Column from The Vancouver Sun

Limits on government spending should be tied to electoral reform

By Niels Veldhuis and Jason Clemens
Special to the Sun
May 6, 2004  page A11

There's a phenomenon in economics referred to as the "law of unintended consequences." It basically refers to situations in which unforeseen or "unintended" results arise from public policies.

A classic example was the dramatic rise in welfare use during the 1970s and 1980s, owing largely to increases in benefit rates and relaxed eligibility rules. The designers of the policies never intended to promote welfare use. However, their inability to fully recognize the effects of making welfare more attractive (higher benefits) and easier to get (relaxed eligibility) meant that the policies they implemented had unintended consequences.

Another homegrown example may be on the horizon for British Columbians as the Citizens' Assembly on Electoral Reform ponders whether or not to alter our system of electing politicians.

The Citizens' Assembly, consisting of 160 British Columbians randomly chosen from voters lists, has been tasked with assessing B.C.'s electoral system, examining alternatives and, if they conclude change is required, recommending a new system.

On April 19, the assembly released a preliminary report outlining its progress. The report included an assessment of the strengths and weaknesses of B.C.'s electoral system and a study of alternatives. According to the report, the principal downside to the current system is the lack of connection between the number of votes a party receives and the number of seats it wins. Recall that the current Liberal government garnered 58 per cent of the popular vote, but won 97 per cent of the seats (77 of 79) in the 2001 provincial election.

While the report assures British Columbians that no conclusions have been reached, it leaves the reader with a strong impression that the assembly is leaning towards greater proportionality. That is, that the assembly may recommend an alternative election system wherein there is a closer relationship between the percentage of the votes won and the number of seats accorded a political party.

Such a change, in principle, sounds fine -- until one understands its potential unintended consequences.

Proportional systems have been much more likely than majoritarian systems to produce minority and coalition governments, both of which have tended to result in increased government spending. The reason for increased spending is that the lead political party is forced to placate its coalition partners.

A recent study in the prestigious American Economic Review examined how electoral rules influence government spending, tax revenues and fiscal balance (deficit/surplus). The study included empirical evidence from 80 democracies around the world. The results of the analysis indicate that a move from a majoritarian to proportional electoral system increases government spending by approximately six percent of gross domestic product.

In the case of British Columbia, it would mean an increase from the current level of roughly 22 per cent of GDP to an expected level of almost 28 per cent. This leads to more than a little concern given the growing body of academic research showing that increases in the size of government, measured as a proportion of the economy, results in lower rates of economic growth. Not to mention higher taxes.

Should British Columbians seriously consider moving to a proportional representation system, we should also contemplate insuring ourselves against runaway government spending and higher taxes. In fact, regardless of whether or not we change the election system, we should consider enacting tax and spending limitations on government in order to place more control and authority in the hands of voters.

Specifically, we should consider implementing what are referred to as tax and expenditure limitation laws, which limit any increase in government spending to slightly below the rate of economic growth or the rate of inflation plus population growth. Any increases beyond that level require voter approval via referendum. In addition, any new taxes or increases in existing taxes also require popular approval. Such laws have been in place in many American states for decades with amazing success.

The B.C. Liberals should be commended for making British Columbia a leader in electoral reform and putting the outcome squarely in the hands of voters. Average British Columbians now have a chance to fundamentally alter our electoral system and institute real change. But caution is required. Without the proper safeguards, moving the electoral system towards more proportionality may lead to a less effective, larger government.

To prevent the law of unintended consequences from reducing the benefits of electoral reform, checks and balances must simultaneously be enacted. To that end, B.C. would be well served by the introduction of tax and expenditure limitation laws.

Jason Clemens is the director of fiscal studies and Niels Veldhuis is senior research economist at The Fraser Institute.

© The Fraser Institute 2004 (used with permission)

[The Fraser Institute earlier published an related article in the May 2000 edition of the Fraser Forum.]