Debt

The myth which paints Liberals as “tax and spend”, requiring a switch to a more responsible Conservative government to stave off looming fiscal disaster, is one of the PCs’ most cherished and oft-repeated shibboleths. It is invariably accompanied by populist promises to eliminate the deficit by cutting waste and rooting out “inefficiencies”, which they never manage to do once in power.

Hard data on the history of government debt reveals a very different story. Public debt is not in and of itself a bad thing. In fact, the “Great Depression”, one of the world’s greatest economic disasters, was prolonged primarily by governments obsessed with debt avoidance choosing to ignore the needs of their vulnerable people, and only ended when World War II forced massive deficit spending. Most modern economists use the “debt-to-GDP” ratio as a more accurate measure of debt sustainability.

These two charts demonstrate the reality that debt levels have little or no correlation with the party in power. Historically, and quite appropriately, debt ratios rise sharply during and for the few years following recessions, then gradually fall back. Experience over the past half-century in Canada and Ontario suggests that debt-to-GDP ratios under 40% are not harmful to the economy, but become increasingly problematic above that threshold. That said, Liberal governments have consistently proven to be better managers of the public purse than their Conservative counterparts.

The sharpest rises have been under the NDP provincially and under the Mulroney Conservatives federally. In Ontario, a lot of damage was done and a great many vulnerable people suffered as a result of the Mike Harris’ much-touted, ham-handed budget cuts, but debt levels remained largely unchanged from the NDP years (in large measure due to tax cuts which primarily benefitted the already well-to-do). Federally, by contrast, the Chrétien/Martin Liberals brought the historically extreme Mulroney debt back down to healthy levels though a combination of tax measures and a much more careful review of government programs. The subsequent Harper government again made much ado about cost-cutting but, due to its tax cuts for the wealthy, had no effect on debt levels.

While the McGuinty Liberal government continued the slow moderation of debt levels after the Harris peak, the sharp “Great Recession” of 2009 and 2010 combined with an unusually slow recovery world-wide predictably raised them to close to the 40% comfort threshold. The subsequent Wynne government brought them down a bit but has chosen to focus on a combination of infrastructure investment and an activist policy agenda which seeks to reverse the ongoing erosion of the middle class and to significantly improve the life-chances of lower-income families. In the long run, such measures are far more likely to pay dividends in terms of a healthier society and economy than the blind tax cutting favoured by conservative critics.

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