Tax and Expenditure Limitations: The Next Step in Fiscal Discipline

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Canada as a nation and its constituent provinces have travelled a difficult path over the better part of the last decade to achieve balanced budgets. It is critical for Canada and the provinces to take the next step on the continuing path towards fiscal responsibility. That next step is the introduction of constitutionally entrenched laws enforcing tax and expenditure limitations (TELs).

Balanced budget laws, which exist in eight of the ten Canadian provinces, are substantially different from Tax and Expenditure Limitations(TELs). Balanced-budget laws attempt to achieve just that: the balancing of revenues with expenses such that debt is not accumulated by government. TELs, on the other hand, attempt to constrain the growth of government spending and taxes regardless of fiscal balance.

The presence of balanced-budget laws in Canada has promoted the balancing of expenses and revenues. This study found that seven of the eight provinces (Appendix A) with such laws in place experienced material decreases in the 5-year average deficit. In addition, six of the eight provinces actually moved into surplus positions shortly after adopting laws enforcing balanced budgets.

Adopting balanced-budget laws has not, however, restrained the growth of government, measured by either growth in spending or revenues. The adoption of laws enforcing balanced budgets in Canada has actually coincided with increases in government spending and taxation: seven of the eight provinces with balanced-budget legislation experienced increases in government, as measured by real per-capita consolidated (provincial and municipal) government expenditures and revenues, after the implementation of the balanced-budget laws.

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