ROSS LAYER February 13 1989


ROSS LAYER February 13 1989



Stanley Hartt once earned $450,000 a year as a labor lawyer. But last spring, he resigned after 2½ years as deputy finance minister—in part, he said,

because he had found it difficult to get by on his $120,000 government salary. However, in his new job Hartt has embarked on a crusade for austerity. Although he took over as chief of staff to Prime Minister Brian Mulroney only last week, the 51-year-old Hartt is already wellknown in Ottawa as an outspoken manager with little patience for bureaucratic red tape. Those assets will clearly benefit him as he prepares to play a key role in reviewing and cutting federal spending—a task that Mulroney himself has proclaimed to be one of his government’s top priorities. “Having Stanley in the Prime Minister’s Office is very important,” an adviser to Mulroney said last week. “His experience at Finance has taught him where all the bodies are buried.”

Hartt’s ascendency to one of the most pow-


erful unelected positions in Ottawa is only one of several signals that Mulroney’s government plans to get tough with federal spending. In a long-awaited cabinet shuffle last week—the first since the Conservatives returned to power with a reduced majority on Nov. 21—the Prime Minister appointed six new ministers to

junior portfolios. He also reassigned 19 ministers and reduced the size of his cabinet by one, to 39. But the most important and potentially far-reaching changes were to the structure of the cabinet committee system. All spending proposals will now have to pass the scrutiny of a new, eight-member expenditure review committee—already dubbed the “search-and-destroy” committee—which Mulroney himself will head. The Prime Minister also promised to streamline the federal bureaucracy, eliminating some departments and consolidating others during the next two years.

Mulroney’s announcements last week marked the first phase in an ambitious effort to convince Canadians of the need for stringent measures to slash the federal deficit, which now stands at nearly $29 billion (page 12). The short-term goal is to prepare taxpayers for the impact of Finance Minister Michael Wilson’s next budget, expected in April, which most experts predict will include widespread spending cuts and higher taxes on such items as gasoline and alcohol. But in the longer run, the Tories say that they are committed to shrinking the size of government—a process that is bound to provoke intense debate. “The selling job started with the shuffle,” a Mulroney confidant told Maclean’s. “Over the next few weeks, you will see all sorts of statements by ministers aimed at getting the message across. With free trade accomplished, deficit-cutting is this government’s singular preoccupation.”

In most respects, the latest attempt to rein in federal spending echoes the deficit-cutting exercise carried out by Wilson early in the government’s first term. Less than two months after taking office in September, 1984, the Tories announced a $2.2-billion package of spending cuts and cancellations. The new government also launched a review of the country’s foreign aid programs, its unemployment insurance system and its massive transfer payments to the provinces, which support education, health care and welfare programs.

But Mulroney later shied away from many of the cost-cutting proposals, including a 1985 plan to reduce the rate of increase in old-age pensions. Moreover, during the run-up to last fall’s election, the Tories announced more than $8 billion in new programs—a spending spree denounced by many business leaders as irresponsible. “In the past four years, the government could have done a major job of reducing the deficit, but it did not want to,” said John Bulloch, president of the 80,000-member Canadian Federation of Independent Business. “The moment they thought they were in political trouble, they tried to spend their way back into power.”

Still, Mulroney’s aides insist that the Prime Minister’s renewed commitment to spending restraint is genuine. And they add that Mulroney’s experiences during his first term in office have taught him an invaluable lesson: that it is possible to ride out periods of low popularity and still recover in time to win re-election. “This government will do things that may be unpopular, but it is not going to cut and run the way that it did in its first mandate,” a senior government official said last week. “People were terribly insecure then. Now, they know how transient public opinion is.” Another adviser said that the government expects to have an 18-month “window of opportunity” in which to launch politically unpopular initiatives. “If it is not done early in the mandate, it becomes impossible to do.”

Others, however, caution that it is easier to reduce government spending on paper than in practice. Tory MP Donald Blenkarn, for one, would support a thorough review of social spending, including the $ 10-billion unemployment insurance program. But Blenkarn said that he is unsure whether his colleagues on the government benches are prepared to take the political heat that such measures would generate. “[Our] people are a lot more sure of themselves,” Blenkarn said. “The question is, are they willing to take the strain of hundreds of phone calls from constituents upset as hell that their benefits have been cut? It really depends on the resolve of the cabinet.”

Although the budget process is still in its early stages, the signs so far are that the resolve is there. A senior official at the finance department told Maclean’s that bureaucrats from other departments had been brought in to help review spending in a wide range of areas —including social programs—and recommend places where budgets can be trimmed. “We are looking at everything, from one side of government to the other,” the official said. Reflecting the new mood of austerity, a private memo distributed last week warned ministers that the core budgets of federal departments, not just new spending programs, are potential targets for savings. As a further gesture, the memo added that the ministers of state, or junior ministers, in Mulroney’s cabinet will no longer be entitled to hire chiefs of staff.

There are several big-ticket items that could be shelved to save money. Many observers expect the government to cancel—or at least postpone—a 1987 plan to purchase 10 to 12 nuclear-powered submarines, at a cost estimated then at $8 billion. Indeed, opponents of the controversial program expressed relief last week when Mulroney removed Perrin Beatty, a staunch supporter of the submarine project, from the defence portfolio, transferring him to health and welfare. “We are glad Beatty is gone,” said Sheena Lambert, a spokesman for the Toronto-based Peace Pledge Campaign, “and we hope his billion-dollar submarine program is leaving with him.”

In Ottawa, representatives of both the French and the British submarine manufacturers trying to get the contract said publicly that they were optimistic the purchase would eventually go ahead. But speaking on condition that he not be identified, one submarine lobbyist acknowledged that he was “very fearful” that the program would be scrapped. He added, “It would be political suicide to be seen cutting social programs while spending $8 billion on nuclear subs.” Meanwhile, a defence department official told Maclean ’s that a billion-dollar proposal to buy new tanks to replace the Leopard Is now used by Canadian troops in Europe would also likely fall victim to Mulroney’s expenditure review committee.

Before any of those decisions are made, the government plans to try to convince Canadians of the need for fiscal restraint. One problem is that the government’s limited success so far in constraining the federal deficit may have convinced many people that the problem is now under control. As a result, there may be little

public support for deficit-slashing, particularly if it means cuts in social programs or higher taxes. Said Erik Nilsson, a Toronto-based economist with the Bank of Nova Scotia: “Canadians are not ideologically committed to deficit reduction. I do not think they view the deficit as the evil of all evils.” Nilsson, for one, said that he is not convinced that the Tories are serious about imposing substantial spending cuts. He added, “There is a lot of prebudget posturing just to soften us a bit before the bad news.” But others say that the time is ripe for a fullscale review of government accounts. One such group, the Business Council on National Issues (BCNl), plans to step up its campaign for deficit reduction later this month by announcing the formation of a high-powered committee to lobby for cuts in government spending. The 12-member body includes prominent business

leaders David Culver, chairman of Alcan Aluminium Ltd.; Marshall (Mickey) Cohen, president of The Molson Cos. Ltd. and a former deputy finance minister in the Liberal government of Pierre Trudeau; and Royal Bank of Canada chairman Allan Taylor.

For BCNl president Thomas d’Aquino, the latest effort to gain public support for deficit reduction follows a familiar pattern. His organization was also one of the strongest proponents of the Canada-U.S. Free Trade Agreement, and helped organize a public relations campaign supporting the deal. Now, the council plans to use similar means to organize support for its conservative agenda of government spending reductions by sponsoring speeches, huddling with newspaper editorial boards and launching a national print advertising campaign stressing the importance of deficit control. Said d’Aquino: “There is a whole fist of things that would be terrific to have but which this country cannot afford—things like child care programs, submarines and new airports. The first order of priority must be to reduce government spending and increase revenues.”

Still, at least one branch of the federal bureaucracy appears to have been declared offlimits to the budget-trimmers. Only a day after Mulroney’s cabinet was sworn in last week, newly appointed Environment Minister Lucien Bouchard told reporters that the Treasury Board has dropped plans to cut 360 jobs from his department over the next two fiscal years, which would have been the latest in a series of cuts to the environment budget since the Tories first took office. Said Bouchard: “Government has to give the big signals that the environment is important.” Almost certainly, his department will not be the only one to argue that it should be exempt from the drive to reduce spending.