My earlier pessimism regarding the ability of the spring 2013 federal budget to balance the books by 2015/16 was rooted primarily in the expectations of revenue growth being as optimistic as the federal government seemed to be predicting. However, while revenue growth is likely to still be soft, the federal government has been quite aggressive on the cost side. The last few years have seen a real steep drop in the program expenditure to GDP ratio after the surge in 2009.
The program expenditure to GDP ratio surged from 12.9
percent in 2008/09 to 15.8 percent in 2009/10 as GDP growth slowed and stimulus
spending rose in the wake of the 2009 recession. However, by 2012/13, the program expenditure
to GDP ratio was down to 13.5 percent.
The federal revenue to GDP ratio also fell during this time period but
more gradually, from 14.4 percent in 2008/09 to 14.1 percent by 2013/13. After a few years of stablity, the revenue to GDP ratio begins its drop in
2006/07 prior to the 2009 recession – coinciding with the second GST rate
There is a primary surplus with revenues exceeding program spending. The rest of the deficit is due to debt charges and even those have been dropping as a share of GDP as the accompanying figure shows. Three things strike me here. First, the federal government is indeed on the road to fiscal sustainability as taken over the long term (going back to the 1990s), the expenditure to GDP ratio has been falling faster than the revenue to GDP ratio – most of this in the wake of the federal fiscal restructuring of the 1990s. Second, without the two GST tax rate cuts and all other things given, the federal budget might be balanced already. Third, it would appear that the federal government does indeed now have a smaller footprint and is back to the size it had in the mid 1960s. With tax cuts on the horizon in the run-up to the next federal election, the question is how much lower will it go?