Baloney Meter: Did the Conservatives really pay down $37B in debt?

OTTAWA - "When our government first came to power, we worked hard to reduce Canada's substantial federal debt. We did it in short order, by more than $37 billion." — Finance Minister Joe Oliver's budget speech to the House of Commons on April 21.

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When the Harper government delivered its first balanced budget this week in eight years, Finance Minister Joe Oliver was eager to burnish his party's conservative fiscal credentials.

Oliver spent a good portion of his speech in the House of Commons selling the merits of budgetary balance and the perils of debt, while castigating the economic credentials of his opponents.

Oliver even quoted Spanish philosopher George Santayana: "Those who cannot remember the past are condemned to repeat it."

So is Oliver fairly characterizing the past when he says his government worked hard to reduce the national debt by more than $37 billion in its first years in power?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of "no baloney" to "full of baloney" (complete methodology below).

This one earns a rating of "a lot of baloney" — the statement is mostly inaccurate but contains elements of truth. Here's why.

THE FACTS

The national accounts show that when Canadians elected a minority Conservative government in January 2006, the national debt stood at $494.7 billion.

There is no question the national debt decreased during the Conservatives' first two full years in power, falling to $457.6 billion in 2007-08 — a reduction of just over $37 billion from the day the government was sworn into office on Feb. 6, 2006.

Those same national accounts show the debt crested in 1996-97 at $562.88 billion (as a proportion of GDP, debt actually peaked a year earlier at 67.1 per cent), then fell in absolute dollars in every single year through 2007-08 — when the debt was down to 29.2 per cent of GDP.

On Feb. 23, 2005, the minority Liberal government of the day delivered its ninth consecutive balanced budget.

Then-finance minister Ralph Goodale forecast a minimal surplus that was widely understood to be — and criticized for — understating the true size of the anticipated surplus, due to a $3-billion contingency reserve and the government's "prudent" assumptions on economic growth and revenue.

The opposition Conservatives, led by Stephen Harper, initially expressed support for the Liberal spending blueprint but ultimately voted against it in May 2005. That November, the Liberal fall economic update predicted a surplus of $4.6 billion for 2005-06. Their government was defeated shortly afterwards.

Harper was sworn into office on Feb. 6, 2006. The House of Commons began sitting on April 3, and the Conservatives delivered their first budget, for fiscal 2006-07, on May 2.

The May 2006 Conservative budget forecast that, without any other policy changes, there would be a surplus of $17.4 billion for 2005-06, $17.8 billion for 2006-07 and $19.4 billion for 2007-08.

As in every year, it was not until the autumn of 2006 that the final accounting of the previous fiscal year was complete.

The national accounts record a surplus of $13.2 billion in 2005-06, followed by a surplus of $14.2 billion in 2006-07 and $9.6 billion in 2007-08.

By 2008-09, the federal government was back in deficit, recording a $10 billion shortfall.

"We were elected and in government when the (2005-06) surplus occurred, the debt repayments happened after and were a decision of our government," Melissa Lantsman, a spokeswoman for Oliver, said in an email to explain the $37-billion debt repayment claim.

Any surplus after the fiscal year-end must go toward debt, but Lantsman said the Conservatives acted responsibly by resisting the urge to go on a spending spree before March 31, 2006 (and before the first session of the 39th Parliament had even convened).

"We did not engage in any reckless spending, as we promised not to."

Ralph Goodale, the Liberal MP who delivered that 2005 Liberal budget, has another take.

"They inherited a decade of surplus budgets, including a surplus of $13 billion for that particular year," Goodale said in an interview.

"They just had to avoid screwing up — which they failed to do."

WHAT THE EXPERTS SAY

Allan Maslove, a distinguished research professor who specializes in tax policy at Carleton University's School of Public Policy and Administration, says the Conservatives came to power in a time of economic growth, falling debt and rising revenues.

"One could argue, coming in at the end of January, they had virtually no effect on what went on during that fiscal year," said Maslove. "By the time they figured out where everything was, the (2005-06) fiscal year was over."

In Maslove's view, the Conservatives didn't have to work particularly hard for the almost $24 billion in surpluses they can truly claim as their own.

"The surpluses in the first two years of the Harper government were, of course, inherited from the previous Liberal government. The Harper government 'spent' these surpluses in tax cuts (mainly the GST) and then entered the recession in 2008 with essentially no surplus left."

Don Drummond, a former chief economist at Toronto-Dominion Bank who served in senior roles at Finance Canada until 2000, calls it "a stretch" to include the 2006 surplus among Conservative achievements.

"Even if you gave them credit for the final seven weeks of the year — which would be a stretch — obviously you can't count very much of 2005-06," he said.

Drummond, like Maslove, also questioned Oliver's characterization of Conservative "hard work" to achieve subsequent surpluses, given the fiscal framework at the time.

Spending increases, already at a good clip under the Liberals, continued, he said, and the Conservatives didn't have to find new revenue streams.

"It just kept churning out surpluses, and that continued until the financial crisis hit. It wasn't anything that governments did."

Peter DeVries, a former Finance department official who retired in December 2005, dryly noted that Parliament under the new Conservative government didn't even sit until after the end of fiscal year end in 2006.

"It is quite rich for the Conservatives to claim that the surplus in 2005-06 was due to their management."

THE VERDICT

Oliver can properly claim that hefty debt repayments in 2007 and 2008 flowed from Conservative budgets, but is on very shaky ground when he includes the $13.2 billion surplus accrued from a Liberal budget the Conservatives in opposition had opposed.

The experts also say the fiscal framework of the country in 2006 meant the government was in the enviable position of being able to increase spending and cut taxes while still showing significant surpluses for its first two years in power before the 2008 global financial crisis hit.

For these reasons, Oliver's statement contains "a lot of baloney."

METHODOLOGY

The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

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SOURCES

http://www.fin.gc.ca/frt-trf/2014/frt-trf-1401-eng.asp#tbl1

http://www.parl.gc.ca/HousePublications/Publication.aspx?Language=E&Mode=1&Parl=39&Ses=1&DocId=2154449

http://www.fin.gc.ca/ec2005/ec/overviewe.pdf

http://www.fin.gc.ca/budget06/pdf/bp2006e.pdf

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