Dealing with Debt and Deficits, Canadian Style

August 23, 2011

by John Parisella

In the wake of the debt ceiling debate in the U.S. and Euro zone summits about the precarious financial situation of some of its members, articles and editorials in The Wall Street Journal and the Washington Post have referred to Canada as a potential model to emulate in order to eliminate deficits and reduce the debt. They refer to how deficits in Canada in the early 1990s were eliminated mostly through spending cuts, and how tax cuts were the source of the growth that put Canada’s fiscal house back in order.

There is some truth to this narrative but it is highly incomplete and one needs to state that the overriding factor in Canada's success had more to do with a political class of different stripes working together, although not without debate or conflict.  In practical terms, a federal Liberal government in Ottawa, which was not allergic to an activist governmental agenda, decided to lead the way to a balanced budget. The message was clear: problem solving must take precedence over winning ideological and partisan battles. Even social democratic parties like the NDP in Manitoba and Parti Quebecois in Quebec were willing to put their ideology aside and exact serious spending cuts.

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Tags: Canada, Debt.