Two budgets on either side of the Atlantic suggest that austerity is no longer a surefire political winner.
Two majority governments. Two fiscal plans. Each tabled in a House of Commons. Anyone looking for other similarities between the recently-unveiled budgets of Canada and the United Kingdom can stop there.
The differences, on the other hand, are stark. After years of austerity, Canada now plans to spend like a drunken stimulus sailor, with a $29.4 billion deficit this coming year, and no immediate plan to return to balance. Faced with slowing growth at home, and an unstable Europe on its doorstep, Britain is going the other way and tightening its spending further, with an aim of achieving a small budgetary surplus by the end of the decade (compared with an estimated £72.2 billion deficit in 2015/16).
The Liberal deficits are challenging Canadian political convention, which has for decades now held balanced budgets in esteem. In fact, Trudeau credits his election win to his surprise promise of deficit spending. The UK Conservatives, meanwhile, are continuing with tried and tested austerity. Indeed, it was the primary plank of last year’s party manifesto. And yet it is Chancellor George Osborne that is having a difficult time selling his troops on the merits of the budget, while Justin Trudeau and Bill Morneau are having no problem flogging its maiden spending effort to theirs.
It wasn’t supposed to be this way for David Cameron.
Hemmed in during their first mandate by their more moderate Liberal Democrat coalition partners, Cameron’s Tories were blessed with a convenient target if their budget measures upset the more hawkish elements of the party. Don’t blame us for going soft, mate, blame (former Liberal Democrat leader) Nick Clegg. Despite the coalition shackles, the first Cameron government was able to significantly reduce spending while keeping the UK’s growth the envy of the G7.
Observers on the left and on the right expected an unencumbered Conservative majority to cut even deeper. How wrong they were.
Last fall’s fiscal update ought to have been a warning to Cameron and his Chancellor that cuts were a diminishing political return. Striving to meet his self-imposed deficit target, Osborne proposed a series of cuts to low-income tax credits, only to have to back down when Conservative backbenchers got up his backside over the impact the cuts would have in their constituencies.
And so the word went out that the first majority budget wasn’t to be bold. Instead, and above all else, it had to avoid any blue-on-blue fire ahead of the upcoming referendum on the European Union. It’s safe to say it missed the mark – it did the opposite and exposed a badly-divided party.
The current budget dispute is ostensibly about the continued cuts to welfare – this time disability payments. The fracas has triggered the resignation of Iain Duncan Smith, who also happens, by the way, to have been the frontman for the six previous years of welfare cuts. This is why many people, including, it is said, David Cameron, believe the budget fracas is really about Europe. Duncan Smith is a noted Eurosceptic, and no fan of the pro-EU chancellor.
Blessed with their first majority in 18 years, and facing an inept Labour leader in Jeremy Corbyn, the Conservatives chose to celebrate by banging on about the only subject guaranteed to tear them apart: Europe.
And so the Chancellor is now forced to back down on his latest cuts to welfare, and has even accepted a couple of budget amendments from the Labour Party for good measure. Once expected to be Cameron’s successor, Osborne is now being savaged (albeit anonymously) by his own side in the press.
Trudeau has no such internal enemies. Of course, saying yes to seemingly every one of your colleagues’ budget requests is a surefire way to make friends. Red ink papers over just about any grievance, except for those of Canadians who care about things like debts and deficits. But who cares? They probably didn’t vote Liberal anyway.
Liberal constituencies are at the core of the Trudeau budget. There is billions in new spending for indigenous peoples; billions more for a revamp of the child care credit; billions more to reverse OAS changes; and billions more for infrastructure. This isn’t to suggest these items aren’t worthy, only that it used to require some effort to show how it would all be paid for in the long run. The dog must have eaten that part of Trudeau’s homework.
What can be learned from the Canadian and UK budget experiences?
First, conviction counts. Cameron ran on a harsh austerity platform because he expected to trade some of it away in another coalition negotiation. Stripped of cover, Osborne and Cameron swung the budget axe and made a lot of people angry in the process. Trudeau and Morneau stuck to their plan to spend, and made everyone happy, save for the opposition Conservatives and right-of-centre pundits and advocacy groups. The budget balanced third rail has not only been touched, it’s been ripped right out of the track. Now there isn’t anything to slow down the spending train.
Second, austerity is no longer a surefire political winner. With interest rates on the floor and not looking to get up anytime soon, carrying a truck load of debt doesn’t hurt as much as it otherwise would. As long as you can dress up your borrowing in the garb of “infrastructure” or “productivity” you can generate enough political cover for your spilled red ink.
That austerity and balanced budgets have been abandoned is the biggest possible blow to the Harper legacy. It was Harper who drove the austerity bus at the global level, enshrining it in the 2010 Toronto G20 Summit Declaration. And it was Harper who made returning to budget balance the primary aim of his only majority government. The sea of red ink will make his blood boil.
Harper and Flaherty put Canada in the deficit ditch because of a huge collapse in global demand (and, it could be argued, opposition pressure). Whatever the reason, eliminating the deficit was a priority from the moment it was created.
Trudeau isn’t responding to a global or even a national recession – the Canadian economy is still growing – and he doesn’t seem to be fussed about when the spending will stop. It’s spending for spending’s sake. But he’s giving the people what they (kind of) voted for. To the victor goes the cheques.
Fiscal responsibility used to be Canada’s shtick. But growth has been modest for quite some time now and there’s a new sheriff in town armed with a giant spending cannon. The Conservatives and their interim leader will have to demonstrate considerable skill to spike Trudeau’s very popular guns.
On the other side of the Atlantic, David Cameron and his government remain wedded to austerity. But if he loses the upcoming referendum he will soon find himself surplus to the Conservative Party’s requirements, the latest victim of Tory cuts.
Photo: Benoit Daoust / Shutterstock.com