People plan. Governments plan. In either case, those plans tend to be known as budgets. But have you ever wondered how well the plans contained in a government budget translate to real-world goodness?
On the one hand, the odds seem stacked against us: constrained by partisan political calculations and struggling against the chaos and weight of their huge bureaucracies, how could any government get much done? But on the other hand, they do have access to vast power and resources and their claims and promises do sound grand.
So I thought I’d take a look back at a couple of historical Canadian federal budgets and compare them to actual measurable results from subsequent years. I can do this thanks to the rich information resources made publicly available by the Canadian government itself. Specifically, I’ll draw on original budget documents hosted on the website budget.gc.ca, and on some of the valuable economic data found on the Statistics Canada website.
In the interest of full disclosure, as a long-time small-government advocate myself, I came into this exercise expecting the worst.
Our first target will be Prime Minister Stephen Harper’s 2011 budget. I chose that one because Harper’s Conservative party had another four years in government, more than enough time for us to see any impact their policies had on Canada’s economy.
The second budget was Liberal Prime Minister Justin Trudeau’s first attempt after winning election in late 2015. The budget itself was only tabled in 2016. We’ve got at least three years of good data available to us, so we should have no trouble assessing the results.
We’ll begin with Stephen Harper’s “post recovery” budget presented in 2011, three years after the financial crisis of 2008.
The 2011 Budget (Conservative Party: Stephen Harper, Prime Minister)
Here’s a big-picture “mission statement” intended to present the budget’s larger themes:
“Supporting Job Creation by helping businesses and entrepreneurs succeed, keeping taxes low, investing in projects of national importance, and maintaining Canada’s brand as one of the best places to invest.”
The first relatively specific promise, then, was to encourage foreign investment in Canadian businesses. We’ll try to find out whether that actually did happen.
There were, of course, other promises. I’m going to address just a few of them, selected because their results should be relatively easy to validate. In that spirit, the budget promised to:
Extend the work-sharing program and the Targeted Initiative for Older Workers to help Canadians in some of the hardest hit areas stay in the workforce.
Did employment among older Canadians actually increase?
“Provide a temporary Hiring Credit for Small Business to encourage additional hiring by this vital sector.”
Did employment in small businesses increase?
“Extend the temporary 15-per-cent Mineral Exploration Tax Credit for an additional year (until March 31, 2012) to continue to help companies raise capital for mineral exploration.”
Were there noticeable improvements in the ability of mineral exploration companies to raise new investment?
“Contribute $150 million toward the construction of an all-season road between Inuvik and Tuktoyaktuk that completes the Dempster Highway, connecting Canadians from coast to coast to coast.”
Did all that stuff happen? Let’s see for ourselves.
Did foreign investment in Canada rise in the five years following the budget? As you can see from the chart in figure 1, it certainly did. According to Statistics Canada, in fact, foreign investment rose from 603 billion dollars in 2011 to 810 billion in 2016. That’s a 25% increase.
Of course, correlation doesn’t necessarily imply causation. There might have been other factors in play lying beyond the control of this particular government’s new policies. We can’t prove that all or even most of the increase happened as a direct result of our budget. But it’s certainly a distinct possibility.
I’ll rate this one a “win” for the Conservatives: their policy at least seemed to have a positive and measurable outcome.
Employment among older Canadians
Ok. So how about those work-sharing and Targeted Initiative for Older Workers programs? Did they result in any increase in the number of older Canadians finding employment? Here, too, Statistics Canada has good data.
As you can see from the next chart (figure 2), the number of workers 55 and older employed across Canada rose consistently from 2.2 million in 2011 to 2.7 million in 2016. Those are absolute numbers. But if, say, the total population of Canada rose that much or more during the same period, then the employment increase (18%) wouldn’t mean much.
As it turns out, Canada’s population rose from 34.5 million in 2011 to 36.9 million in 2016. That’s an increase of around 6%. It’s true that that doesn’t take into account demographic changes associated with the ageing of the population. But when you consider how population growth (either through immigration or birth) skews young, I believe it’s enough to give us a decent view of the numbers.
So based on what we can see, this too should count as a promise kept.
Small business employment
Did the temporary Hiring Credit for Small Business really lead to businesses going on a hiring spree? Once again, as you can see in the chart that follows (figure 3), the numbers show growth – from 1.4 million in 2011 to 1.8 million in 2016.
That 25% growth far outpaces the 6% general population increase we’ve already seen. Once again, of course, correlation is not proof of causation, so our minds should be open to the presence of other possible causes.
Before we dive into the wild world of mineral exploration investment, it’ll be worth spending a few moments defining the term “investment.”
In general, investment covers the transfer of capital to active commercial entities with the goal of enhancing their productivity and profitability. Investments can take the form of a full share of the company’s value, or of debt instruments like loans or bonds that must eventually be repaid.
The investment source with which you’re probably most familiar would be shares (in publicly traded companies) that are purchased through stock markets. But government subsidies or tax credits and corporate infrastructure spending would also qualify.
Looking back to our budget, your next question might be “What is it that could make ‘Canada’s brand one of the best places to invest’?”
Here, a few key areas come to mind. Business success depends on access to a labor force that’s trained and ready to do the job. Research and development infrastructure (often in cooperation with local universities) can also make a difference. And, in the case of mineral exploration, the potential presence of untapped sovereign mineral deposits is also going to be a big deal.
Governments can make a difference in only the first two of those. (Well, I suppose a government with a powerful, mobile army and a poor understanding of international law could theoretically make some headway on the third, too.)
But the domain where governments have the most sway in attracting investment is in crafting a regulatory and tax environment that welcomes business investment. This is what was meant by the budget reference to the “temporary 15-per-cent Mineral Exploration Tax Credit.” The METC, by the way, is still a feature of Canadian tax law. Like most public entitlements, only its “temporary” designation seems to have changed.
At any rate, did the government measure help? Unfortunately, as you can see from figure 4, the Equity financing on the TSX and TSX-V exchanges data from those years suggest it did not. Now there may have been external factors at play, but 2011 was a tough year to beat.
However, there may have been other kinds of investment in the sector that didn’t come through public exchanges. One example is direct investments by the giant mining operations in what are known as junior exploration firms. In that category, figure 5 shows you steady growth – at least after 2013.
Still, considering the sheer scale of the equities market in comparison to internal investments, we’d have to rank this one as a fail.
The data representing mining investments comes from the document: State of Mineral Finance 2019: At the Crossroads published by the Prospectors and Developers Association of Canada (PDAC) and Oreninc.
Was the Dempster Highway completed?
One more budget promise, and it’s an easy one. Did the Conservative government keep its word about that highway? In fact, the Inuvik–Tuktoyaktuk Highway (extending the Dempster Highway) was completed on November 15, 2017, thanks in large part to $200 million of federal money.
So that’s a yes.
The 2016 Budget (Liberal Party: Justin Trudeau, Prime Minister)
Contents of the 2016 budget appear in a Budget in Brief document. Important promises and policy statements are organized into “Measures”. We’ll look at six of those.
Here’s what the Trudeau budget says:
“The Government will introduce a new Canada Child Benefit that will be simpler, tax-free, more generous and better targeted than the existing system of federal child benefits. About 9 out of 10 Canadian families will receive higher benefits under the new system, and hundreds of thousands of children will be lifted out of poverty.”
Well, did child poverty fall over the next years? The Statistics Canada data represented by figure 6 emphatically suggests that it did. We’re shown that, in 2016 (before the government’s new federal child benefits took effect), some 14% of Canadian children lived in poverty. But that number dropped by more than two percent the next year and, by the end of 2019, sat at just 11.4%.
Still bearing in mind our old coorelation-isn’t-always-causation caveat, we should be careful before jumping to absolute conclusions. Searching for alternate explanations for the improvement, I wondered whether the contemporaneous stock market climb might have played a role. But, on brief reflection, I realized that the families of these children probably weren’t blessed with the kind of spare cash needed for long-term investments.
Whatever the actual cause, the trend counts as good news. And, in the absence of conflicting evidence at least, we should tag this budget measure a success.
Quoting from the budget document:
“In addition to doubling the size of the Canada Summer Jobs program, the Government is investing in young Canadians by making it easier for them to join the workforce through enhancements to the Youth Employment Strategy and investments to strengthen co-op and on-the-job learning opportunities.”
The obvious goal of these measures is to help as many young Canadians as possible find jobs. Or, in other words, reduce unemployment among the 15-25 year-old population cohort at the critical career-launch stage of life. Does Statistics Canada data offer us any clarity about the measure’s effectiveness?
Figure 7 is going to be a bit confusing. There are two problems: because the data is monthly, the graph contains so many bars that it’s hard to visually identify trends. And the extraordinary jump in unemployment rates to the right side in 2020 – representing the impact of COVID-19 – can be distracting. Although to be fair, just about everything COVID threw at us was distracting, wasn’t it?
Let’s try that data set again, but reduce the scope to the years between 2014 and 2019, and by using only values from six of the twelve months from each year. I think figure 8 is a lot better. It shows us youth unemployment falling from a high of 13.4% in July 2016 to 11.1% in November 2019. There were some ups and downs along the way, but the general trend was downwards.
Enough time talking about kids? The Liberals spared some attention for unemployment at all ages.
“Investing in infrastructure creates good, well-paying jobs that can help the middle class grow and prosper today. In Budget 2016, the Government will implement an historic plan to invest more than $120 billion in infrastructure over 10 years, to better meet the needs of Canadians and better position Canada’s economy for the future.”
Did all that infrastructure investment pay off? As before, we’ll cut down our data points to make our graph (figure 9) easier to read. Of course, we’ll lose some of the granularity of the data, but I don’t think that’ll matter much for our needs.
The graph shows us a significant drop in the general unemployment rate, from 7.1% in 2016 to 5.7 in 2019. Things were looking good until COVID injected its craziness into 2020.
Was it the government’s infrastructure investment that made the difference rather than an extraordinarily healthy investment and manufacturing cycle? Bear in mind that the US unemployment rate fell between 4.6% and just 3.5% over the same years. Perhaps this was a global phenomenon.
To be honest, I haven’t got the tools to attempt an answer. But it was good news all the same.
Access to Post-Secondary Education
Making post-secondary education available to as many Canadians as possible was the next item on the Liberal agenda:
“Budget 2016 will ensure that post-secondary education remains affordable for students from low- and middle-income families and that debt loads are manageable.”
The best way to test the effectiveness of this measure would be to pull up the data on both college and university enrolment and the tuition costs of attending institutes of higher education.
Figure 10 shows the number of Canadians enrolled in any post-secondary program by year. Even though the number of Canadians – and young Canadians in particular – grew during the years following the 2016 budget, the raw enrolment number was more or less static.
It’s possible that everyone who wanted to attend was already there, but that’s unlikely. Static numbers in this context probably means the government’s efforts were not successful. That might at least partly be because the government was, as you can see in figure 11, unable to keep tuition costs down. With the exception of a noticeable drop in the 2019-2020 academic year, costs trended upwards.
I should note that tuition rates vary by discipline, with medical school costs, for instance, much higher than those for accounting programs. The numbers used here are (as far as I can tell) a median value derived from all disciplines.
Of course, the federal government isn’t the only partner active in determining tuition rates. And economic conditions can push things in unexpected directions. So we can’t throw the whole thing on them. But I’d still rate this one a fail.
“Budget 2016 will provide $2 billion over two years, starting in 2017–18, to establish the Low Carbon Economy Fund. The Fund will support provincial and territorial actions that reduce greenhouse gas emissions.”
Given Canada’s relatively small population, two billion dollars is still quite a lot of money. And, when combined with “provincial and territorial” contributions, amounts to more than the proverbial drop in the bucket. So you’d expect some solid results from investment on this level.
Statistics Canada data, shown in figure 12, suggests we didn’t get much bang for our buck this time around, even when we limit our focus to the 2017-2019 period.
In fact, it’s been more than a decade – and countless more billions of dollars – since there’s been any emissions reduction. I can’t imagine how that’s not a total fail – and on a marquee policy issue, too.
“Budget 2016 strengthens the health care system so that it may better meet the needs of patients, and support the shift in the delivery of care into homes and communities.”
The second best single metric I can think of to represent the state of a healthcare system is patient access to a regular healthcare provider. The best metric would be the death rate, but that would introduce far more complications than I could handle.
So we’ll turn, one final time, to our reliable friend Statistics Canada for some quick data, shown in table 12.
Another piece of good news. The numbers rose steadily since 2015 for a total increase of eight percent. Even factoring in the five percent by which the overall population grew between 2015 and 2019, that’s still a win.
To sum up, the results from both parties’ attempts to control the economy are mixed, although they do appear to work more often than not. But the most encouraging thing is the fact that, regardless of which party’s in charge, there’s enough high quality and useful information and data freely available for all of us to analyze and derive our own insights. That, to my mind, is at least one indicator of a healthy democracy.