Hill Dispatches: That was then. This is now

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Budgets past and present, or those who forget the past are condemned to fulfill it!

In the fall of 1994 the new Chrétien Liberal government had been in power just a bit more than a year.

Its big victory in 1993 came about largely on the strength of a “Red Book” platform, the centre piece of which was a promised major infrastructure program to stimulate the sluggish economy and get the unemployed back to work.

But almost immediately after that election the Liberal leadership -- especially Finance Minister Paul Martin -- wanted to pivot, and focus primarily on the government’s debt and year-to-year deficits.

The deficit hawks could justly argue that they had inherited a fiscal mess from the Mulroney Conservatives.

Although officially projected at $32.6 billion, the deficit the Conservatives bequeathed to the new Liberal government was, in fact, well over $40 billion. It had gone through the ceiling because of unforeseen increases in transfers to the provinces for health, higher education and social services. As well, the recession of the time meant that expected tax revenues were down.

Paul Martin and his finance department saw this as both a crisis and an opportunity. 

If the political, business and media elites could be sufficiently panicked into believing the country was about to fall off a fiscal cliff, the government would be able to count on very widespread support for drastic and harsh measures -- cuts that would cause real pain, especially to the most vulnerable.

The rating agency Moody’s helped set the tone by down grading Canada’s bond rating, while business economists and commentators took to calling the Canadian dollar the “northern peso”, contributing to the widespread sense that harsh medicine was needed to clean up public finances in Canada.

In addition -- the political stars were aligned for a major assault on social programs and the public sector.

The Chrétien/Martin government’s fractured opposition was unlikely to resist.

The leader of the official opposition was the Bloc’s Lucien Bouchard, a right-of-centre Quebec nationalist who had made a big fuss about the looming deficit in the leaders’ debates during the 1993 campaign.

In English Canada, the main opposition came from Preston Manning’s Reform Party, which the Globe and Mail had admiringly dubbed the “deficit reduction party".

As for the NDP -- it did not even officially exist in the House of Commons. Parliamentary rules required that a party have twelve members to merit official status. The NDP only had nine.

Managing expectations

The biggest problem for the new Liberal government was its own platform. It had not been elected on a slash and burn program. To the contrary, the Liberal Red Book was full of rhetoric about hope and the positive role government could play in fuelling economic growth and (though somewhat more modest on this score) greater social equality.

Privately, Paul Martin is even said to have commented that it was a good thing he had never served as finance critic in opposition. He left no “paper trail”, no record of statements at variance with what he was about to do.

And so, for Martin and his colleagues a significant part of their job became one of “managing expectations”.

The goal was to convince the provinces, the media, the (already receptive) opposition and business elites that fiscal disaster was looming and that the only reasonable option was to drastically shrink the federal state. If they did that well, by the time the actual budget was tabled, the dissenters -- community and social groups, the union movement, the enfeebled political left -- would be, quite literally, lonely voices in the wilderness.

This "hearts-and-minds" campaign started with the first, 1994 budget. That is where the government brought in "Program Review", the purpose of which was: "to ensure that the government's diminished resources are directed to the highest priority requirements and to those areas where the federal government is best placed to deliver services." Sound familiar?

This process led to $54 billion of suggested cuts, which included getting the federal government out of the transportation operations (such as airports), cutting back on business subsidies and generally reducing the scope and operations of all departments (including the environment department, which was to be cut by over 30 per cent).

Program Review had a great impact on the transformation of our collective discourse on the role and responsibilities of government. The emphasis was no longer on the positive role the state could play in mitigating inequality, creating and fostering culture and the arts, protecting the environment, affording justice to aboriginal peoples, or playing a helpful role on the world stage.

The sole focus (as one frustrated cabinet minister complained privately) was on what activities of goverment could be cut. The point was to redefine the federal government’s role, focusing only on core federal responsibilities that other orders of government and the private sector could not do “more effectively”.

There was never a hint that the government might use a variety of weapons to slay the debt and deficit dragon.

One of the key pieces of the change-the-discourse strategy was Paul Martin’s famous “hell or high water” fiscal update speech to the Commons Finance Committee, in the fall of 1994.

In that statement, Martin made it clear that even though the government believed great sacrifices were needed to deal with the looming crisis, high income individuals and profitable corporations would not be asked to bear any part of that sacrifice. The government had early on decided to lay down the “shield” of tax increases. Martin promised  he would only use the “sword” of massive spending cuts.

The national media was virtually unanimous in supporting this fiscal approach, with nary a word of critical analysis, and very scant attention to those dissenting voices in the wilderness. Some journalists did ask how this new austerity program jibed with the Red Book. When pushed, government spokespeople were reduced to pointing to a single Red Book sentence that promised to reduce the deficit to 3 per cent of GDP.

In other words, the cornerstone of all government fiscal policy was a single sentence in a detailed, multi-page election platform!

One very effective technique the Chrétien government used to enlist the acquiescence, if not tacit support, of the national media, was to strategically leak key elements of the budget to the Globe and Mail and the CBC.

The most effective way to buy a journalistic organization’s loyalty is to make it feel as though it is “inside the tent”. Toward the end of 1994, the Globe and the CBC were thrilled they could run headline stories revealing exclusive, “inside” information on the coming budget. These leaked stories served to inoculate public opinion.

The government's spin doctors wanted to make sure there would be no shock value to the budget. They wanted to prime public opinion to accept big cuts -- and they succeded. When the government did bring down the actual budget in February of 1995 the almost universal reaction among journalists was: “Nothing new here. We already had ‘the story’". And that is how they reported on it.

Slashing social and health spending

Of course, the budget of February 1995 was anything but a banal, business-as-usual affair. Not only did it implement the huge cuts triggered by Program Review, it fundamentally altered the way in which basic social programs are financed in Canada.

Starting in the 1960s the federal and provincial governments had built up a complex and finely tuned system for sharing the costs for health care, higher education, social services and social assistance. The 1995 budget swept all that away.

For instance, the pre-1995 Canada Assistance Plan (CAP) provided that the federal government would match provincial spending on social services and social assistance, sometimes called “welfare”, (although the Mulroney government had pulled back on this, somewhat, by “capping” the federal contribution to the “richer” provinces).

The budget of 1995 did away with matched funding. No longer could provincial spending automatically trigger federal spending. If some provinces wanted to be more generous in their welfare payments, for example, that was their own business. The federal government would now only pay the same, on a per capita basis, to all provinces, regardless of what they did with the money.

The federal share of health care and higher education had been, historically, funded through what had been called “Established Program Financing” (EPF) arrangements, which were based on a population formula.

The 1995 budget decreed that both the CAP and EPF arrangements were to be rolled into a single, new Canada Social and Health Transfer (later renamed, for PR purposes, the Canada Health and Social transfer -- the CHST). The total amount of this transfer, vis-à-vis the previous system, would be reduced, over two two years, by about one sixth, from nearly $ 30 billion to between $25 and $26 billion.

How did the federal government get the provinces to go along with these drastic cuts?

Well, just read the words of the 1995 budget itself:

“Provinces will no longer be subject to rules stipulating which expenditures are eligible for cost sharing or not; and provinces will be free to pursue their own innovative approaches to social security reform.”

In other words, the federal government weakened any notion of pan-Canadian standards, and agreed to write cheques to the provinces with very few strings attached.

The results of this one budget, in the ensuing years, were: increased impoverishment of people who depend on social assistance, increased homelessness, overcrowded hospital emergency rooms, a shortage of doctors, increased debt for university and college students... and the list could go on.

And, now, in the 21st century?

It might seem like  all of this happened a long time ago. But we’re heading into another major round of federal budget-cutting, and the lessons of the recent past might be instructive.

There are differences between now and then, of course.

The current government does not have a record of, at least, promising to use the power and influence of the state in benevolent ways.

In terms of an active role for the state, all it has promised is to eliminate gun control and, through a variety of untested, draconion and costly measures, to “get tough on crime”.

The current Conservative Government did engage in pump-priming spending in the worst days of the recession; but one wonders how committed it was to that. After all, in its 2008 fiscal update it made no mention of any sort of infrastructure spending and put out ridiculously false projections of a continuing fiscal surplus.

Only a threatened defeat in Parliament caused Harper’s government to change its tune. Arguably, the Conservatives’ touted “economic action plan” was something they did only under duress! They face no threat of defeat in the House this time around.

The opposition in Parliament, today, is also quite different from the opposition of 1995.

One can reasonably hope that, unlike the Lucien Bouchard/Preston Manning axis, the current opposition will not be a cheerleading section for sticking it to the poorest and most vulnerable and further hobbling the federal government’s capacity to act in the interests of all Canadians.

However, the enduring impact of 1995 has made it harder to have a full, frank, mature and honest conversation about our complete range of fiscal options.

It has become almost impossible to talk about increasing taxes on those who could most easily bear the burden, or to argue that it is okay to  tolerate year-over-year deficits, as long as they remain manageable in proportion to GDP growth.

Our universe of discourse changed in 1995, and these, somehow, became outside the pale notions, even though they are perfectly reasonable. (Even the New York Times argues, today, for more stimulative measures and less ideologically driven focus on balancing the books.)

Here in Canada, we are at the beginning what should be a vital and essential conversation about our fiscal future, in relation to our shared values.

Do we want to continue on a path to greater inequality, declining public services, reduced environmental protection and weaker support for the creative contribution of the arts?

Will the national conversation be, exclusively, one about managing scarcity? 

Or, is there space for a discussion about the possibilities our collective imagination could envision?

The lesson of 1995 is that once the country’s elites become seized with the idea of fiscal crisis they are easily stampeded into accepting a drastic program of cutbacks and retrenchments and become blind to any other options or considerations.

Last time, the Chrétien/Martin Liberal government cloaked it all in a kind of “this hurts us more than it hurts you” sort of rhetoric.

What can we expect this time?

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