lessons for the u.s. from canadian reforms at the economic club of phoenix monthly luncheon on oct....

Jason ClemensExecutive Vice President

The Fraser Institute

Lessons for the U.S. from Canadian Reforms

Jason ClemensExecutive VPThe Fraser Institutejason.clemens@fraserinstitute.org

Presentation Outline1)State of the U.S. Union

2)Canada: Pre-Reform

3)1990s – Era of Reform

4)Economic Results: The World Didn’t End

5)Welfare Reform – Two Approaches

Everyone loses their way…

Purposefully larger deficits…rising debt

Higher taxes

Higher levels of government spending

Much more activist intervention by the federal government

Everyone loses their way…

State of the U.S. Union

Federal Revenues & Spending(1975 – 2040)

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2017

2020

2023

2026

2029

2032

2035

2038

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

28.0

Revenues Spending

Perc

ent o

f GDP

Source: CBO, 2016.

17.6%

26.9%

Federal Deficits/Surpluses(1975 – 2040)

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2017

2020

2023

2026

2029

2032

2035

2038

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Perc

ent o

f GDP

Source: CBO, 2016.

9.8%

7.9%

Federal Debt (Held by the Public)(1975 – 2040)

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

2017

2020

2023

2026

2029

2032

2035

2038

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Perc

ent o

f GDP

Source: CBO, 2016.

122.3%

73.6%

32.6%

Federal Interest Costs(Current to 2026)

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 20260

200

400

600

800

1,000

1,200

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Interest Costs (Dollars) Interest Costs (Share of GDP)

Billi

ons

of D

olla

rs

Perc

ent

of G

DP

Source: CBO, 2016.

Canada: Pre-Reform(Pre-1993ish)

Federal Revenues and Spending(1961 – 1993)

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

22.00%

24.00%

26.00%

Spending Revenues

Perc

ent o

f GD

P

15.0%

23.5%

Federal Deficit / Surplus(1966 – 1993)

1966

-67

1968

-69

1970

-71

1972

-73

1974

-75

1976

-77

1978

-79

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

-9-8-7-6-5-4-3-2-101

Perc

ent o

f GD

P

Deficits in Canada

Feder

al

BC AB SK MB ON QC NB NS PEI NL

-6

-5

-4

-3

-2

-1

0

Government Deficits (1992-93), as a Share of GDP

Perc

ent o

f GD

P

Federal Accumulated Debt(1966 – 1995)

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Perc

ent

of G

DP

18.4%

67.1%

State of Canada: Pre-Reform

BC AB SK MB ON QC NB NS PEI NL

020406080

100120140

Government Net Debt (1992-93), as a Share of GDP

Federal Provincial

Perc

ent

of G

DP

Federal Interest Costs(1961 – 1994)

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

Perc

ent o

f Rev

enue

s

10.2%

34.6%

Total Government Spending(1965 - 1992)

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

United States Canada

Perc

ent o

f GD

P

29.7%

53.1%

1990s: A Period of Reform

Capital markets start worrying

Interest rates increase (3.6% to 8.2% in one year)

WSJ Editorial: Canada as a Northern Peso

Domestic polls start shifting

Political alignment: rise of the Reform Party

NDP reforms in SK (1991) and Conservative reforms in AB (1992)

1990s: A Period of Reform

Federal Spending (Nominal)

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-0550000

70000

90000

110000

130000

150000

170000

190000

Federal Revenues and Spending(1990 – 2008)

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-099.0

11.0

13.0

15.0

17.0

19.0

21.0

Revenues Spending

Perc

ent o

f GD

P

17.1%

12.9%

Federal Deficit / Surplus(1983-2008)

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09-10

-8

-6

-4

-2

0

2

4

Perc

ent o

f GD

P

Federal Accumulated Debt(1990 – 2009)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Perc

ent

of G

DP

67.1%

28.2%

Federal Interest Costs(1990 – 2010)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Perc

ent o

f Rev

enue

s

35.2%

12.8%

Reforms Across the Country

Fede

ral

AB MB QC NS NL

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

Percentage Reduction in Nominal Program Spending

Perc

ent

Chan

ge

-21.6%

-8.9%-9.7%

-8.8%

Canadian Reforms:Time Period for ReductionsJurisdiction Percent Reduction Number of YearsFederal -9.7 3BC -1.5 2AB -21.6 3SK -8.9 3MB -3.1 2ON -3.8 3QC -8.8 3NB -0.9 2NS -3.0 2PEI -5.0 2NL -3.5 2

Total Government Spending(1990 - 2008)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

20.00

25.00

30.00

35.00

40.00

45.00

50.00

55.00

United States Canada

Perc

ent o

f GD

P

53.3%

39.7%

Big Time Tax ReliefPersonal Income taxesCorporate Income taxes (28% to 15%)Capital Gains Taxes (50% reduction)Sales Taxes (2-percentage points)Expansion of equivalents to 401(k) and Roth IRAs.

Debate 1997-2012 has been which taxes to cut,not whether to cut them!

And the World Didn’t End…

Real GDP Growth

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

1

2

3

4

5

6

Canada G7 Average - Canada

Perc

ent

Chan

ge

Real GDP Per Capita Growth

1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

0.51

1.52

2.53

3.54

4.55

Canada G7 Average - Canada

Perc

ent

Chan

ge

Job Creation

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 20080

0.5

1

1.5

2

2.5

3

Canada G7 Average - Canada

Perc

ent

Chan

ge

Gross Fixed Capital Formation

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008-5

0

5

10

15

20

Canada G7 Average - Canada

Perc

ent

Chan

ge

Myths About Canada’s Success

Jan-90 Jul-91 Jan-93 Jul-94 Jan-96 Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-060.50

0.60

0.70

0.80

0.90

1.00

1.10

US Dollar Per Canadian Dollar

Depreciating Currency…

0.0%5.0%

10.0%15.0%20.0%25.0%30.0%35.0%40.0%45.0%

31.9%38.3%

28.9% 32.4%

Total Exports

Shar

e of

GD

PBooming US Markets…

All industr

ies

Servic

es (A

ggregat

e)

Natura

l Res

ource

s

Ener

gy & M

ining0.0%

10.0%20.0%30.0%40.0%50.0%

10-Year Growth Rates, By In-dustry

It’s All About Energy…

Social Policy Reform

• Welfare Reform• K-12 Education

• Pension Reform• Health Reform

Welfare Reform:Canada-U.S. ContrastsFederal reform in 1996 in both countries

Varying degrees of decentralizationCanadian federal government almost completely

removedU.S. federal government imposes reforms on the

states

Social Transfers in Canada

Welfare Reform:Canadian Provincial ContrastsSome common provincial reforms

Administrative reformsAligning benefits rates with low-income wages

Provincial innovation:ON – WorkfareAB – DiversionBC – Time Limits

Welfare Reform Results

1975

19771979

19811983

19851987

19891991

19931995

19971999

20012003

20052007

20090

500

1000

1500

2000

2500

3000

3500

0

2

4

6

8

10

12

Number of Welfare Beneficiaries (Including Dependents)Welfare Recipients (and Beneficiaries) as a Percent of the Population

Num

ber

of P

eopl

e in

Tho

usan

ds

Perc

ent o

f the

Pop

ulat

ion

Conclusions

1990 Reforms transformed Canada.

Less government spending, lower taxes, and more decentralized.

Generally positive results.

Specific lessons for welfare reform and provision of K-12 education.

Questions & Hopefully Answers…

Email: jason.clemens@fraserinstitute.org

Economic Freedom in the U.S. & Canada

1980 1990 2000 2005 2010 2013 20147

7.27.47.67.8

88.28.48.68.8

Inde

x of

Fre

edom

Source: Fraser Institute, 2016.

Provincial Revenues and Spending(1961 – 1993)

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

-

5.00

10.00

15.00

20.00

25.00

30.00

Revenues Spending

Perc

ent o

f GD

P

9.3%

24.0%

Provincial Deficit / Surplus(1961-1993)

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

-4.00%

-3.00%

-2.00%

-1.00%

0.00%

1.00%

2.00%

3.00%

Perc

ent o

f GD

P

Provincial Accumulated Debt(1970 – 1996)

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

Perc

ent

of G

DP

15.5%

49.7%

Provincial Interest Costs(1961 – 1995)

1961

1963

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

Perc

ent o

f Rev

enue

s

4.4%

14.9%

Provincial Revenues and Spending(1990 – 2008)

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-0913.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

Revenues Spending

Perc

ent o

f GD

P

19.7%

15.3%16.6%

Provincial Deficit / Surplus(1983-2008)

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

2006

-07

2007

-08

2008

-09-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Perc

ent o

f GD

P

Provincial Net Debt(1990 – 2008)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Perc

ent

of G

DP

29.2%

20.8%

15.6%

Provincial Interest Costs(1961 – 1995)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

Perc

ent o

f Rev

enue

s

13.9%

7.8%

K-12 Education:Canada-U.S. ContrastsNo federal role in K-12 education, including transfers

Provinces have complete autonomy

Higher levels of innovation and choice

Lower costs and better results

Canada-U.S. Contrasts

Canada U.S.3.23.33.43.53.63.73.83.9

44.14.2

3.5

4.1

Education Spending as a Share of GDP

Canada U.S.0

2000

4000

6000

8000

10000

12000

8,388

10,995

Education Spending in Dollars, USD 2009

PISA Results, 2012

Mathem

atics

Avera

ge Sc

ore

Readin

g Ave

rage S

core

Scien

ce Av

erage

Score

450470490510530 518 523 525

481498 497494 496 501

Canada United States OECD Average

Scor

e

BC AB SK MB ON QC NB NS PEI NL0.0

10.020.030.040.050.060.070.080.090.0

100.0

Anglophone - non-religiousFrancophone - non-religiousAnglophone and Francophone - religious

Perc

ent

of T

otal

Enr

olm

ent

Choice in the Public System

Choice from Independent Schools

BC AB SK MB ON QC NB NS PEI NL0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Perc

ent o

f Tot

al E

nrol

men

t

Public vs. Independent School Enrolment

1980

-81

1982

-83

1984

-85

1986

-87

1988

-89

1990

-91

1992

-93

1994

-95

1996

-97

1998

-99

2000

-01

2002

-03

2004

-05

2006

-07

2008

-09

2010

-11 -

0.500

1.000

1.500

2.000

2.500

3.000

Public Enrolment Independent Enrolment

Nom

inal

Enr

olm

ent

as a

n In

dex 2.72

1.07

Wait Lists for Independent Schools in BCSince 1997-98 peak, public enrolment is down

11.3% while independent enrolment is up 22.4%

57.3% of independent schools reported wait lists

78.2% reported wait lists were normal

Thank you,Jason!

The Owl Kachina symbolizes intelligence, wisdom and excellent resourcing abilities.