility
If lawmakers in Washington want to find out how sound economic policy and fiscal responsibility looks like on a national level, they need look no further than our neighbors to the north.
That’s right, Canada.
Along with hockey, moose, maple syrup and Justin Bieber, you can now add economic prosperity and opportunity to their list of achievements.
Ever since Conservative economist Stephen Harper became prime minister of Canada in 2006, the country has seen revenues and investment increase, unemployment and deficits decrease, and for the first time in history, the average Canadian household is richer than the average American by $40,000. If you’re thinking that’s only because of exchange rates, think again. The Canadian dollar has actually caught up to the U.S. dollar in recent years.
You may be asking yourself, “How the heck did that happen?” Here’s how:
For starters, when Harper and his Conservative minority-government came to power six years ago, they implemented a series of tax cuts. Canada’s corporate tax rate has been lowered from 22% in 2006 to 15% in 2012, along with a steep decline in the average of all OCED countries over the last decade. The U.S., however, has maintained a 39.2% corporate tax rate (when including state and local taxes), now making us the highest in the world.
Canada’s income tax rates are also substantially lower than America's – setting its top bracket income tax rate at 29% vs. America’s 35%.
Along with tax cuts, Harper has enacted significant government spending cuts as well. He reduced federal spending last year by 6.2% primarily by eliminating waste and prioritizing spending by department. For instance, he implemented budget increases for departments entrusted with security and law enforcement – such as a 21% boost to jails — but cuts of roughly 20% to unnecessary environmental protection programs.
In his 2012 budget, he pledged to cut $5.2 billion in federal spending every year for the next three years and detailed precisely what cuts in spending will go to which department. Among the cuts are $31 billion from provincial health transfers, $377 million slashed from foreign aid and international development, 10% trimmed from CBC’s funding over three years and eliminating the Canadian penny.
Harper has also acted upon domestic energy development within Canada. His administration has worked to streamline the approval process for resource development and to collaborate on a broad, market-focused national energy strategy to capitalize on the country’s vast natural resources. They identified a handful of priority areas, such as regulatory reform, improving energy efficiency and developing new energy export markets.
And what is the result of these tax cuts, spending reductions, and energy job creation? Are people starving and children crying? Are trees dying and birds not flying? Did the sun not come up again?
No, quite the opposite.
Canada has now seen their unemployment rate drop from a post-recession high of 8.3% in 2009 to 7.2% in 2012.
Their budget deficits have been cut in half from $53.8 billion in 2009 to $24.9 billion in 2012 and the country’s now on the path to balancing its budget by 2015.
They are now the #1 supplier of foreign oil to the U.S.
With the lowest debt-to-GDP ratio, The Economist stated that Canada had come out of the recession stronger than any other country in the G7.
And, most importantly, the net worth of the average Canadian household today is $363,202, compared to around $320,000 for Americans. In other words, the average Canadian is now richer than the average American.
These results not only won Harper re-election in 2008 and 2011 but also gave the Conservatives their first absolute majority in Parliament since 1988. Harper’s leadership of the Conservatives to three consecutive election victories also marks the first time a right wing party has accomplished this in half a century.
Now compare this administration’s record with that of the one north of us. It has added more debt in less than four years than the previous administration added in 8 years. It has racked up four consecutive years of record trillion dollar deficits. Our $15.9 trillion debt has now eclipsed our entire GDP, leading to a first ever credit rating downgrade. The labor force participation rate is at a record low and unemployment has stubbornly been stuck at over 8%. Inflation is rising and average household net worth has fallen by 40%. On top of all that, we’re now slated to suffer the biggest tax hike in history at the end of the year.
The results speak for themselves.