EDITORIAL The great government spending fix

When the Fraser Institute uses some new calculations to take a swing at government spending, the figures may not always be the most reliable but they are always interesting.

The Vancouver-based think tank presents a decidedly conservative side when it comes to matters fiscal. That may be one of its greatest contributions – providing a counterweight to some of the more liberal points of view that offer equally fascinating but diametrically opposed analyses of government spending.

The Fraser fraternity is perhaps best known for its Tax Freedom Day. The institute calculates how much an average Canadian pays in taxes of all sorts. It then compares that to the average Canadian income and determines how many working days that average Canadian is required to put in to pay the tax bill. That date (Tax Freedom Day fell on July 1 in 1990) is rapidly receding into the second half of the year. Only after Tax Freedom Day, says the institute, does one really start working for oneself.

It is a powerful symbol of how government spending has gone to excess. When the institute announces its latest Tax Freedom Day each Spring, it is received with great relish by a wholly non-partisan chorus of self-appointed government watchdogs.

But the institute does other research, all aimed at monitoring government spending and taxation trends. The latest diatribe from the institute is its Government Spending Facts, a 240-page study that was four years in the making. In it are some little nuggets that are bound to gain wide circulation in the continuing campaign to reduce government spending.

For example, the study says federal, provincial and municipal government spending amounts to $10,472 per capita on average. The largest expense is for social security payments such as pensions, unemployment insurance and welfare at $2,350 per capita. That is followed closely by interest on the national and provincial debt at $1,907 per capita.

The problem of excessive government spending just won’t go away, largely because interest payments on existing government debt now take such a large share of total government revenue. Debt interest, 8.5% of total government spending in 1970, is now 18.2% of total spending. Total spending by governments has risen to 45.1 cent per dollar in 1988 from 34.7 cents of Canadian income in 1970.

And the institute raises another issue related to deficit reduction. It says the 5.8 million Canadian families whose incomes are less than $37,000 a year gain more from government spending than they pay in taxes – including an allowance for the deferred tax burden implied by current deficits. It indicates a redistribution of benefits from those who earn $37,000 or more to those who earn less.

“A potential difficulty in finding a solution’ to the problem of deficits,” says the study’s authors, “is posed by the fact that the group who are net recipients of government spending benefits also make up a political majority.”

With reference to these numbers, one can’t help but conclude that increased government spending, rather than increasing indignation at the level of debt incurred, will actually result in greater public support because more people will be net beneficiaries.

A sobering prospect. But then, that’s exactly what the Fraser Institute intends.