Restraint gives way to profligacy Throwing money around

New ministers of finance are always watched carefully to see how much their budgets will depart, philosophically and strategically, from those their predecessors brought down. John Manley’s first budget is doubly interesting, because it also suggests that Liberal Party infighting, as between Prime Minister Jean Chrtien and former finance minister Paul Martin, is not over.

And it is the country that pays, as always: blessed with a surplus for the sixth year in a row, the government has chosen program spending as a way of leaving its mark on history. Well, why not? After a long period on the wagon, Liberals with a spending instinct have been getting agitated. Better to leave the job of taming the public debt to inflation and devaluation, instead of enduring another year of sound public finance.

The big ticket item this year is health care. There is $35 billion for the provinces to spend on hospitals, doctors, long-term care, immunizations, schools, buses, highway interchanges, Human Rights Commissions, and the like.

Er, we weren’t supposed to mention those last four. But the fact is, $9.5 billion of that sum is going as no-strings transfers to the provinces. Notwithstanding that health care has become a money pit in itself, to shovel extra money out to provinces that really ought to look for revenue from their own tax base is duplicitous and wasteful.

But that’s the way with national budgets. Giving away money to other levels of government is among the principal national priorities.

Then there’s $2 billion to help us all implement the Kyoto agreement on climate change. Whether climate change is real or not, and whether it is a problem or not, might be debatable; but it is widely agreed that Kyoto is an ineffective response to it regardless. The government will spend some of your money on making Kyoto easier for you.

The armed forces get a paltry $800-million increase — paltry not just because defence has been disproportionately the target of spending cuts over the years, but because Commons and Senate committees, as well as the auditor-general, have recommended annual increases of between $2.5 billion and $4 billion, pronto.

The government even showcases this plate of scraps under the heading “Canada’s Role in the World,” which is lucky terminology indeed, because Liberal governments long ago abandoned any pretence of giving the armed services any sort of role in the country. Like defending it.

Meanwhile, over the next three years, a full $1.4 billion will go into foreign aid, the process by which poor people in rich countries give money to rich people in poor countries, and get nothing in return, with the possible exception of jihad.

And $3 billion was not enough for municipalities, which love to create the illusion that the only taxpayers are property-tax payers, and that higher levels of government simply have to fire up the printing press. We have already spoken at length about the great infrastructural monument the government thought fit to create for Jean Chrtien; here it is in somewhat watered-down glory, trailing another half-billion in “affordable-housing” lolly.

Spending may look good when there is no immediate threat to the economy. But it is then that the danger is greatest — good economies have only one way to turn, and when they do, revenues shrink rapidly.

Anyone who lived through the decline of the Canadian dollar between 1976 and today should remember that fiscal policy was blamed for most of that decline. (Interestingly, last year the minister of finance was quite ready to spend taxpayers’ money on keeping the Ottawa Senators in town, when they were ready to split partly because of the low Canadian dollar. If he really wants them to stay, more spending won’t help, and could hurt a lot.)

On the good side, nobody has dared talk about the budget delivering economic stimulus. Little appears to be needed, for one thing — the Western economies look to be climbing out of recession, and ours is among the healthiest. But what is the point of the spending, if not to have some economic effect?

What it looks like from here is yet another Grand Scheme. (They come with other names, like the “Just Society,” but they always have similar substance and a distinct odour of pork.) The desire to fling money around at innumerable pet projects is a sure sign of a government without a clear goal for the country.

Grand Schemes are dangerous: first of all, they are a wasteful and destructive use of public money. Public support for government programs — except, at an individual level, for programs a particular person likes — is mostly pretty low. In sum, it tends to be politicians who think politicians are good at spending money to solve problems; the public holds a contrary view.

The plague is only compounded when politicians begin to look for non-problems to throw money at. The ideal of public service degenerates into a contest to see who can bring the most taxpayers’ money into his riding.

The other danger is that throwing money around, and failing to attack the debt, may backfire if the government’s economic projections prove to be too rosy. At the most unfortunate times, projected surpluses or balanced budgets can turn into deficits, and suddenly a lot of unpleasant things start to happen. The government has to borrow to cover cash requirements, so demand for capital rises and with it the cost of servicing the existing debt.

It shouldn’t be forgotten that the long period of deficit finance that started in the 1970s started with program spending, but ended with most of public revenue paying debt service costs, while government services were in decline. The penalty for that long run of fiscal irresponsibility was the steady depreciation of the Canadian dollar, so that in recent years even economic expansion and sound government finance couldn’t repair its reputation.

Previous governments have been wrong, very wrong, about their projections. If the present government wants to be imprudent, they had also better be right.