How Canada Did It

We wrote here about the fact that Canada has left the U.S. in the dust when it comes to fiscal reform. At the Hoover Institution’s Defining Ideas, David Henderson explains how the Canadians did it:

[Since 1993], Canada’s federal debt has fallen from almost 70 percent to only 29 percent of GDP. Moreover, every year between 1997 and 2008, Canada’s federal government had a budget surplus. …
About 85 cents of every dollar of deficit reduction was achieved with spending cuts. Beyond that, the government didn’t pull every politician’s favorite trick of cutting just the growth rate of government spending. It cut absolute spending on many programs in dollar terms. … Because of the years of spending cuts, federal spending on programs–that is, all spending except for interest on the federal debt–fell from a high of 17.5 percent of GDP in 1992-93 to 11.3 percent in 2000-01.

The fact that Canada achieved these cuts while having socialized medicine hanging around its neck like an albatross makes the feat even more impressive. Did spending cuts depress Canada’s economy, as American liberals would predict? No:

As the government cut its spending on programs from 14.9 percent of GDP in fiscal year 1996 to 12.1 percent in fiscal year 2000, more resources were available for people to use productively in the private sector. From 1997 to 2000, when government spending as a percent of GDP fell, Canada’s economy experienced a high rate of real growth of between four and five percent per year.

Watching the folly that often passes for government in Washington, it is easy to accept the fatalistic view that spending can never be cut, and America is doomed to fiscal collapse. But if Canada can do it, why can’t we?

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