When Pierre Trudeau sits down to negotiate the ornate Versailles summit table this
weekend, his jittery cabinet colleagues will suspend their bitter battle temporarily and simply wait for the outcome. If U.S. President Ronald Reagan agrees to lower interest rates, then it will be relatively easy to shape the size and type of a Canadian economic recovery
plan which will probably be unveiled in late June. But if Reagan does not take such action at the Big Seven summit, then a monthlong cabinet wrangle will almost certainly erupt again with renewed vehemence.
The ministers are quarrelling about how much the federal deficit should grow—and consequently about the amount of money that can be channelled into new stimulative programs. Battered by conflicting economic advice and plagued by conflicting numbers, the cabinet must also deal with an edgy and frustrated caucus.
The cabinet infighting officially began at a late April cabinet meeting in the Gatineau Hills when nervous ministers openly complained that Finance Minister Allan MacEachen had not managed to lower interest rates or inflation. Since then, the cabinet has wrestled with recovery suggestions ranging from price and
wage controls to massive spend--
ing programs. And sources say it has hammered out the broad outlines of a program of selective stimulus. As a result, any post-Versailles economic plan will likely include measures to help the housing industry through interest-rate assistance for buyers of lower priced homes, along with the possible removal of some taxes on building materials and job-creation schemes. Farmers will likely receive some interest-rate assistance. And the small business community may be granted faster writeoffs (in an outright reversal of a disastrous November budget proposal), subsidies for job creation and tax incentives.
The measures will be buttressed by a separate plan to provide the beleaguered energy sector at least $2 billion in extra cash through changes in the National Energy Program. Wage and price controls are still unlikely—al-
though there may be a freeze or ceiling
clamped on public service wage increases. At the same time the Prime Minister’s Office is studying such options as pegging the Canadian dollar at 75 cents (U.S.) and slashing interest rates in conjunction with exchange controls. But most cabinet ministers dismiss the studies as speculative, at best.
With the general program settled, a new debate is now raging over its price tag. On one side is a minority of powerful ministers which argues that the def-
icit is actually running far higher than the November budget estimate of $10.5 billion and that it must be controlled.
On the other side of the cabinet battle are those who, like Trade Minister Herb Gray, feel that a major stimulus of $5 to $10 billion is necessary to combat rising unemployment and flagging investor confidence. These ministers are believed to be losing their battle against the hard-liners—but they will likely renew the fight if Versailles does not produce results.
The behind-the-scenes uproar has been fuelled by a welter of conflicting economic advice. Groups such as the prestigious C.D. Howe Institute argue that fighting inflation is a priority. “There are not many economic arguments for stimulation—if they stimulate, they stimulate costs, not neces-
sarily demand,” says the institute’s executive director, Wendy Dobson. On the other side of the argument are such firms as the highly regarded private forecasting group, Inforrnetrica Ltd. Argues President Michael McCracken: “We could go a helluva lot further than we are on the deficit—another $5 to $10 billion—just a billion is not going to have sufficient impact psychologically in the current environment.” The clashes have provoked agonized confu-
sion. Six weeks ago two Ontario Liberal MPs revived a caucus committee to explore every available economic option. MPs were apparently frustrated by the lack of visible cabinet action and anxious to hatch new ideas. Two sets of minutes from the meetings were leaked to the media, and they gave the erroneous impression that the caucus had drifted into outright rebellion, since every economic premise was questioned. Trudeau, in turn, sternly told the group that he welcomed their help but deplored their habit of circulating the minutes to every Liberal MP and Senator. The minutes are now under wraps. However, the prime minister has apparently been tossing their questions into cabinet meetings. He has even muttered that perhaps the deficit could go a lot higher. That nebulous signal may mean that now virtually all policies will be open to post-Versailles scrutiny.
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