With Members of Parliament back to work in Ottawa and economic growth having unfortunately slowed, Canada’s opposition parties are increasing the pressure for more stimulus spending.

If NDP leader Jack Layton had his way, he’d crank up spending to keep pace with President Obama, who is quickly digging the U.S. into a fiscal hole that will take decades to reverse. Taking a slightly more moderate position, Michael Ignatieff and the Liberals want the stimulus to keep flowing after the current March 31, 2011 “end date.”

Given these options, fiscally conservative Canadians should rightly be cheering on the governing Conservatives who have thus far indicated that they are sticking to their plan for no further stimulus. Indeed, just this past weekend Finance Minister Jim Flaherty stated that his party wants to “stay with our exit strategies to get us out of this temporary, extraordinary stimulus.”

That of course assumes that the federal government is actually planning to end the “temporary” stimulus spending on March 31, 2011.  

Unfortunately it’s planning no such thing.

One only has to look at government spending plans to see there really isn’t any end in sight. Rather than end the stimulus and decrease spending to pre-recession levels, the Conservative government plans to continue what it has been doing for the past four years: spend, spend, and spend.

Consider its track record since taking power in 2006. Before the recession it significantly increased spending from $209 billion in 2005/06 (the Liberals last year in office) to $239 billion in 2008/09, an increase of nearly 15% over three years.

Then came the recession during which the government was swayed by group think regarding stimulus spending. From 2008/09 to 2010/11, federal spending increased by about $42 billion as a result of the government’s stimulus package, and is expected to reach $281 billion by the end of this fiscal-year (2010/11).

What’s the Conservative plan after stimulus spending “ends” March 31, 2011?

As the graph elsewhere on this page depicts, stimulus spending isn’t ending at all. If it were, we would see a significant decrease in spending in 2011/12, similar in fashion (though in the opposite direction) to the dramatic increases over the past two years. But we don’t.

In 2011/12 planned federal spending will decrease by only 1.4% ($3.8 billion) before it increases again over the final three years of the government’s current fiscal plan. By 2014/15, spending will be $30.6 billion (11.4%) higher than it was in 2009/10.

While the Liberals, NDP and Conservatives “debate” about the end of the stimulus, the reality is that most of the “temporary” spending is set to become the baseline for future budgets which will result in a permanent increase in government spending going forward.

Because of the government’s failure to reduce spending to pre-recession levels, Canadians can expect $105 billion in deficits over the next five years in addition to the $54 billion deficit last year. As a result, the federal debt will swell to $622 billion in 2014/15 from $464 billion in 2008/09, undoing a decade of debt repayment.

If our federal politicians wanted to get behind a genuine effort to stimulate the economy, they should rally behind a plan to restore balance to the nation’s finances.

While plenty of empirical evidence exists showing the negative relationship between debt levels and economic growth, a close look is warranted at a recent paper, Public Debt and Growth, published in July by the International Monetary Fund. The IMF study examined the relationship between public debt and economic growth for a group of advanced and emerging countries over almost four decades. It found that a 10 percentage point increase in a country’s debt-to-GDP ratio leads to a decrease in per person economic growth by 0.2 percentage points, “mainly due to reduced investment and slower growth of the capital stock per worker.”

Another important recent study Growth in a Time of Debt by University of Maryland professor Carmen Reinhart and Harvard University professor Kenneth Rogoff found much of the same: persistent deficits propel public debt to levels that impede economic growth.

By the end of this year (2010/11) the federal debt to GDP ratio will increase by 6.4 percentage points from its 2008/09 level. And that’s just the federal debt. Add in the provinces (in particular Ontario where the provincial debt to GDP ratio is expected increase to over 29% in 2013/14 from 18.0% in 2007/08) and the picture is truly alarming.

Federal politicians, especially Mr. Ignatieff’s Liberals, ought to look back at how the former Liberal government (facing significant pressure from the then Reform Party) set forth a plan to balance the budget. The reforms by former Prime Minister Jean Chrétien and Finance Minster Paul Martin eliminated a deficit much larger than the current one (4.8 % of GDP compared to 3.1 %), within three years.

This represented a remarkable fiscal transformation that, in part, made Canada the envy of the developed world. Spending reductions, balanced budgets, and debt repayment contributed to our outstanding economic performance from 1997 to 2007.

The Liberals and NDP want more stimulus spending while the Conservatives talk about ending it, but have no plans to do so. If our MPs want to provide real stimulus to economic growth, they will support a plan to reign in spending, reduce the deficit, and bring down the debt. It worked before and it will again.