Is Canada the cuts model?
Nick Clegg is the latest Coalition politician to single out Canada as a model for fair and progressive cuts that will avoid the harshness of the 1980s experience under Mrs Thatcher.
Chris Dillow has already pointed out that she only cut total spending in one year – though as he points out this can suggest a false picture as spending was cut elsewhere to pay for big increases in the benefit bill as unemployment rose (and unemployment benefits were more generous under Mrs Thatcher than under Labour).
But we should also avoid the popular view that cuts in Canada were painless. There is a very useful article in the latest Renewal by Andrew Jackson, the National Director of Social and Economic Policy with the Canadian Labour Congress. (You can read another version of the article here.)
Here are some nuggets:
- Canada cut its deficit purely by spending cuts. Over eight years government spending fell from 44.2% of GDP to 41.1% – a whopping 12.2%.
- This meant the burden fell on the least well off. Between 1993 and 2001 the after-tax and benefit income of the bottom 80% fell, while that of the top 20% rose from 36.9% to 39.2%.
- The big cuts occurred in working age and unemployment benefits and spending by Canada’s provinces (shades of cuts to local government here.
Jackson describes benefit cuts:
Access to benefits was restricted, and the maximum benefit was frozen in nominal terms for a decade. Today, Canada has one of the least generous unemployment schemes in the OECD. During the current downturn, only one half of unemployed workers have qualified for benefits, and the maximum benefit is just 60% of average earnings. The average unemployed worker qualifies for a maximum benefit period of less than 9 months.
This sounds more generous than the UK benefits system before our deficit reduction begins (though the two systems clearly work somewhat differently).
If this was a fair and progressive cuts package, then I’m a Canadian.