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Martin vs. Mulroney

Bill, at Bound by Gravity, has a posting in which he argues against Paul Martin's record as Finance Minister.

He argues that it was really Brian Mulroney who did the heavy lifting in terms of shaping up Canada's federal finances, and Martin's role was "all smoke and mirrors".

The argument is based on the idea that it was Mulroney's unpopular Free Trade and GST that saved the day.

But looking at the numbers, I still am left with the impression that it was Finance Minister Paul Martin who balanced our budgets, while the Mulroney team showed little control.

The numbers I spent most of my time looking at were this table of federal budgetary revenues as a percentage of GDP, and this table of federal budgetary expenses as a percentage of GDP. I assigned budgets beginning with 1984-85 to Mulroney and 1993-94 to Chretien.

What becomes clear pretty quickly is what we know already -- in the Chretien-Martin years, the federal government performed dramatically better in terms of the defict/surplus. In 1983-84, the debt was 7.9% of our GDP, and the following year saw it hit 8.3%. At the end of the Mulroney term, debt had been reduced to 5.6% of our GDP, or $39-billion. Jean Chretien was elected, and about two years later, things began to change dramatically, and by 1997-98 we were in surplus, never to look back.

Here's another way to look at it. If you take the surplus or debt from each year, and use the Bank of Canada's inflation calculator to convert them to constant dollars, the Tories borrowed over $400,000 in constant dollars, while Chretien's team borrowed under $80,000 (over one more year).

Yes, in real dollar terms, Mulroney's final-year deficit was 15% smaller than the deficit in 1983-84, but that left Chretien and Martin to do the other 85% of the job, and then continue on into surplus.

The overall accumulated debt, grew (as a % of GDP) in every Mulroney year, but fell consistently from 1995-96 until the present. In other words, Mulroney always grew the debt faster than the economy, and the tide was reversed only after his 9 years in office.

So, how was it done?

A closer look at the numbers shows it was not done on the revenue side. Under Mulroney, federal government revenues averaged 16.8% of GDP. Under Chretien, 16.4%. This was not a big change.

It happened mainly on the expenses side.

The Mulroney years averaged spending (including interest) at about 22.4% of the GDP. In 1983-84 it was 23.4%, the following year it was 24.0%, and the lowest in hit during the Tory term was 21.5%.

In the Liberal years, the size of the government was never once as high as Mulroney's low of 21.5%. In 93-94 it was 21.3%, and in 2002-03 it hit a low of 14.8%. That's the lowest point for all the data I have, beginning in 1961-62.

Some accuse Paul Martin of acheiving this result entirely on the backs of the provinces. Obviously, there were cuts there, but these were not the only cuts:

  • Transfers to Other Levels of Govt, reduced from a Mulroney average of 3.7% of GDP to a Chretien average of 2.8%, for a savings of 0.9%
  • Transfers to Persons, reduced from a Mulroney average of 5.2% of GDP to a Chretien average of 3.9%, for a savings of 1.2%
  • National Defence, reduced from a Mulroney average of 1.6% of GDP to a Chretien average of 1.1%, for a savings of 0.5%
  • All other spending, reduced from a Mulroney average of 6.0% of GDP to a Chretien average of 4.8%, for a savings of 1.2%
  • Interest on the debt, reduced from a Mulroney average of 5.9% of GDP to a Chretien average of 4.8%, for a savings of 1.2%

So, basically, all spending was controlled, and shrunk as a percentage of GDP. Revenues were kept constant, and as a result, a huge deficit was melted away into a surplus. Mulroney failed to do these things himself.

Now, I'm not going to argue that economically Mulroney was all disaster and Martin was the golden child. Certianly, Martin can't own responsibility for Canada's strong economy. However, Paul Martin's record on fiscal management is far from "smoke and mirrors" and actually is a strength he should be campaigning on. It's how he became popular in the first place, and (in my opinion) rightly so.

POSTSCRIPT: See follow-ups here from Ian Welsh, here from me, and here from Kevin Brennan.



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