Brazil, Canada, and austerity experiences

Last week The Intercept Brasil posted an article questioning the wisdom of the Brazilian government’s current austerity program and its proposal to essentially freeze departmental spending (having already implemented significant spending cuts) for a twenty year period by way of a constitutional amendment. 

The article makes the case that a twenty year freeze is unprecedented in the global experience, and refers (somewhat positively) to the Canadian federal budgets of the 1990s as good practice models of time-limited budget control. 

Basic Income Canada Network’s Alan Gummo has written a response. His edited version is republished here: 

A comment to The Intercept Brasil on the Canadian austerity experience 

This commentary warrants a much broader historical perspective to convey the whole story of the Canadian experience and inform the present situation in Brazil.

The unfortunate truth is that the Canadian austerity programs of the 1990s, and the ‘second wave’ programs of the more recent Conservative government, have had serious impacts on the fiscal capacity of all levels of government. They did not stimulate the economy. And they had serious impacts on social development generally. 

Among other causes, these outcomes have occurred because successive federal governments have conjoined austerity programming with failure to implement restorative progressive tax regimes to support revenue growth. Governments with insufficient revenues are unable to make investments that stimulate economic growth and advance social development. 

Achieving fiscal sustainability requires consideration of both the revenue and expenditure sides of the government’s accounts. Successive tax cuts in Canada have undermined this potential. For a detailed reference I refer you to Alex Himmelfarb, former senior federal bureaucrat, and his book Tax Is Not a Four Letter Word

Global experience has shown time and again that austerity programs do not stimulate economic growth. In addition, economic growth per se does not increase government revenues if a low tax or tax reduction scenario is in place. Our most recent collective experience merely reinforces these findings. 

We can park, for the moment, the possibility that we are discussing the failure of the neoliberal platform in its various multinational forms. 

The ‘twenty year freeze’ now being proposed in Brazil will prove to be not only bad fiscal policy. It will not result in a more prosperous economy. It will also seriously undermine any effort to improve Brazil’s standing on global inequality and human development indices. It will drive a return to a more unequal, less healthy, less educated, and less safe society. There is truth to the notions that the burden of poverty drags down the economy, and that where there is no justice there will be no peace. 

A better approach to meeting the three goals of the fiscal health of government, a robust economy, and enhanced social development -- in both Brazil and Canada -- would involve progressive reform of the tax regime and enhanced social investment including a basic income guarantee. Both countries deserve it.