The Politics of Budget-making

It always puzzles me when economists speculate about federal government budgets.

I mean, why do they bother?

After all, these budgets are typically not so much about economics as they are about politics.

And the Conservative government’s budget, scheduled to be delivered on March 29, will be no exception.

In fact, I am certain that while putting it together, the Conservatives studied polling data a lot more than they did economic models.

I am also certain the Conservatives found the politics of budget-making this year to be much more difficult than in previous years.

It’s easy to see why.

In past years the Conservative budget formula went something like this: Spend, spend and then spend some more.

About the only tough decision the Conservatives had to make was figuring out how many billboards bragging about their “Economic Action Plan” they needed to erect.

And yes, while all this spending may have ballooned the federal deficit, it also more or less defanged the Opposition.

The only line of attack it left open for the Liberals and NDP was to criticize the Tories for not expanding the deficit fast enough.

Hardly a rallying cry.

This year’s it’s going to be different. This year the government has promised to rein in its spending.

But by how much?

And this is where the difficult politics comes into play.

The fact is a large segment of the Conservative Party’s political base wants the government to go after spending with an axe or better yet a chainsaw.

I am talking about "economic conservatives," those individuals who support lower taxes, smaller government, less regulation and prudent fiscal policies.

More generally, they just want government to live within its means.

Of course, these economic conservative have not been too happy with the Conservative government’s spend-happy fiscal record.

Yet, in days gone by there were willing to cut the Tories some slack because the government was in a minority situation.

But no more. The Tories now have a majority and the economic conservatives are expecting a truly “conservative” budget.

That means slashing spending, that means reducing the size of government, that means privatizing crown corporations, that means balancing the books.

And while, philosophically-speaking, the Tories might wish to oblige such demands they probably worry that a truly “conservative” budget might trigger a public backlash.

Or at least it would mobilize well-funded and strident special interest groups which would rush to the barricades if they saw their entitlements threatened.

Governments which cutback tend to make enemies.

Consequently, if the Tories cut spending their party might (horror of horrors) suffer a drop in the polls.

So politically speaking the government finds itself between a partisan rock and a public relations hard place. If they don’t cut spending significantly they risk alienating their base, but if they do cut spending they risk suffering serious political damage.

So what will they do?

Well, I suspect the budget will be crafted as much as possible to please both sides of the fence.

To keep the economic conservatives happy the budget will contain lots of fiery Margaret Thatcher-style rhetoric about the importance of balancing the budget, it will also likely include some politically-strategic spending cuts to things like the CBC and to MP pensions. In other words, they will pursue cuts sure to please their conservative constituency.

Yet, the budget will not deliver any dramatic government spending cutbacks that could actually cause real pain to the public. More likely, the Tories will simply cut back on the rate of spending increases.

Such a budget might not make economic sense, but it sure will make political sense.

(This article originally appeared in the Hill Times.)