Mulroney exaggerates

L'affaire Mulroney-Schreiber

Launching his memoirs in Montreal on Monday, Brian ("If there's one thing I miss about public life it's the adulation") Mulroney claimed credit, not just for free trade and the modernization of the federal sales tax system, but also -- improbably -- for eliminating a federal deficit that in the year he left office was running at $39-billion. By introducing the GST, the Montreal Gazette quoted Mr. Mulroney as saying, his finance ministers, Michael Wilson and Don Mazankowski, "planted the garden. And then Paul Martin got to pick the flowers."
As rewritten history, it's a reach. True, these days the GST is pulling in $33-billion a year, which, 14 fiscal years on now, is finally getting close to that $39-billion deficit (which itself would be a little over $50-billion in 2007 dollars). But Paul Martin balanced the budget and picked his first fiscal flowers in 1997-98, with the GST generating just under $20-billion, barely $2-billion more than the old federal sales tax system pulled in during the late 1980s. And, oh yes, anyone who was around at the time will remember a promise from Mr. Mulroney's government, maybe even a solemn promise, that the GST was going to be revenue-neutral. It wouldn't actually raise revenues but would collect them in a way that was less harmful to the economy -- which was certainly true. It also corrected a glaring contradiction in national economic policy: Why in the world did a country that was traditionally angst-ridden about its ability to maintain a manufacturing sector levy a special sales tax on manufacturing?
Mr. Mulroney spent a lot of political capital modernizing our tax system. Good for him for having done it. But hijacking credit for the good fiscal performance of the 1990s reminds Canadians of the blarney that eventually turned most of them off Mr. Mulroney. It's as if Richard Nixon, when stage-managing his own rehabilitation, implied that by visiting China he, not Ronald Reagan, created the geo-strategic conditions that caused the Soviet Union to collapse.
When you're strong on the facts, the old lawyer's rule goes, argue the facts. On economic policy, Mr. Mulroney is strong on the facts and should stick to them. Free trade and the GST were big, important and difficult achievements. So was appointing Bank of Canada Governor John Crow and then backing him in his plan to give Canada a rules-based anti-inflation policy. Few prime ministers have taken on such hard tasks, though it's best for Mr.
Mulroney's long-term reputation that other people draw these conclusions, not him.
Even on the deficit he deserves some credit. It was 8.3% of GDP when he took office and 5.3% when he left, so he moved it in the right direction, if not enough. He raised taxes by $52-billion, virtually doubling them between his first and last years in office, and he held expenditures to "only" $38-billion growth. What kept the deficit growing in absolute terms was a $15-billion increase in debt interest, which obviously wasn't all his fault. (Debt was $194-billion when he came into office, $487-billion when he left. If he'd cut the deficit by $4-billion a year, essentially eliminating it by the time he left office, the debt still would have grown to roughly $385-billion.)
Mr. Mulroney's political contemporaries and heroes were Ronald Reagan and Margaret Thatcher, who are known for liberating their countries' economies. How does Brian Mulroney do as an economic liberator?
The Economic Freedom of the World Index that the Fraser Institute published last week gives some clues. The overall index is flawed, but its component data are revealing. They're available at five-year intervals through the 1980s and 1990s.
In 1980, before Mulroney, government consumption was 29% of total consumption. In 1995, it was down-- slightly -- to 27.5%.
In 1980, the top marginal tax rate on income varied between 60% and 68%. In 1995, it was down to 44% to 54%. That's a big change, though not much of it Mr. Mulroney's doing.
In 1980, our money supply grew 9.7 percentage points more than our real GDP and our previous year's inflation rate was 7.8%. In 1995, money-supply growth was only 4.4% greater than real GDP growth and the previous year's inflation was just 2.7%. These are both big changes and the federal government backed them both.
In 1980, taxes on international trade -- mainly tariffs -- were 2.4% of the value of that trade. In 1995, just 0.7%. That's good.
In 1980, our score on a zero to 10 scale for the size of our government, with 10 being smaller and zero being larger, was 4.9. In 1995, it was 5.3. That's a modest improvement, but an improvement nevertheless. On the other hand, in relative terms we fell from 54th among 123 countries in 1980 to 68th among the same number of countries in 1995. (Our most recent score for size of government is 6.8 -- things continue to improve -- though we're still only 49th among 141 countries.)
Killing the National Energy Program and the Foreign Investment Review Agency, negotiating free trade, revamping federal sales taxation, instituting inflation targets, beginning the fiscal turnaround, modestly raising economic freedom -- there aren't many nine-year economic records that are better. There's no need to exaggerate it.

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