Step 1: acknowledge the problem

Governments and taxpayers must recognize the liability problem that exists in Canada. Acknowledging total liabilities means recognizing both accumulated direct debt and our enormous program obligations.

Step 2: restructure government

A restructured, limited, government should focus its resources on necessary public services such as law enforcement and national defense. Further, federal and provincial governments must work together to clarify the responsibilities of each jurisdiction and to eliminate overlap in the provision of goods and services.

Step 3: apply the fundamentals of balance sheets to government

The basic tenets of financial responsibility and disclosure that governments enforce for business must apply to governments. A broad standard for government accounting must include the notion of full and timely disclosure. Governments must fully report all of their activities in consolidated financial statements. In the 1996/97 public accounts, the Auditors-General of British Columbia and Quebec included reservations because their respective governments did not fully consolidate their financial statements. Quebec's Auditor General went so far as to write that ``the readers of these financial statements cannot use them to understand or evaluate financial management of the Gou-vernement du Québec as a whole'' (Québec, Ministère des Finances, Public Accounts: I, 45). Legislation must prevent governments from financing projects ``off balance sheet'' in order to avoid--technically--operating in a deficit position. Governments and investors do not tolerate this type of deception from business and voters should not accept such accounting malpractice from government.

Step 4: control spending to balance budgets

Canadians are overtaxed in both absolute and relative terms. The average total tax rate for Canada was 49.3 percent in 1997, ranging from 39.6 percent in Newfoundland to 51.2 percent in Quebec (Emes and Walker 1998). Recent reports by the Canadian Institute of Actuaries (1995) and the OECD (1997b). clearly document the international disadvantage under which Canada suffers as a result of high taxes.

Step 5: revise the budget process

Provincial and federal budgets should provide full disclosure and consolidation of all spending, taxing, and borrowing requirements. Further, budgets should outline contingency plans to meet budget objectives if key economic assumptions or projections are wrong. The federal government has been doing this for a number of years by including a contingency item in expenditures. Recent budgets from the governments of Alberta and Ontario have also included contingency reserves; all provincial governments should do likewise.

Step 6: enact legislation to limit debt in the future

All jurisdictions should enact legislation enforcing balanced budgets and debt reduction. This legislation should include strict penalties for politicians and bureaucrats who do not comply. Finally, voters should demand that governments pass laws that would outline the specific process through which governments may raise taxes. For instance, laws that require a referendum before governments can raise taxes except in a crisis such as war would limit the ability of government to raise taxes and implement new program spending for political reasons. (For a further discussion of the pros and cons of balanced budget and debt reduction laws, see Buchanan and Tullock 1962; Downs 1967; Wittman 1989; Lott 1995; Krol 1997.)

Conclusion

The apparent success of fiscally responsible governments in Alberta, Saskatchewan, Manitoba, and Ontario provides evidence that the Canadian public have accepted that there are negative consequences from government deficits and debt. However, this is only the first step in a larger movement towards fiscal balance. Canadians must persist in demanding that governments balance their budgets, provide full disclosure in a timely manner, and implement reasonable plans for reducing their debt. Further, Canadians must encourage all levels of government to assess the viability of the various programs that currently maintain unfunded liabilities. Generational accounting done by The Fraser Institute shows that the total obligations resulting from the promises we have made to ourselves are not sustainable and must be restructured to take into account the impact of future demographic change in Canada.