In a society heavily dependent upon the state, the recently leaked federal Conservative platform is perhaps the best that could be done. It contains many good measures. Yet, one has to deplore the lack of proposals that would create, and perpetuate, institutional constraints on the state. A few proposals actually go entirely in the other direction, like more government involvement in health care and in the financing of political parties through the prohibition of donations from corporations, unions and associations.

But there is a more fundamental question: Does it matter which political party is brought to power by the coming federal election? Do political parties matter?

Consider the case of Quebec where, over the past 40 years, three political parties of apparently different persuasions have been in power: the Quebec Liberal party four times, for a total of 21 years; the Parti Québécois two times, for a total of 16 years, and the Union Nationale (a conservative party) once for a four-year term.

The chart nearby shows the evolution of real (i.e., constant-dollar) expenditures per capita by the Quebec government over the 1961-2001 period (the whole period for which data is available). In constant dollars, public expenditures by the provincial government have gone from $1,031 per Quebecer in 1961, to $7,299 in 2001, a seven-fold growth which is equivalent to a compounded 5.0% per year. As the gross provincial product has grown at half this rate, the proportion of provincial expenditures in the economy has doubled.

During the Liberal regime of the early 1960s, real expenditures per capita increased a whopping 11.5% per year, but only slightly more than the 10.6% annual growth of the Union Nationale’s short reign. During the 1970s and the first half of the 1980s, the growth rate of real provincial expenditures per capita slowed down, but kept a brisk pace, and slightly higher under the Liberals (5.7%) than under the Péquistes (5.0%).

Partly because the high economic growth exerted less pressure on transfer payments, the mid-’80s initiated a dampening of the growth rate of spending, a trend that continued in the ’90s. From the mid -’80s to the mid-’90s, the Liberals increased real expenditures per capita by 1.3% annually. From then until 2001, the PQ slowed the annual growth rate to 0.9%.

What is remarkable is how little difference it made whether the Liberals or the Péquistes (or whoever) was in power. Remember that, for most of the period, the Liberals were deemed to be more conservative, while the Péquistes were the avowed social-democrats. On average, over the four decades, real expenditures per capita grew 5.2% per year under the Liberal Party, and 3.2% under the Parti Québécois. The difference is partly due to the fact that the Liberals were in power during the 1960s and 1970s, a period when state expenditures exploded everywhere in the world, while the Péquistes came to share in the loot when the growth of the state was slowing down everywhere. At any rate, there is no correlation between the party in power and the growth of government spending.

One explanation is that political parties, whatever their colour, compete to satisfy the electorate’s preferences, and that these preferences followed the same evolution in Quebec as in the rest of Canada and the rest of the Western world: fast growing state expenditures from the early 1960s to the mid 1980s, and lower growth until the turn of the century. According to this explanation, political parties don’t matter because they matter ­ that is, because they all do what the electors want, and because we have all become statists.

A different explanation views “public opinion” as an ill-defined mix of unstable minority views, and the state as a power hungry redistributive machine with a momentum of its own. If not tightly constrained, the state tends to grow, whatever the electors’ preferences. Indeed, what the electors want is not at all clear, if only because it is impossible to aggregate individual preferences into non-arbitrary “social preferences.” Kenneth Arrow actually won a Nobel prize for demonstrating that social preferences cannot be both rational and non-dictatorial.

Consider the Quebec Liberal government of former Conservative Jean Charest, brought in power last year after promising deep income tax cuts and the reversal of the coercive municipal mergers, plus the usual smorgasbord of complex policies with unforeseeable consequences, empty slogans, and panem-and-circences goodies. The new government did not deliver real tax cuts, it imposed demerger conditions that are difficult if not impossible to fulfill (and that would not restore municipalities as they were anyway), and it continued to roll on empty slogans and good intentions. The government did reduce (slightly) the trade union powers that had been piled up by its predecessors over four decades; for this, it incurred the wrath of these most powerful interest groups, which have much more weight than political parties in our democratic system.

I don’t want to look like a doomsayer but it is a fair bet that, in the coming federal election, the differences between the political parties will be more and more difficult to evaluate, that what “the people” will have voted for will not be at all clear, that the elected party will deliver only part of what it has promised (and, if it is the Conservatives, it will find the public finances “in worse shape than anticipated”), and that the elected government will be run by the bureaucrats and powerful interest groups.

SOURCE: INSTITUT DE LA STATISTIQUE DU QUEBEC

How to hide expenditures

Public expenditures don't measure the total cost of government intervention. Other costs include the economic burden of regulation, the citizens addiction to state intervention, and the risk of tyranny. Moreover, there are ways to hide expenditures.

One way is to net expenditures against revenues. Last year, the Quebec Auditor General identified, and criticized, $1.3-billion of netted expenditures, or 2.5% of total reported expenditures. But there are more subtle ways to hide spending.

Suppose the government replaced all its expenditures with tax credits, and booked these as reductions in revenues. The trick would simultaneously eliminate all expenditures and all revenues (neglecting deficits or surpluses). From an accounting point of view, the state would have withered away; in reality, government intervention would have remained unchanged.

An example of this, on a much reduced scale, is provided by the March 30 budget of the new Liberal government in Quebec. What it calls "tax cuts" start next Jan. 1. For fiscal year 2005-2006, the government will replace $528-million in family assistance expenditures by $1.6-billion in refundable tax credits. Thus, budget expenditures and revenues will be reduced by $528-million by simply shifting some assistance programs from the expenditures to the revenue column. Hocus, pocus!

The manoeuvre is not secret, even if it may be difficult to grasp by the average taxpayer. A footnote to a table in the budget documents states, "Because of the changes made in the family policy as of January 1, 2005, amounts previously found under program spending are entered under revenue."

Luc Monty, an associate deputy minister in the Quebec Department of Finance, argues that booking tax credits in deduction of revenues is a standard accounting practice used by other governments, including the Canadian and American federal governments. Neither the Canadian Institute of Chartered Accountants nor the Quebec Auditor General has any accounting principle regarding the treatment of tax credits ($2.4-billion in Quebec last year) or tax expenditures in general ($14-billion).

However, there are good reasons to oppose the practice of deducting refundable tax credits from revenues. As we saw, it allows the government to artificially reduce both expenditures and revenues simply by substituting tax credits to cash payments. Moreover, refundable tax credits are not really tax credits since they are paid in cash, even if the beneficiary does not owe enough taxes to cover the credits. According to the Department of Finance, nearly half the families receiving the new reimbursable tax credits do not pay any provincial income tax.

In fact, expenditures can be simply defined as tax credits. A Quebec budget document says it clearly: Child Assistance will be paid in the form of a check and defined as a refundable tax credit in the Taxation Act; and further, the assistance is offered to all families, regardless of income.

If a corporate executive were to engage in this sort of creative accounting, he would probably soon find himself in jail.