1. What the United States can learn from its northern neighbor Niels Veldhuis Vice President Research The Fraser Institute Gus A. Stavros Center for Economic Education Canada's Incredible Turnaround

2. Presentation Outline  Canada 1965-1995: getting off track  Shrinking government  Becoming a top global performer  U.S. looks like Canada pre- 1995  Lessons for the US… and Europe

3. When Americans look to Canada… nice people a little socialist higher taxes free gov’t health care love their hockey love their beer and boy is it cold!

4. Canada in 1995… “Turn around and check out Canada, which has now become an honorary member of the Third World in the unmanageability of its debt problem.” ~ Wall Street Journal, January 12th, 1995

5. Canada’s 1965-95 Experiment: A Fiscal Time-Bomb in the Making Deficits & Debt Trade Diversion Increasing Dependency Higher Taxes Mounting Debt Increasing Unemployment Stagflation Stagnating Investment Increasing Interest Rates Rising Inflation

6. Total Government Spending as a Percent of GDP (1929-1965)

7. Federal Revenues and Spending (1961-1993) 1965: Exp: 15.0% 1992: Exp: 23.5%

8. Federal Deficit / Surplus (1961-1993)

9. Federal Accumulated Debt (1961-1996) 1976: 35.2% 1996: 78.3%

10. Federal Interest Costs (1961-1994) 1974: 10.2% 1990: 34.6% 1994: 30.4%

11. Provinces Exacerbate Problems

12. Provincial Revenues and Spending (1961-1994) 1965: Rev: 12.7% Exp: 10.7% 1993: Rev: 22.2% Exp: 25.8%

13. Provincial Deficit / Surplus (1961-1993)

14. Aggregate Provincial Debt (1970-1996) 1970: 15.5% 1980: 20.6% 1996: 49.7%

15. Provincial Interest Costs (1961-1995) 1977: 6.6% 1961: 4.4% 1995: 14.9%

16. Total Government Spending as a Percent of GDP (1965-1994) 38.5% 53.3%

17. Rise of Dependency Source: Frenette and Picot (2003); Statistics Canada.

18. From Basket Case to World Beater

19. Pressure for Change Think Tanks: The Fraser Institute Media Pressure Broader shift in public opinion Hitting the Wall – Is Canada Bankrupt? Wall Street Journal’s mocking Mexican peso collapse 1994 The political class finally wakes up

20. Canada in 1995… “Turn around and check out Canada, which has now become an honorary member of the Third World in the unmanageability of its debt problem… If dramatic action isn’t taken in next month’s federal budget, it’s not inconceivable that Canada could be hit the debt wall... it can’t assume that lenders will be willing to refinance its growing debt.” ~ Wall Street Journal, January 12th, 1995

21. Budget 1995: A new direction for Canada "We are acting on a new vision of the role of government…smaller government... smarter government.” ~ Paul Martin Canada’s Finance Minister “The debt and deficit are not inventions of ideology. They are facts of arithmetic. The last thing Canada needs is another lecture on the dangers of the deficit. The only thing Canadian want is clear action.”

22. Federal Revenues and Spending (1990-2008) 1992: Exp – 23.5% 1998: Exp – 17.9% 2008: Exp – 15.2%

23. Federal Public Sector Employment

24. Federal Deficit / Surplus (1961 -2007)

25. Federal Accumulated Debt (1961-2007) 1976: 35.2% 1996: 78.3% 2007: 42.7%

26. Federal Interest Costs (1994-2010) 1996-97: 29.8% 2009-10: 11.4%

27. The Fiscal Reforms Transcended Geography and Political Party

28. Provincial Revenues and Spending (1990-2008) 1992: Rev – 22.0% Exp – 25.8% 2008: Rev – 20.9% Exp – 20.2%

29. Provincial Deficit / Surplus (1993 -2008)

30. Aggregate Provincial Debt (1993-2007) 1998: 48.4% 2007: 40.2%

31. Provincial Interest Costs (1990-2008) 1995: 14.9% 2008: 8.5%

32. Total Government Spending as a Percent of GDP (1990-2008) 38.5% 53.3% 39.0% 39.7%

33. Big Time Tax Relief Personal Income taxes Corporate Income taxes Capital Gains Taxes Sales Taxes Expansion of equivalents to 401(k) and Roth IRAs. The debate since 2000 has been about which type of taxes to cut!

34. Entitlement Programs Canada Pension Plan Employment Insurance Welfare Health Care

35. And the World Didn’t End…

36. Real GDP Growth

37. Real GDP Per Capita Growth

38. Job Creation

39. Gross Fixed Capital Formation

40. U.S. heading in Canada’s pre-1995 direction

41. U.S. Federal Surplus/Deficit (As a Percent of GDP)

42. U.S. Federal Debt (As a Percent of GDP) 90.0% 34.1%

43. U.S. Federal Interest Payments (As a Percent of Revenues) 20.7% 8.5%

44. U.S. Federal Spending (As a Percent of GDP) 18.4% 25.2%

45. Other Challenges to the U.S.  Cost of Entitlements (Social Security, Medicare, and Medicaid)  Tax Challenges:  Burden  Design  Distribution  Compliance Costs  Centralized Nature of Government

46. Lessons for the US… Stay optimisitc - we aren’t doomed Every one of the Canadian lessons is entirely applicable to the United States and Europe today. America's budget mess can and will be fixed… when the public demands action Need to support those that seek to educate the public

47. Questions & Answers