The finance minister faces calls for budgetary boldness
COVER FUTURE SHOCK
The finance minister faces calls for budgetary boldness
How distant those first budgets must seem to Paul Martin now, the thrill of the battle when there was a deficit to kill and the country to be rescued from the licking flames of bankruptcy. The finance minister likes his politics on a scale to match his own grand ambitions, which presents a bit of a problem as he works late into these winter nights doing the final math on what will be his sixth budget. Martin has never been satisfied with tinkering, but the 1999 federal budget—to be delivered on Feb. 16—is shaping up as just that. While Canada’s long-term economic plight may be a staple of the financial pages, the budget will be essentially a short-term political exercise in calibrating the proper mix of minor tax relief with the dose of new health spending promised to the premiers last week—enough, it now seems, to let the budget match its billing as the one to save medicare.
The combination of pre-budget consultations and media leaks (Martin’s finance department loves to float trial balloons through the press) have long since squeezed most of the suspense out of budget day. Barring a last-minute demand from Prime Minister Jean Chrétien to fund another legacy-style project like last year’s $2.5-billion millennium scholarship fund, what Canadians will see when Martin presents the numbers is pretty well what they already know: there will not be money for any major manoeuvres other than health. “There are a lot of pie-in-the-sky projections of surpluses out there,” he told Maclean’s last week, repeating his mantra to lower expectations and keep the spending wolves in cabinet away from his door. “Some of them are sheer escapism.”
Ottawa’s own forecasts of this year’s surplus have been lowered from $10 billion to about $7.5 billion. Martin’s critics contend the Liberals are artificially lowering the size of the surplus by putting future spending on this year’s books—like last week’s promise of a “substantial” cash handout to the provinces at the First Ministers’ conference on the social union (page 25). The finance minister, in turn, suggests the numbers are off because no one has had to measure a surplus for 30 years, so no one knows how to do it accurately.
Either way, he is not about to be blown off his cautious course. His message: expect a modest budget for modestly better times. The global economy is simply too precariously balanced for comfort, and Martin has been front and centre among those ringing alarm bells. ‘When the Brazil crisis hit you wouldn’t believe the number of calls I
got from people saying: ‘Hey, you were right,’ ” Martin crowed in his 21st-floor office overlooking Ottawa’s icelocked downtown. ‘We live in a pretty volatile world, and I think people understand that.”
This is the bright new day Canadians were looking forward to? Budget surpluses were supposed to usher in a golden era of falling personal taxes and flush governments.
Instead, Canadians have emerged blinking into the postdeficit light to confront a host of gloomy prognostications.
Brain drain. Shrivelling government pensions. And the latest salvo from economists: falling productivity, which is just their way of saying Canadian living standards are dropping compared with our First World neighbours. Meanwhile, the vaunted global economy is looking like a jungle, with our economic health threatened from the most unexpected quarters. What is the benefit from a borderless world, many might wonder, if we must pay for the sins of incorrigibly freespending Brazilian politicians?
The sour outlook is an especially bitter pill for Canadians who have responded and adapted to every economic challenge thrown at them in the past decade. The country accepted free trade with the United States, wrung inflation out of the monetary system, and widened the holes in the social-safety net to get the deficit down. All to be told Canada’s standard of living has fallen further behind that of Americans and that a new crusade to improve productivity is needed to fix it. The liberal government must face the possibility that Canadians may greet such calls with skeptical fatigue, though Martin insists they will respond to the challenge. “There is no promised land,” he warns. “The
nature of the world in which we live is that you are going to constantly be winning battles. If you stop, you’ll slide back.”
The Reform party thinks it has the solution to slipping living standards: cut taxes, dramatically, now. Opposition Leader Preston Manning calculates that Ottawa’s impending surpluses will be big enough to allow him—were he prime minister—to cut taxes by $26 billion, as well as pay off $19 billion of Ottawa’s $580-billion debt in three years. In the House of Commons last week, he likened the federal debt to “rats gnawing at the vital organs and sinews of the state.” There is a long lineup of economists who agree.
But Reform’s radical tax-slashing position may have as much to do with staking out a distinct identity in the political marketplace as it does with economics. Far too much consensus exists in Canada for any opposition party’s liking (which is why Manning’s plan would also pump another $6 billion into health care over three years—no one can get elected if voters think they will kill medicare). The Liberals have been adept at smothering the centre ground. Calls to save the health system mount? Ottawa finds the money. Taxes are too high? The liberals promise to get them down,
though not on Manning’s timetable. “People who want to cut taxes massively and spend massively don’t want to confront the fact that you can’t do it,” Martin fires back. “Reform says you can cut taxes to the level of crippling government because they don’t think government has any role to play. Well, I do.”
But the Chrétien liberals have never been good at articulating a clear vision of what they want government to do in a post-deficit environment. They have never laid out the possibilities in as inspiring a way as U.S. President Bill Clinton did last month. Despite his horrendous political troubles, Clinton delivered a dare-to-dream vision of the American future in his state of the union address. He painted a world where environmental standards rise and education leaps forward, pensions are saved and government can even keep more children from smoking cigarettes. “There is no doubt about the strength of that vision,” agrees Martin. “But this budget is for the here and now.” Yet Martin itches to lay out blue-sky reveries of his own, and chafes while he awaits his crack at the country’s top job when Chrétien finally retires. The finance minister did testdrive some wider theories at the Liberal policy conference in Orillia, Ont., last summer, a speech notable for its spirited defense of the government’s role in a global economy. “Those on the far right tell us that in an era of globalization social programs represent a cost we cannot competitively assume, and thereby lead to lower productivity,” Martin told his listeners. “Not only are these arguments flawed, they fundamentally miss the point. Universal access to high-quality medical services, for example, is key to realizing our full potential as individuals and as a country. No one can take on the challenges of the new economy while preoccupied with the availability of basic care. No parent of an ill child. And no child of an aging parent.”
Martin also comes alive when the topic turns to the need for a modernized international regulatory system to guard against what many people see as the ravages of freeflowing capital. The subject appeals to both his own inclination for wonkish policy debates and grand schemes to change the world. Foreign ministers may still wrestle with how to end wars in the Kosovos and Angolas of the world, but in most of the First World, national security is directly related to economic security. And that has propelled G-7 finance ministers into the role of their country’s most important foreign-policy actor. In struggling to create a new, shock-absorbent global economic system—the so-called international financial architecture—finance ministers have become the Metternichs and Castlereaghs of the 1990s. “It is crucial for Canada that we establish, on an international basis, the same kind of institutions that make the market system work at home,” says Martin, who likes the analogy. “That’s as important for Canada’s ongoing economic health as almost anything.” But the list of challenges to our economic security is long. And every peak scaled just seems to reveal a new enemy, on yet another battlefield beyond. □
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