Given that the Finance Minister is presenting the Federal Fiscal Update today in Fredericton, it is instructive to review some fiscal comparisons right out of the release of the 2012 Federal Fiscal Reference Tables (which in turn used the OECD Economic Outlook May 2012 numbers for the international comparison). Figure 1 plots the ratio of total general government receipts to GDP for the period 1991 to 2011 for the G-7 while Figure 2 plots expenditures as a share of GDP.
The result? Well, there seems to me to be evidence of Canadian distinctiveness and exceptionalism at work here. Of all the G-7 countries, Canada is the only one with a consistent downward trend over the last twenty years in terms of both its revenue and expenditure shares of GDP. For Canada, like the rest of the G-7, the period since 2009 has seen a not unexpected increase in the expenditure share of GDP due to the recession, but the expenditure to GDP ratio in Canada is now substantially lower than in the 1990s. The same cannot be noted for the rest of the G-7, which have seen their receipt and expenditure shares fluctuate but not demonstrate the long-term decline evident in Canada. By way of comparison, take a look at Figure 3, which plots the expenditure and revenue to GDP shares for Canada and the United States.
While both Canada and the United States have seen the gap grow since 2009 as a result of the downturn, the United States was seeing a growing gap prior to this whereas Canada had managed to close the gap. Canada has managed a pretty good grip on its public finances at the federal level despite its reductions in the GST rate and income taxes. Its expenditure to GDP ratio is now comparable to the United States but its revenue to GDP ratio is higher. If the federal deficit for this year is a little larger than expected, I don’t think we need to start sounding distress alarms.