BUSINESS

BREAKING POINT

DEIRDRE McMURDY April 19 1993
BUSINESS

BREAKING POINT

DEIRDRE McMURDY April 19 1993

BREAKING POINT

BUSINESS

DEIRDRE McMURDY

David Pasin’s patience ran out on March 30, 1993. On that day, the government of British Columbia presented a budget for the 19931994 fiscal year that included $844 million in new taxes and $2.5 billion in new spending initiatives. Pasin, who runs a small paint manufacturing business in Vancouver, says that several measures included in that “horrible document”—specifically a new property tax surcharge—transformed him from a “political couch potato” into the leader of the nonpartisan Citizens for Fair Taxation. Although the New Democratic Party withdrew the property tax surcharge almost immediately because of widespread public backlash, Pasin’s group has continued to gain momentum. At a meeting in a Vancouver church basement last week, hundreds of people from across the province met to vent their anger. Pasin says that he, like most others in the coalition, has never been politically active before. “We’re not raving right-wing radicals, we’re average citizens,” he said. As well, Pasin noted that “None of us really object to higher taxes, we object to the continued spending.”

Pasin and his comrades are not alone in their anger about government spending and soaring debt levels: during the past several months, the issues of public debt, deficit and economic strategy have moved steadily to centre stage in Canada. The currency and stock market volatility that accompanied the constitutional referendum last fall highlighted Canada’s dependence on foreign lenders. Heated debates during the 1992 U.S. presidential campaigns also drew attention to public finance and social programs in Canada. Now, as Canada’s federal election' approaches later this year, the $460-billion federal debt—and the urgent need to reduce it—has emerged as a dominant issue.

In part, that is because members of the socalled baby boom generation have now reached their 40s and concerns about the security of such programs as universal health care and old age pensions are becoming more pressing. In addition, as the frantic economic growth of the 1980s faded into recession, more Canadians have become aware of

PROTESTS GROW AGAINST HIGHER TAXES AND FEES AS GOVERNMENTS TRY TO CHECK SPENDING AND CUT DERT

the high cost of debt and the need to scrutinize all expenditures more carefully. Said Nicole Morgan, a professor of public administration at Queen’s University in Kingston, Ont.: “Canadians may not like it, but many now realize that the time has come for them to grow up. They know that they can’t afford to have it all and have it now.”

At the same time as that public awareness has grown, there is a heightened perception that government at many levels is unresponsive, overly bureaucratic and complacent. During the recession, many Canadians have endured the agony of massive corporate restructurings, including extensive layoffs, compensation cuts and business bankruptcies. But while bloated companies have had to come to terms with competitive global markets by flattening their structures, governments have largely remained immune. Indeed, in a speech to public-sector union leaders last week, Ontario NDP Premier Bob Rae noted that “we were hoping that the economic recovery would take the pressure off government finances. It hasn’t and it won’t.” At the same time, the public’s threshold for higher taxes and increasing government spending has sharply diminished. Donald Savoie, a professor of public administration at the University of Moncton in New Brunswick and author of The Politics of Public Spending, says that the new reality of global markets hit the private sector first and forced painful and permanent adjustments. Now, many voters who have suffered from the economic up-

heaval of the past several years are applying some of those new criteria to the public sector. “The perception is growing that the middle class has taken it in the gut and has borne the brunt of the pain,” said Savoie. “They are fed up with political pussyfooting and with governments just tinkering at the margins of the problem.”

In the recent series of provincial budgets, most governments have vocally proclaimed their concern about debt levels and their inability to support the current level of borrowing with a battered post-recession revenue base. Still, many of the restraint programs announced over the past month entail relatively modest cuts. In the Manitoba budget released last week, the proposed measures including a broader sales tax, reduced property tax credits and a range of user fees that will generate a planned $200 million. For its part, the government, which spent $5.5 billion last year, or $762 million more than its revenue, pledged to cut its spending by just two per cent.

Where provincial governments have attempted to impose tough budgetary measures, however, they are encountering resistance in some quarters. Last week, Newfoundland Premier Clyde Wells called a provincial election after disputes with publicsector employees who object to his proposed cut of $70 million from the civil service payroll. Said Morley Reid, president of the Newfoundland Teachers Association: “If they want to maintain the level of public service,

they have to pay for it. We don’t think this provincial problem should be solved on our backs.” In New Brunswick, where Premier Frank McKenna’s March 31 budget now requires natives to pay the province’s 11-percent sales tax for items purchased off reserve lands, native leaders have protested by erecting roadblocks, confronting the Royal Canadian Mounted Police and threatening even more violent protests. At the municipal level, taxpayers in Montreal marched on city hall to protest a new property surtax. To avoid such confrontations in Ontario, Rae is proposing to negotiate what he calls a “social contract” with public employees to cut at least $7 billion from the provincial budget. At an initial session in Toronto last week, Rae said that he would delay his budget until the talks with the unions, scheduled to begin on April 19, make some progress. The financial community’s concern about that consultative approach, however, is the ensuing uncertainty. Last week, currency traders attributed the first increase in the Bank of Canada rate in nine weeks to a weakness in the Canadian dollar, caused by Ontario’s mounting debt crisis—and the absence of strategy to deal with it. At the federal level, the depth of the political will to address the debt issue should be tested as the election campaign heats up. Although Finance Minister Donald Mazan-

kowski initially indicated that he would introduce a new budget on April 20, he delayed it until April 26 because of his trip to Tokyo this week to attend a G-7 economic summit. A federal-provincial economic summit is also scheduled for early May. Although candidates for the leadership of the federal Conservative party, as well as Liberal and NDP leaders, have stated their intention to reduce Canada’s debt-load, few have provided detailed proposals. The leader of the Reform Party of Canada, Preston Manning, plans to release the second phase of his economic strategy in Vancouver this week. He says that he would eliminate the federal deficit within three years by cutting annual federal spending by $18 billion and by making such programs as unemployment insurance self-financing. Manning told Maclean’s last week that he would leave the universal medical care system in place as long as Canadians were prepared to make cuts and adjustments in other government programs. “The situation is so extreme that if something isn’t done about the debt, we won’t be able to sustain any social spending at all,” he added. And for a debt-ridden society in which the average age of its citizens is steadily rising, that possibility represents an increasingly real fear. DEIRDRE McMURDY