Fraser Forum

Budget season—Alberta and Ottawa must revert back to proven fiscal policies

Printer-friendly version

Budget season in Canada is now in full swing as governments unveil their tax and spending plans for the coming year and beyond. Two upcoming budgets deserve special attention: Alberta’s (March 16) and the federal government’s (March 22), which will contain the latest plans of two governments that in recent years have pursued fiscal policies that reject the “Chretien Consensus.”

The Chretien Consensus, as we’ve coined it, was an implicit agreement shaped by reform-minded governments in Canada in the 1990s that transcended political party and geography. The fiscal policies underpinning the Chretien Consensus include balanced budgets, declining government debt, focused and prioritized government spending, and competitive taxes. It is these policies that established the foundation for prosperity in Canada throughout the late 1990s and 2000s.

Most governments have since moved away from these proven, pro-growth fiscal policies. In Alberta and Ottawa, the shift began under previous Progressive Conservative and Conservative governments, respectively. Yet Alberta’s current NDP government and Ottawa’s Liberal government have completely abandoned the foundational policies of the Chretien Consensus.

For instance, the Notley government in Alberta has doubled down on the rapid spending growth that began under previous Progressive Conservative governments and that is largely responsible for the province’s large budget deficit and growing debt. Similarly, the Trudeau government has made a conscious decision to significantly increase debt-financed spending and not present a plan to balance the federal budget.

In both cases, the Alberta and federal governments are explicitly abandoning the fiscal policies of the Chretien Consensus (prudent spending, balanced budgets, declining debt, and competitive taxes) and instead pursuing questionable initiatives—such as non-productive spending cloaked as “infrastructure”—that are unlikely to improve the economy.

The penchant for debt-financed spending is already costing Canadians as both governments have enacted economically damaging tax hikes ranging from higher personal and corporate tax rates to new carbon taxes (again, defying a key tenet of the Chretien Consensus: competitive taxes).

Of course, the continued growth in debt could lead to even further tax hikes in the future and will saddle future generations with the responsibility of repayment. Already in Alberta annual interest payments on provincial debt are set to rise in coming years and consume a larger share of government revenues, which means less money will be available for the important programs that Albertans value such as health care and education.

The lesson is clear: both governments must look back at the cross-party agreement on the types of fiscal policies that helped Canada prosper in the 1990s and 2000s.