The document summarizes lessons from Canadian fiscal reforms in the 1990s that could be applicable to the current state of the U.S. economy and government finances. It outlines how Canada faced large deficits and debt in the 1980s but was able to reduce spending, lower taxes, and decentralize government through reforms in the 1990s. This led to balanced budgets, reduced debt levels, lower taxes, and continued economic growth without negatively impacting services. Specific reforms around welfare and K-12 education created more innovative, affordable, and higher quality systems compared to the U.S.

1. Jason Clemens
Executive Vice President
The Fraser Institute

2. Lessons for the U.S. from
Canadian Reforms
Jason Clemens
Executive VP
The Fraser Institute
jason.clemens@fraserinstitute.org

3. Presentation Outline
1) 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

4. Everyone loses their way…
Purposefully larger deficits…rising debt
Higher taxes
Higher levels of government spending
Much more activist intervention by the
federal government

5. Everyone loses their way…

6. State of the U.S. Union

7. Federal Revenues & Spending
(1975 – 2040)
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
PercentofGDP
Revenues Spending
Source: CBO, 2016.
17.6%
26.9%

8. Federal Deficits/Surpluses
(1975 – 2040)
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
PercentofGDP
Source: CBO, 2016.
9.8%
7.9%

9. Federal Debt (Held by the Public)
(1975 – 2040)
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
PercentofGDP
Source: CBO, 2016.
122.3%
73.6%
32.6%

10. Federal Interest Costs
(Current to 2026)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0
200
400
600
800
1,000
1,200
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
PercentofGDP
BillionsofDollars
Interest Costs (Dollars) Interest Costs (Share of GDP)
Source: CBO, 2016.

11. Canada: Pre-Reform
(Pre-1993ish)

12. Federal Revenues and Spending
(1961 – 1993)
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
22.00%
24.00%
26.00%
PercentofGDP
Spending Revenues
15.0%
23.5%

13. Federal Deficit / Surplus
(1966 – 1993)
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
PercentofGDP

14. Deficits in Canada
-6
-5
-4
-3
-2
-1
0
PercentofGDP
Government Deficits (1992-93), as a Share of GDP

15. Federal Accumulated Debt
(1966 – 1995)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
PercentofGDP
18.4%
67.1%

16. State of Canada: Pre-Reform
0
20
40
60
80
100
120
140
PercentofGDP
Government Net Debt (1992-93), as a Share of GDP
Federal Provincial

17. Federal Interest Costs
(1961 – 1994)
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
PercentofRevenues
10.2%
34.6%

18. Total Government Spending
(1965 - 1992)
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
PercentofGDP
United States Canada
29.7%
53.1%

19. 1990s: A Period of Reform

20. 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

21. Federal Spending (Nominal)
50000
70000
90000
110000
130000
150000
170000
190000

22. Federal Revenues and Spending
(1990 – 2008)
9.0
11.0
13.0
15.0
17.0
19.0
21.0
PercentofGDP
Revenues Spending
17.1%
12.9%

23. Federal Deficit / Surplus
(1983-2008)
-10
-8
-6
-4
-2
0
2
4
PercentofGDP

24. Federal Accumulated Debt
(1990 – 2009)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
PercentofGDP
67.1%
28.2%

25. Federal Interest Costs
(1990 – 2010)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
PercentofRevenues
35.2%
12.8%

26. Reforms Across the Country
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
PercentChange
Percentage Reduction in Nominal Program Spending
-21.6%
-8.9%
-9.7%
-8.8%

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

28. Total Government Spending
(1990 - 2008)
20.00
25.00
30.00
35.00
40.00
45.00
50.00
55.00
PercentofGDP
United States Canada
53.3%
39.7%

29. Big Time Tax Relief
Personal Income taxes
Corporate 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!

30. And the World Didn’t End…

31. Real GDP Growth
0
1
2
3
4
5
6
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PercentChange
Canada G7 Average - Canada

32. Real GDP Per Capita Growth
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
PercentChange
Canada G7 Average - Canada

33. Job Creation
0
0.5
1
1.5
2
2.5
3
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PercentChange
Canada G7 Average - Canada

34. Gross Fixed Capital Formation
-4
-2
0
2
4
6
8
10
12
14
16
18
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
PercentChange
Canada G7 Average - Canada

35. Myths About Canada’s
Success

36. 0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan-90
Jul-90
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
US Dollar Per Canadian Dollar
Depreciating Currency…

37. 31.9%
38.3%
28.9% 32.4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
ShareofGDP
Total Exports
Booming US Markets…

38. 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
10-Year Growth Rates, By Industry
It’s All About Energy…

39. Social Policy Reform
• Welfare Reform
• K-12 Education
• Pension Reform
• Health Reform

40. Welfare Reform:
Canada-U.S. Contrasts
Federal reform in 1996 in both countries
Varying degrees of decentralization
Canadian federal government almost completely removed
U.S. federal government imposes reforms on the states

41. Social Transfers in Canada

42. Welfare Reform:
Canadian Provincial Contrasts
Some common provincial reforms
Administrative reforms
Aligning benefits rates with low-income wages
Provincial innovation:
ON – Workfare
AB – Diversion
BC – Time Limits

43. Welfare Reform Results
0
2
4
6
8
10
12
0
500
1000
1500
2000
2500
3000
3500
PercentofthePopulation
NumberofPeopleinThousands
Number of Welfare Beneficiaries (Including Dependents)
Welfare Recipients (and Beneficiaries) as a Percent of the Population

44. 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.

45. Questions & Hopefully Answers…
Email: jason.clemens@fraserinstitute.org

46. Economic Freedom in the
U.S. & Canada
7
7.2
7.4
7.6
7.8
8
8.2
8.4
8.6
8.8
1980 1990 2000 2005 2010 2013 2014
IndexofFreedom
Source: Fraser Institute, 2016.

47. Provincial Revenues and Spending
(1961 – 1993)
-
5.00
10.00
15.00
20.00
25.00
30.00
PercentofGDP
Revenues Spending
9.3%
24.0%

48. Provincial Deficit / Surplus
(1961-1993)
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
PercentofGDP

49. Provincial Accumulated Debt
(1970 – 1996)
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
PercentofGDP
15.5%
49.7%

50. Provincial Interest Costs
(1961 – 1995)
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
PercentofRevenues
4.4%
14.9%

51. Provincial Revenues and Spending
(1990 – 2008)
13.0
14.0
15.0
16.0
17.0
18.0
19.0
20.0
21.0
PercentofGDP
Revenues Spending
19.7%
15.3%
16.6%

52. Provincial Deficit / Surplus
(1983-2008)
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
PercentofGDP

53. Provincial Net Debt
(1990 – 2008)
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
PercentofGDP
29.2%
20.8%
15.6%

54. Provincial Interest Costs
(1961 – 1995)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
PercentofRevenues
13.9%
7.8%

55. K-12 Education:
Canada-U.S. Contrasts
No federal role in K-12 education, including
transfers
Provinces have complete autonomy
Higher levels of innovation and choice
Lower costs and better results

56. Canada-U.S. Contrasts
3.5
4.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
4
4.1
4.2
Canada U.S.
Education Spending as a
Share of GDP
8,388
10,995
0
2000
4000
6000
8000
10000
12000
Canada U.S.
Education Spending in
Dollars, USD 2009

57. PISA Results, 2012
518
523 525
481
498 497
494 496
501
450
460
470
480
490
500
510
520
530
Mathematics Average
Score
Reading Average Score Science Average Score
Score
Canada United States OECD Average

58. 0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
BC AB SK MB ON QC NB NS PEI NL
PercentofTotalEnrolment
Anglophone and Francophone - religious
Francophone - non-religious
Anglophone - non-religious
Choice in the Public System

59. Choice from Independent Schools
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
BC AB SK MB ON QC NB NS PEI NL
PercentofTotalEnrolment

60. Public vs. Independent School
Enrolment
-
0.500
1.000
1.500
2.000
2.500
3.000
NominalEnrolmentasanIndex
Public Enrolment Independent Enrolment
2.72
1.07

61. Wait Lists for Independent
Schools in BC
Since 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

62. Thank you,
Jason!
The Owl Kachina symbolizes intelligence,
wisdom and excellent resourcing abilities.