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Spending restraint: Roadmap to a balanced budget

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From the Fraser Institute

A Case for Spending Restraint: How the Federal Government Can Balance the Budget

By Grady Munro and Jake Fuss

Since 2015, there has been a deterioration in the federal government’s fiscal situation. Annual
nominal program spending has increased an estimated $193.6 billion since 2014/15; adjusted for
inflation and population growth this represents an extra $2,330 per person. Prior to the COVID
pandemic, spending increased faster than population, inflation, and other relevant economic
indicators. These spending increases have resulted in a string of large budgetary deficits that have
contributed to an estimated $941.9 billion increase in gross federal debt from 2014/15 to 2023/24.
This accumulation of debt, along with recent hikes in interest rates, has raised the cost of interest
on the federal debt to one of the largest budget expense items.

Moving forward, the federal government plans to slow nominal spending growth, which will keep inflation-adjusted, per-person spending relatively constant to 2026/27. Despite this, the federal government will continue running budget deficits and accumulating debt. It is also uncertain whether the federal government’s current estimates are truly reliable as the estimates do not incorporate expected spending on pharmacare or the level of defence spending to meet Canada’s NATO commitment. Moreover, the federal government’s track record of exceeding previous spending commitments calls into question the reliability of the current spending targets. Therefore, it is clear the federal government is not implementing the level of spending restraint necessary to reverse course towards a stable fiscal situation.

An approach to federal finances that continues to run budget deficits and accumulate debt is economically harmful to both current and future generations of Canadians. Research shows that significant increases in debt-financed spending harm economic growth by reducing capital accumulation and labour productivity.

Furthermore, accumulating debt today increases the tax burden on future generations of Canadians, as they will be responsible for paying off this debt. Despite these effects, the federal government plans to continue running deficits and accumulating debt for the foreseeable future.

This need not be the case. The federal government can undertake decisive spending reform starting in 2024— similar to the reform by the Chrétien government in the 1990s—that balances the budget within a year or two. The federal government could balance the budget in 2026/27 by limiting annual growth in nominal program spending to 0.3% for two years. This would result in a 5.9% reduction in real per-person spending. Alternatively, the budget could be balanced in 2025/26 if the federal government reduces spending 4.3% for one year; the next year, 2026/27, would see a budgetary surplus. In this scenario, inflation-adjusted per-person spending would decline by 7.5%. Key trade-offs between the two approaches include the extent of the spending reform and the speed of the return to balanced budgets. Balancing the budget in one year, as opposed to two years, would
result in $30.0 billion less debt accumulated by 2026/27.

Though it is beyond the scope of this study to discuss how such spending reforms should be implemented, there are three areas that might be considered for reform. Business subsidies are a significant expense, yet research suggests they have little if any economic benefit, and may actually harm economic growth when governments pick winners and losers in a free market. Reviewing business subsidies might provide opportunities to find savings. Aligning government-sector wages
with those in the private sector would also provide savings, as government workers in Canada currently enjoy an 8.5% wage premium (on average) relative to comparable private-sector workers. Finally, studies show that government fiscal waste can be significant. From 1988 to 2013, more than 600 government failures cost the federal government between $158.3 billion and $197.1 billion. Moreover, more than 25% of all federal COVID spending was wasteful. Addressing inefficiencies within government might also reveal savings.

  • Canada has seen a deterioration in the federal government’s fiscal situation since 2015. A distinct lack of spending restraint has resulted in a string of large budget deficits, which have contributed to rising government debt and debt interest costs.
  • Despite current fiscal plans promising more of the same, the federal government could implement decisive spending reform starting in 2024/25, similar to reforms implemented in the 1990s, and balance the budget within one or two years.
  • To balance the budget by 2026/27, the federal government would need to limit growth in annual nominal program spending to 0.3 percent for two years. This would translate to a 5.9 percent reduction in inflation-adjusted, per-person spending.
  • Alternatively, the federal government could balance the budget in one year, by 2025/26, by reducing nominal program spending by 4.3 percent. Adjusted for inflation and population, this would be a 7.5 percent decrease. In 2026/27, the federal government could then record a $8.2 billion surplus even while increasing spending from the previous year.
  • While this study does not provide an in-depth analysis of where potential savings should be found, research highlights three potential areas that could be targeted for spending reform: corporate welfare, aligning government-sector wages with those in the private sector, or eliminating government fiscal waste.

A Case for Spending Restraint in Canada: How the Federal Government Can Balance the Budget

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‘Context Of Chemsex’: Biden-Harris Admin Dumps Millions Into Developing Drug-Fueled Gay Sex App

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From the Daily Caller News Foundation 

By Owen Klinsky

The Biden-Harris administration is spending millions funding a project to advise homosexual men on how to more safely engage in drug-fueled intercourse.

The University of Connecticut (UCONN) in July announced a five-year, $3.4 million grant from the U.S. National Institute of Health (NIH) for Assistant Professor Roman Shrestha to develop his app JomCare — “a smartphone-based just-in-time adaptive intervention aimed at improving access to HIV- and substance use-related harm reduction services for Malaysian GBMSM [gay, bisexual, and other men who have sex with men] engaged in chemsex,” university news website UCONN Today reported. “Chemsex,” according to Northern Irish LGBTQ+ nonprofit the Rainbow Project, is the involvement of drug use in one’s sex life, and typically involves Methamphetamine (crystal meth), Mephedrone (meth), and GHB and GBL (G).

Examples of the app’s use-cases include providing a user who has reported injecting drugs with prompts about ordering an at-home HIV test kit and employing safe drug injection practices, UCONN Today reported. The app is also slated to provide same-day delivery of HIV prevention drug PrEP, HIV self-testing kits and even a mood tracker.

“In Malaysia, our research has indicated that harm reduction needs of GBMSM [gay, bisexual, and other men who have sex with men] engaged in chemsex are not being adequately met,” Shrestha told UCONN Today. “Utilizing smartphone apps and other mHealth tools presents a promising and cost-effective approach to expand access to these services.”

Homosexuality is illegal in Malaysia and is punishable by imprisonment, according to digital LGBTQ+ rights publication Equaldex. Drug use, including of cannabis, is illegal in Malaysia, and drug trafficking can be a capital offense.

The NIH disbursed $773,845 to Shrestha in July to conduct a 90-day trial testing the efficacy of JomCare among 482 chemsex-involved Malaysian gays. It also provided Shrestha with $191,417 in 2022 to “facilitate access to gender-affirming health care” for transgender women in the country.

“Gender-affirming care” is a euphemism used to describe a wide range of procedures, including sometimes irreversible hormone treatments that can lead to infertility as well as irreversible surgeries like mastectomies, phalloplasties and vaginoplasties.

Shrestha has a track record of researching mobile health (mHealth) initiatives for foreign homosexuals, co-authoring a 2024 study entitled, “Preferences for mHealth Intervention to Address Mental Health Challenges Among Men Who Have Sex With Men in Nepal.”

The proliferation of LGBT rights has been a “foreign policy priority” under the Biden-Harris administration, a State Department spokesperson previously told the Daily Caller News Foundation, with President Joe Biden instructing federal government department heads to “to advance the human rights of LGBTQI+ persons.”

“Around the globe, including here at home, brave lesbian, gay, bisexual, transgender, queer, and intersex (LGBTQI+) activists are fighting for equal protection under the law, freedom from violence, and recognition of their fundamental human rights,” a 2021 White House memorandum states. “The United States belongs at the forefront of this struggle — speaking out and standing strong for our most dearly held values.”

President-elect Donald Trump announced on Nov. 12 that Elon Musk and Vivek Ramaswamy would collaborate to establish a new Department of Government Efficiency (DOGE), with Musk claiming the agency would feature a leaderboard for the “most insanely dumb spending of your tax dollars.” Some DOGE cuts could come from LGBTQ+ programs, such as a grant from the United States Agency for International Development to perform sex changes in Guatemala and State Department funding for the showing of a play in North Macedonia entitled, “Angels in America: A Gay Fantasia on National Themes.”

“The woke mind virus consists of creating very, very divisive identity politics…[that] amplifies racism; amplifies, frankly, sexism; and all of the -isms while claiming to do the opposite,” Musk said at an event in Italy in December 2023, according to The Wall Street Journal. “It actually divides people and makes them hate each other and hate themselves.”

Shrestha and the NIH did not respond to requests for comment. When reached for comment, a UCONN spokeswoman told the Daily Caller News Foundation that, “specific questions about the grant and the decision to award it to our faculty member should be directed to the NIH, since that’s the funding agency.”

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Broken ‘equalization’ program bad for all provinces

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From the Fraser Institute

By Alex Whalen  and Tegan Hill

Back in the summer at a meeting in Halifax, several provincial premiers discussed a lawsuit meant to force the federal government to make changes to Canada’s equalization program. The suit—filed by Newfoundland and Labrador and backed by British Columbia, Saskatchewan and Alberta—effectively argues that the current formula isn’t fair. But while the question of “fairness” can be subjective, its clear the equalization program is broken.

In theory, the program equalizes the ability of provinces to deliver reasonably comparable services at a reasonably comparable level of taxation. Any province’s ability to pay is based on its “fiscal capacity”—that is, its ability to raise revenue.

This year, equalization payments will total a projected $25.3 billion with all provinces except B.C., Alberta and Saskatchewan to receive some money. Whether due to higher incomes, higher employment or other factors, these three provinces have a greater ability to collect government revenue so they will not receive equalization.

However, contrary to the intent of the program, as recently as 2021, equalization program costs increased despite a decline in the fiscal capacity of oil-producing provinces such as Alberta, Saskatchewan, and Newfoundland and Labrador. In other words, the fiscal capacity gap among provinces was shrinking, yet recipient provinces still received a larger equalization payment.

Why? Because a “fixed-growth rule,” introduced by the Harper government in 2009, ensures that payments grow roughly in line with the economy—even if the gap between richer and poorer provinces shrinks. The result? Total equalization payments (before adjusting for inflation) increased by 19 per cent between 2015/16 and 2020/21 despite the gap in fiscal capacities between provinces shrinking during this time.

Moreover, the structure of the equalization program is also causing problems, even for recipient provinces, because it generates strong disincentives to natural resource development and the resulting economic growth because the program “claws back” equalization dollars when provinces raise revenue from natural resource development. Despite some changes to reduce this problem, one study estimated that a recipient province wishing to increase its natural resource revenues by a modest 10 per cent could face up to a 97 per cent claw back in equalization payments.

Put simply, provinces that generally do not receive equalization such as Alberta, B.C. and Saskatchewan have been punished for developing their resources, whereas recipient provinces such as Quebec and in the Maritimes have been rewarded for not developing theirs.

Finally, the current program design also encourages recipient provinces to maintain high personal and business income tax rates. While higher tax rates can reduce the incentive to work, invest and be productive, they also raise the national standard average tax rate, which is used in the equalization allocation formula. Therefore, provinces are incentivized to maintain high and economically damaging tax rates to maximize equalization payments.

Unless premiers push for reforms that will improve economic incentives and contain program costs, all provinces—recipient and non-recipient—will suffer the consequences.

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