By Joe Mama
Turns out our friends to the north can teach us a thing or two about budget surpluses and paying off debt. Canada has lowered its national debt from 67% to 29% of GDP since 1993 and run a budget surplus every year between 1997-2008. How? By cutting spending on many gov’t programs in absolute dollar terms (as opposed to cutting just the rate of spending growth). Specifically, about 85 cents of every dollar of deficit reduction was achieved with spending cuts. Did those spending cuts hurt the Canadian economy? David Henderson, author of the study, says no:
As the government cut its spending on programs from 14.9 percent of GDP in fiscal year 1996 to 12.1 percent in fiscal year 2000, more resources were available for people to use productively in the private sector. From 1997 to 2000, when government spending as a percent of GDP fell, Canada’s economy experienced a high rate of real growth of between four and five percent per year.
The Canadian experience appears to belie most Democrats’ view that cutting gov’t spending during an economic slowdown is bad, showing instead that cutting spending during low-growth years is good for the economy.
On a slightly different topic, did Canada’s single-payer health care system help, hinder, or play no part in this fiscal 180-degree turn?
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