Canada’s federal government has laid out a plan to eliminate its deficit over the next five years. Unfortunately, the current federal plan is based on assumptions of strong revenue growth (based on a strong economic recovery), restrained spending growth, and limited increases in interest rates. Rather than relying on these questionable assumptions about the future, the federal government should have looked at its own experience in the mid-1990s when Canada led the world in solving its deficit and debt problems.
In 1995, the federal Liberal Party undertook deliberate and difficult steps—cutting nominal spending and public-sector employment—and were able to solve the deficit and debt problems of the country effectively. They avoided the mistakes of the preceding decade and a half and took real action. In a short time, their approach brought balanced budgets, declining debt, and decreasing interest costs.
This study is intended to educate readers about the state of the current fiscal problems of the federal government, the parallels with the failures of the 1980s and early 1990s, how governments solved the problems in the mid-1990s, and how we can again solve today’s problem using those lessons.