Monday, June 07, 2010

No Bloodbath

The coalition are looking to Canada as an example of how to make necessary budget cuts. In the early 1990s the Canadian government was running a huge deficit and had been doing so for years before the Liberal government instituted huge budget cuts that set the stage for a prolonged period of growth that continues to this day.

However there is a crucial point that indicates things won't be as effective here:

The following year, Jean Chr├ętien, the Liberal prime minister, unveiled what became known as the "bloodbath budget", in which departmental spending was reduced by an average of 20 per cent.

By 1997 the deficit had been eradicated. However, health and education budgets were slashed and thousands in the public sector lost their jobs.

That's the point, when Canada looked at its over spending problem there were no areas of spending that were sacred cows that couldn't be touched even politically sensitive things like health and education. This government has decided to ring fence NHS spending, purely to give the Tories political protection in an area where the public don't trust them enough.

Essentially the Conservative Party gave up trying to make the argument that public spending was in and of itself a good thing some time after 2005, and their efforts since 1997 had been insipid, so they are not in a position to make the argument that cuts aren't necessarily a bad thing.

6 comments:

Matthew said...

I've been thinking about this since you last mentioned it. A case can be made, I'd argue, that in recessions people don't want less spent on health care, with my evidence that of the US, the most* free market system, which in each recession (or near-recession, 2001 e.g.) health care spending has risen by 5-6% more than GDP, and in cash terms also risen.

* Obviously it is not very free market, but I don't see any obvious reason* to believe the half not government provided would have a massively different experience than the half that is
** Except peope lose their jobs and so lose employer coverage, but this shouldn't increase spending.

Ross said...

That is a good point, it could be one of those "costs of failure" like debt interest and unemployment benefit which rise during recessions. If people become sick more frequently when they are unemployed or worried about losing their job then it might be the case.

However the Conservative policy on health spending predates the recession I think, and will continue at least to the next election regardless of the state of the economy.

Mark Wadsworth said...

That last para confuses me. Shouldn't it read:

"Essentially the Conservative Party gave up trying to make the argument that public spending was in and of itself NOT a good thing some time after 2005, and their efforts since 1997 had been insipid, so they are not in a position to make the argument that cuts aren't necessarily a bad thing."??

Ross said...

Yes you're right.

Sam Buckett said...

Cameron can't quite put himself 100% behind the small state position; but part of the reason for that (especially if he is following the Canadian precedent) is that he needs public support; unfortunately we the public have been over-indulged. He is where he is; it will be interesting to see how he gets, or doesn't get, to where he needs to be.

James Higham said...

I was thinking that too, Mark.