True Political Colours by Umar Saeed

Canadians know exactly what they are voting for based on the colour of the political party. Blue stands for tax cuts, less government programs, balanced budgets and big business. Red means higher taxes, better social programs and running up the debt to finance it. Orange is there to make red look like blue. Each colour comes with rhetoric. It is the brand of each political party that has been advertised to Canadians for generations.

This begs the question, when political parties are elected, do they stay true to their colours? On matters of culture and social justice, the difference is clear. Traditionally, Conservatives have stood up for the right to bear arms, hated abortions and tried to preserve the “purity” of marriage. The Liberals have been much more tolerant and the NDP staunchly opposed to such views. Thankfully for Canadians, the legal system has taken the most contentious issues out of the hands of the politicians. So what about economic policy, or more specifically, the national debt?

The chart below shows 50 years worth of data on Canada’s national debt . The true colours of reigning parties are revealed (click to expand). It illustrates no relationship between political ideology and the actual effect on Canada’s finances.

Canada’s debt as a percentage of its GDP shows that during Pierre Trudeau’s heyday the national debt was actually at its lowest level in the past 50 years (inflation adjusted). During Brian Mulroney’s rule through the eighties, the national debt rose quite drastically. When Jean Chretien’s Liberals took over, the debt rolled back down again.

Debt-to-GDP is a fairly comprehensive measure. If politicians are going to promise a “responsible government” or “prosperity,” this metric accounts for that.

A major reason for this inconsistency between party lines and party results is that politicians today have very little influence over the country’s finances. Pierre Trudeau created so many of the social welfare programs that have come to define Canada’s identity. Mulroney opened Canada’s doors to the global economy, for better or for worse. Politicians sitting in the throne today find that their bed is already made.

For example, in 2006 Stephen Harper’s Conservatives set out a plan to eliminate the national debt entirely. In 2008 they ran into a global recession commingled with a nasty financial crisis. They had no choice but to run up deficits to save jobs in the auto industry, pay out unemployment, and finance the liquidity of the Canadian banks to keep them lending and issuing mortgages (and avert panic).

The latest federal spending numbers show that 64% of all spending relates to health (19%), social services (30%) and education (15%). With an aging population, health and social services (which includes Old Age Security and income supplements) are projected to rise sharply over the next two decades.

There is another option that will create a severely unpopular legacy for whatever colour decides to pursue it. The government can cut, slash and curb its healthcare, old age entitlements and education. Stephen Harper has proposed to reform the Canada Pension Plan by flipping it into a public-private partnership. The change would reduce Canada’s future obligations by shifting the burden and risks of retirement back to individual Canadians and off the government’s books.

But unless Canada wants to stop being Canada, much of the 64% is a firm commitment the country must deal with. These obligations growing fast and cutting corners will not make a material difference. Politicians will continue to solicit your votes by making the same old promises of avoiding tax hikes and managing the national debt. The truth is that these commitments will be financed by a combination of tax hikes and increased debt, no matter what colour you vote for.

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Photo: Stephen Harper

Umar Saeed is an accomplished professional in finance and accounting. On his website (www.umarsaeed.ca), where this post originally appeared, he writes essays to explain the elaborate connections between people and money, without making your head hurt. You can follow him on Twitter @UmarSaeedCA. Or you can read the rest of his posts at The Little Red Umbrella here.