After sweeping to power in 1993 with promises of expanded social programs, the federal Liberals did a dramatic turnaround in office, deeply slashing social spending in the name of reducing the deficit.

By the late 1990s, the deficit was gone and Finance Minister Paul Martin was the toast of Bay St.

But the drastic cuts he introduced in his 1995 budget ushered in an austerity agenda of underfunded social programs and increased inequality that continues to this day.

Back then, there were few in Ottawa inner circles resisting Martin’s deep spending cuts, but one strong dissenting voice came from Douglas Peters, who died last week at the age of 86.

Chief economist and senior vice-president of the TD Bank, Peters entered politics in 1993 and ended up in cabinet as Minister of Financial Institutions, sometimes called the “junior finance minister.”

Despite his Bay St. pedigree and a PhD in finance from University of Pennsylvania, Peters rejected the business world’s obsession with deficits and smaller government.

From his seat next to Martin at top-level budget meetings, the soft-spoken, articulate Peters repeatedly challenged the deficit hysteria that gripped the finance department and increasingly controlled government policy. To Peters, the key problem was unemployment — which hovered above 10 per cent — not the deficit.

Indeed, the way to solve the deficit problem was to reduce unemployment, Peters argued. As he once told a parliamentary committee: “Unemployed people pay less tax. That is one of the most certain laws of all economics. It should be inscribed on plaques and hung in the offices of prime ministers and premiers across the country.”

In his early days, Doug Peters certainly didn’t appear to be someone headed for a seat at the cabinet table. After growing up in Brandon, Man., during the Depression, he flunked out of the pre-meds course at University of Manitoba, with the dean describing him as “not university calibre.”

Peters later proved himself at the University of Pennsylvania’s prestigious Wharton School of Finance and Commerce, where he got caught up in the heated debates about economic policy.

He became a committed Keynesian, convinced that government had a role to play in ensuring full employment — a view that put him offside with the new business orthodoxy calling for smaller government.

It also made him an iconoclast on Bay St., when he became chief economist at the TD Bank. The bank gave Peters a surprisingly long leash, allowing him to publicly criticize the cutbacks and restraint of Brian Mulroney’s Tory government.

He even took a swipe at the powerful former finance minister Michael Wilson, suggesting that the “Bennett buggies” of the Depression had been replaced with “Wilson wagons” pulled by “unemployed auto workers.”

Peters was wooed by the Liberals to run in their 1993 campaign, which attacked Mulroney era austerity and called for a national child-care program.

But if Peters thought the bank was a business-oriented place, he wasn’t prepared for how little interest the new Liberal government seemed to have in unemployment or social needs.

As finance minister, Paul Martin was almost single-mindedly focused on the deficit, vowing to tame it “come hell or high water.”

Deficit hawks insisted government spending had to be slashed or the financial markets would punish Canada for its big deficits. But Peters, who had long Bay St. experience dealing with financial markets, insisted tackling unemployment was the way to reduce the deficit.

He got support from an unlikely source — a Goldman Sachs report in September 1994 identifying unemployment, rather than excessive government spending, as Canada’s key problem, and noting that once full employment was achieved, “the budget gap of Canada vanishes.”

But the business community had its mind set on smaller government, and Peters soon found himself marginalized as the cry for spending cuts rolled through Ottawa, culminating in Martin’s 1995 budget, which cut government spending levels by about one-third.

When the deficit disappeared a few years later, the Liberals and later the Conservatives used the resulting surpluses mostly to deliver tax cuts, particularly to corporations and high-income earners, leaving Canada with a weakened social safety net and rising inequality.

Perhaps Doug Peters’ voice was simply too soft and too rational to be heard above the chorus of throaty business demands calling for smaller government. But his passing reminds us that there was once a high-level champion for a course of action that would have set Canada on a very different path. That he was ignored is our loss as a country.

Linda McQuaig is a journalist and author. Her book Shooting the Hippo: Death by Deficit and Other Canadian Myths was among the books selected by the Literary Review of Canada as the “25 most influential Canadian books of the past 25 years.”

This column originally appeared in the Toronto Star.

Photo: mark.watmough/flickr

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Linda McQuaig

Journalist and best-selling author Linda McQuaig has developed a reputation for challenging the establishment. As a reporter for The Globe and Mail, she won a National Newspaper Award in 1989...