One Lesson America Could Learn from Canada: A Balanced Budget

Canada just reported a budget surplus for the third consecutive month.

As of February, the U.S. neighbor to the north had $5.1 billion more revenue than expenditures, up from $2.2 billion in January and $1.9 billion in December. The surplus has shrunk the country’s fiscal year deficit to $5.4 billion, half of the $10.7 billion deficit previously forecasted. As a result, many analysts believe the budget could be balanced this year, much earlier than predicted by late Finance Minister Jim Flaherty.

This fast path to a balanced budget is the result of the responsible fiscal discipline Stephen Harper’s Conservative government has introduced. While the Conservatives have increased expenditures more quickly than the preceding Liberal government (1993-2006), the fact that Conservatives – and not Liberals or New Democrats – were the minority government until 2011 helped control the rate of increase. As a result, the deficit was at most 3.6 percent of GDP, significantly lower than the U.S.’ 12.1 percent with no surplus in sight projected by the Congressional Budget Office, Rep. Paul Ryan (R-Wis.), or even President Barack Obama.

Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee, presenting his budget plan during a press conference at the U.S. Capitol on March 12, 2013 (Photo by Win McNamee/Getty Images)

As another testament to the Conservative’s fiscal discipline, there has been no tax increase in Canada under their administration – the countrywide Government Sales Tax has even decreased from 7 percent to 5 percent. In the U.S., there have been some 13 federal tax increases just in 2013 according to Heritage. Again, Canadian Conservatives controlled the temptation to increase taxes even with big budget deficits in 2008.

Furthermore, unbeknownst to many, Canada has lower federal taxes than the U.S. The top federal individual income bracket is 29 percent in Ottawa of only four brackets, compared to 39.6 percent in Washington, D.C. of seven brackets – making it the most progressive income tax in the OECD. Canadian corporate taxes are also lower at 26 percent compared to 39 percent in the U.S., the highest rate in the world.

Canada’s turn towards fiscal discipline is unusual considering its constitutional structure compared to the U.S. In Canada, residual powers are given to the federal government whereas the Tenth Amendment in the U.S. gives such powers to the states. Despite many past constitutional violations like issuing grants to universities in the 1950s despite education being under provincial jurisdiction, provincial and local governments spend more in Canada than states do in the U.S.

Prime Minister of Canada Stephen Harper addresses delegates during his keynote speech at the Conservative Convention in Calgary, Alberta, on Friday, Nov. 1, 2013. (AP Photo/The Canadian Press, Jeff McIntosh)

As a result, the U.S. federal government is soon expected to spend more as a percentage of the GDP than Canada according to OECD projections. This is no surprise considering programs like the Affordable Care Act, Medicaid and Medicare will keep digging the deficit. In Canada, healthcare spending is done by provinces, and federal oversight and funding is minimal compared to that in the U.S.

However, Canada still has its share of problems. To name a few, its housing bubble hasn’t popped, many basic agricultural products are shielded from foreign competition thereby resulting in higher prices, and provinces don’t even have a common market. Also, provincial income tax rates even in conservative Alberta are much higher than most states in the U.S.

Nevertheless, our northern neighbor can teach Uncle Sam a thing or two about good fiscal policies — namely, decrease taxes, control expenditures, and, most importantly, respect your constitutional powers.

Thanks to its respect for federalism, Ottawa is not directly involved in domains like education and healthcare, which were explicitly given to the provinces. While doing the same would be very hard in D.C. - Medicare and Medicaid take 25 percent of the budget - there are still ways to downsize government like abolishing the Department of Energy, and the TSA or end agricultural subsidies.

PierreGuy Veer is a Canadian-born libertarian now living in Idaho. His ideas have stirred up debates both in French and in English. You can contact him at pedg63@hotmail.com or follow him on Twitter @le_moutongris

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