Study
| EST. READ TIME 2 MIN.How to Use the Fiscal Surplus
When the conference How to Spend the Fiscal Dividend: What is the Optimal Size of Government? was planned in the summer of 1997, the Government of Canada was expected to present a balanced budget in the upcoming fiscal year 1998/99 and, if tax rates and spending programs remained unchanged, large annual surpluses in the following years. These expected surpluses have become known as the fiscal dividend because they are the return on the investment of fiscal restraint practised since 1993.
The government has only three ways in which it can use the fiscal dividend: increased spending, tax cuts, and debt reduction. The papers from the conference (Ottawa, December 3, 1997) published in this book consider the allocation of the expected fiscal dividend among these three competing uses. The well-being of future generations of Canadians depends greatly on the choices the government will make.
Canada's fiscal performance has been and in the future will strongly be influenced by automatic revenue growth due to the broadening of the tax base and higher taxes paid on a constant real income base. This latter phenomenon is very important. It is due to the bracket creep, which results in higher income-tax payments as inflation erodes the real value of personal exemptions and forces the payment of higher marginal income-tax rates.
Revenue growth due to bracket creep sends the wrong signals to politicians. Without having to face the wrath of the electorate over explicit tax hikes, they discover fiscal surpluses available for increased spending. If they use future surpluses for this purpose, the size of government in the economy will continue to grow. The recent period of fiscal restraint will have eliminated the deficit and lowered the ratio of debt to GDP. But the inefficiencies and reduced economic growth due to a larger government will end up being greater than they were before the fiscal crisis of the last decade.
These developments can be avoided only by lowering tax rates and paying down the debt. In addition, the indexing of personal exemptions and brackets in the personal income tax should be fully restored. If politicians in future governments want to court the favour of voters through higher spending, they should be forced to face these same voters with explicit tax increases to pay for the increases.
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Michael Walker
Fraser Institute Founder and Honorary DirectorMichael Walker was the executive director of the Fraser Institute from its inception in 1974 until September 2005. Before thathe taught at the University of Western Ontario and Carleton and was employed at the Bank of Canada and the Federal Department of Finance. He received his Ph.D. at the University of Western Ontario and his B.A. at St. Francis Xavier University. In 2016, he was appointed to the Order of Canada in recognition of his outstanding achievement, dedication to the community and service to the country.As an economist, he has authored or edited 45 books on economic topics. His articles on technical economic subjects have appeared in professional journals in Canada, the United States and Europe, including the Canadian Journal of Economics, the American Economic Review, the Journal of Finance, the Canadian Tax Journal, Health Management Quarterly, Weltwertschaftliches Archiv and Health Affairs. His primary concern as the founding Executive Director of the Fraser Institute has been to promote the examination and use of competitive markets as a method for enhancing the lives of Canadians.He is the co-founder, with Milton and Rose D. Friedman, of the Economic Freedom of the World project which is now a collaboration of institutes in 85 countries and produces the annual Economic Freedom of the World Index. The Index is one of the most widely cited such measures in the current academic literature.He is a director of a number of firms and other enterprises, including, Canaccord Capital, Mancal Corporation, The Milton and Rose D. Friedman Foundation, and the owner of the Prado Verde Estates and Falcon MHP. He is a director of The Pacific Academy for Advanced Studies which organizes the annual Alamos Alliance meetings of the Chicago Boys who have been instrumental in the economic reform process in Latin America and elsewhere.He has received the Vancouver Rotary Club Service above Self Award, the Colin M. Brown Freedom Medal and Award by the National Citizens' Coalition, an honorary Doctor of Laws degree (LL.D.) from The University of Western Ontario and The Thomas Jefferson Award from the Association of Private Enterprise Education.… Read more -
Herbert Grubel
Professor Emeritus of Economics, Simon Fraser UniversityHerbert G. Grubel is a Senior Fellow at The Fraser Institute, and Professor Emeritus of Economics, Simon Fraser University. Hehas a B.A. from Rutgers University and a Ph.D. in economics from Yale University. He has taught full-time at Stanford University, the University of Chicago, and the University of Pennsylvania; and has had temporary appointments at universities in Berlin, Singapore, Cape Town, Nairobi, Oxford, and Canberra. Herbert Grubel was the Reform Party Member of Parliament for Capliano-Howe Sound from 1993 to 1997, serving as the Finance Critic from 1995 to 1997. He has published 16 books and 180 professional articles in economics dealing with international trade and finance and a wide range of economic policy issues.… Read more -
Preston Manning
Former Leader of the OppositionPreston Manning served as a Member of the Canadian Parliament from 1993 to 2001. He founded two new political parties- the Reform Party of Canada and the Canadian Reform Conservative Alliance - both of which became the official Opposition in the Canadian Parliament. Mr. Manning served as Leader of the Opposition from 1997 to 2000 and was also his party's critic for Science and Technology. In 2007 he was made a Companion of the Order of Canada.Since retirement from Parliament in 2002, Mr. Manning has released a book entitled Think Big (published by McClelland & Stewart) describing his use of the tools and institutions of democracy to change Canada's national agenda. He has also served as a Senior Fellow of the Canada West Foundation and as a Distinguished Visitor at the University of Calgary and University of Toronto.Mr. Manning is currently a Senior Fellow of the Fraser Institute and President and CEO of the Manning Centre for Building Democracy. The Manning Centre is a national not-for-profit organization supporting research, educational, and communications initiatives designed to achieve a more democratic society in Canada guided by conservative principles.Mr. Manning continues to write, speak, and teach on a variety of subjects including the revitalization of democracy in the Western world, the revitalization of Canadian conservatism, Canada-U.S. relations, strengthening relations between the scientific and political communities, the re-balancing of Canadian federalism, the regulation of the genetic revolution, and the management of the interface between faith and politics.… Read more