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Wall Street Journal


Canada Makes a Right Turn

May 04, 2011

By David Gratzer

The country skipped the housing bust and its budget is headed toward balance. Voters liked it.

In the winter of 1997, two Canadian conservatives wrote a stark essay arguing that conservative governance was an unlikely prospect for their country.

The governing Liberal Party was the most electorally successful party in the Western world, they noted, and Canada had become “a benign dictatorship.” One of the authors had particular reason to be discouraged: Stephen Harper had just been railroaded out of the leadership of the party he helped found and appeared to be finished politically.

But Mr. Harper would stage a comeback, bringing the Conservatives to power first in 2006 and again in 2008 as leader of minority governments. Finally, on Monday, he scored the first non-Liberal majority in 23 years.

While his governance style has been quiet, Mr. Harper has established an impressive track record. He’s cut Canada’s value-added tax (the GST) as well as the corporate tax. He’s deregulated the telecom industry. And despite strong pressure, he’s only modestly given in to the temptation of stimulus spending.

The result is that the Conservative Party has credibly promised to cut spending further and to balance the federal budget by 2014. Moreover, based on International Monetary Fund projections, in 2015 Canada’s debt-to-GDP ratio will be less than 30%, largely unchanged from the start of the recession�and a third of the projected U.S. debt-to-GDP ratio in that year.

Remarkably, Harper has accomplished these goals despite having to depend, at different points, on parliamentary votes from the Liberals (who publicly oppose tax relief), the socialist New Democratic Party (NDP), and the Bloc Quebecois (a separatist party led by a former Marxist). Now, after taming the deficit, he’s promised a middle-class tax cut.

The real story in this election, though, is the near-death of the once-powerful Liberal Party of Canada. It placed third, winning just 19% of the popular vote�its worst showing in modern history. This outcome reflects something of a turning point for the nation.

Since the early 1960s, when the Liberals won the first of 10 victories in 13 elections, Canadian governance largely focused on welfare statism. Between 1963 and 1993, government spending soared to over 50% of GDP from 29%. In contrast, American government spending in the same years grew only about 6%, to 34%.

The Liberals championed public pensions and free health care, favored tariffs, and implemented massive wealth transfers to poorer regions. The party cobbled together a coalition of students and professors, big business and big labor, old money and new immigrants�a coalition held together by subsidies, grants and government programs, with high taxes and large deficits to fund it all.

The Liberals still won back-to-back-to-back majorities (1993, 1997 and 2000), but the coalition began to fall apart. Less-wealthy Quebec opted for more overtly left-wing parties such as the Bloc Quebecois and the NDP, and an increasingly affluent Western Canada trended conservative. The Liberals now are confined to a handful of urban centers and a smattering of seats in Atlantic Canada.

The manufacturing-based Canada of the 1960s is largely gone. Today, much of the country is more prosperous, dynamic and resource-rich. The welfare state itself looks tired. Regional transfers meant to empower poorer regions have, in fact, trapped them in poverty.

Nowhere is the exhaustion of the welfare state more evident than in Canada’s government-run health care. The system is plagued by long waiting lists for specialist consultations and diagnostic tests, and some four to five million Canadians can’t find a family physician.

Provincial governments increasingly look to the private sector for relief. Regina, the mid-sized city in Saskatchewan that’s considered the birthplace of socialized medicine, has contracted out CAT scanning�its three government scanners couldn’t meet capacity, despite running seven days a week. In British Columbia, an estimated 50,000 patients a year are treated in private diagnostic centers (with public funding). Meanwhile, tens of thousands of Canadians opt to pay directly for private service in their own country or in the U.S.�unthinkable a decade or two ago

Perhaps the ultimate undoing of the Liberal Party has been the rise in Canadian confidence. Canada boasts a dollar that trades over parity with the U.S. greenback, a housing sector that remains robust while America’s is still a mess, and the strongest growth rate in the G-7 countries in 2011. The welfare state and its Liberal Party boosters seem less relevant. That’s why Mr. Harper and his Conservative Party won big.

Original Source:



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