Imagine The Damage

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When Mike Harris became premier of Ontario, he appointed John Snoblen as his first Minister of Education. Ironically, Snoblen had dropped out of high school in grade 11 and never returned. His record not withstanding, he proclaimed that he was going to "reform" education. And the best way to do that, he said, was to "create a crisis."  He proceeded to do just that.

When Stephen Harper came to Ottawa, Scott Clark and Peter Devries write, he followed in Snoblen's footsteps, even though he inherited a very healthy economy:

In 2006, the Conservative government inherited a structural surplus of $13.8 billion, just under one per cent of GDP. This represented a major correction from the $39.0 billion deficit (5.5 per cent of GDP) Ottawa was carrying in 1992-93. The debt-to-GDP ratio had dropped steadily from a high of 67.1 per cent in 1995-96 to 28.2 per cent in 2008-09. Program spending had fallen to a record low of 11.9 per cent of GDP in 1999-00, down from a high of 17.0 per cent in 1992-93.

In other words, the heavy lifting was done already. Never before in Canada had a newly elected government inherited a sustainable fiscal structure — a structure that had produced 11 years of surpluses and a declining debt burden. The fiscal situation could not have been better for the Conservatives.

Harper, however, was obsessed with the idea that he was a better student of economics than his predecessors:

He had to prove his own budget bona fides. For that he would have to find a ‘fiscal problem’ that he could fix with tough spending cuts and public service layoffs — even if he had to manufacture one. If he could do this, he could make ‘sound fiscal management’ his political brand. All he’d need would be a good ad campaign.

The first step was for Harper to adopt an approach that had been used (unsuccessfully) by President Ronald Reagan in the U.S. — the ‘starve the beast’ strategy. The idea — which, on paper, seemed very simple and appealing — was to starve the government of revenue and then claim that, because the resulting deficits were bad for the economy, government programs and services would have to be cut to keep the debt in check. In doing so (according to the theory), the ‘beast’ would shrink in size and the private sector would become so deliriously happy as a result that it would immediately ramp up investment and spur growth.

So much for theory. It wasn’t hard for the newly-elected Conservative government to find a way to close the revenue taps in 2006. During the election campaign they had promised to cut the GST by two points. Say one thing for the Conservatives: They usually follow through on their election promises — especially the bad ones. Had Mr. Harper targeted income taxes instead of the GST, he could have claimed that he was undertaking good tax policy by reducing a disincentive to work and make money.

 But good policy seldom wins out over good politics. The GST was the riper political target, so the Conservative government cut the GST by one point in 2006 and one point in 2007. That cost the government $14 billion annually. As a result of the GST cuts, the government recorded a “structural deficit” of $5.8 billion in 2008-09 — down from a “structural surplus” of $9.6 billion in the previous rear, a single-year change of $15.4 billion. And that was before the 2008-09 recession had even started.

And then the recession hit -- something both Harper and his finance minister, Jim Flaherty, said would not happen. But consider what would have happened if Harper and Flaherty had not cut the GST:

Without that loss of $14 billion in GST revenue, the deficit would have been much smaller. Simply adding back the $14 billion would have given us a deficit of $41.6 billion in 2009-10, $19.4 billion in 2010-11, $12.3 billion in 2011-12 and $4.4 billion in 2012-13. There could even have been a $9.2 billion surplus in in 2013-14 — two years before the government’s deadline. Net debt would have increased by less than $80 billion by 2015-16 — just over half the $150 billion increase we’re expecting now.

John Snoblen knew nothing about education and Ontario is still trying to repair the damage he did. Imagine how much more damage Stephen Harper can do if he is re--elected.