The Canadian Lesson

David Cameron’s acknowledgement yesterday that Britain faced the deepest cuts since 1945 highlighted the real state of the public finances in the post-Blair/Brown era. The stark reality is that both the individual and the state have been living way beyond their means for too long. Not only are we on borrowed money, but borrowed time as well. The option at the election was clear: re-elect a Labour government that would propose to merely halve the budget-deficit in five years, or a Conservative (and now Liberal) government that would use previously successful methods in order to slash the deficit in five years. These lessons would be learnt from Canada.

In 1992, Canada’s debt problem was almost as bad as that faced by us in the UK today. The spend-easy government was wasting $39bn (Canadian) more than it was gaining in revenue which equated to roughly 9% of GDP. To put this into a contemporary and British context, our current budget deficit runs at over 12% of GDP and this figure is rising. In 1993, Canada faced a similar election choice to that faced us in May and on the back of a Liberal victory, finance minister Paul Martin opted to tackle Canada’s dangerously large and growing deficit head-on. Martin proved that efficiency savings of great magnitude could be made without a detrimental knock-on effect to frontline services. He tackled the ridiculous welfare benefits that were being handed out to the unemployed, by 23%; payments to native Indian communities were slashed; subsidies for inefficient farmers and businesses were removed; airports and the railways were privatised and the number of civil-servants were reduced by an astonishing 20% in a drive to slash public-sector waste and inefficiency.

In debates on the issue of public-spending, the left frequently make the argument that any cuts to spending will have an unavoidable impact on front-line services. However, Cameron has promised to examine with consultation, the possibility of transferring the management of certain services to businesses, the private-sector and voluntary organisations. In his role of Minister of Finance, Paul Martin was able to make $39m of savings by doing just this and by doing so, changing the very definition of what the state should and should not be doing. In reality this was an example of what Cameron likes to call the ‘Big Society’, in action.

So what were the results of this daring method of dealing with a rapidly increasing budget deficit? Admittedly, the Canadian government will acknowledge that it perhaps went too far in slashing budgets of some departments. In the area of health, cuts resulted in an increase in hospital infection-rates but there was by no means the same degree of scope for health-savings in Canada as there is the UK today with our endless tiers of ‘middle-management’, ‘line-managers’ and ‘trust-executives’ (whatever the hell they all are). The truth is that Martin’s purge on waste transformed the Canadian economy in just four-years. On being elected in 1993, Canada’s deficit was the second-highest among the G7 countries after Italy. By 1998, recovery had been rapid and it was the only country in the G7 with a budget surplus.

There will inevitably be those who will criticise this government no matter what when it comes to cuts. Ironically, it was their own big-tax, big-spend ideas that got us into the quagmire in the first place. Times will be tough in the months to years to come, but one thing is for sure: if our Canadian cousins can pull through the tough times, then so can we. The alternative is too painful to consider.

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