The results were dramatic: total government spending fell from 53 per cent of GDP in 1992 to 39 per cent in 2007. It became a vicious cycle that eventually caused Canada to earn the reputation as a “Third World country,” our currency derided as the “Northern peso.” The cycle only ceased when the Chrétien government brought revenues and outlays into balance. The cumulative effect of more than 25 years of fiscal incontinence was to hamstring governments, drive up taxes, harm our competitiveness, and hold down employment. And then slowly yet steadily we got stuck. Commentators scoffed at those who warned about the risks of “temporary” deficit spending. Both Liberals and Conservatives were responsible. How did we go from postwar buoyancy to a “fiscal basket case?” Canada got “stuck” in deficits.
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