SPECIAL REPORT

Martin's mixed message

It will take another budget to determine the true course

Anthony Wilson-Smith March 7 1994
SPECIAL REPORT

Martin's mixed message

It will take another budget to determine the true course

Anthony Wilson-Smith March 7 1994

Martin's mixed message

SPECIAL REPORT

It will take another budget to determine the true course

ANTHONY WILSON-SMITH

In both private and public life, Paul Martin Jr. is notable for his nostalgia for yesteryear, his disdain for some aspects of the present, and his comprehensive vision of the future. Canada’s finance minister dislikes music made after the 19th century and favors novels set a century before that. More than three months after taking office, the clock on the video cassette recorder beside his desk still flashes 12:00 because he is incapable of programming it. And Martin, in describing the future, evokes the past; more specifically, the postwar 1940s, when his namesake father and a handful of his cabinet colleagues remade the country’s battered economy and crafted its first social programs. Then, said Martin in an interview last week: “Per-capita debt was high, the industrial structure was defunct, and there didn’t seem to be enough jobs.”

He remembers that, shortly before his death in 1992, his father told him: “In circumstances very similar to today, we built one of the great nations. The time has come for your generation of Liberals to go out and do the same thing.”

Sometimes, the more things seem to stay the same, the more they change. Last week, Paul Martin Jr.’s first budget included a tightening of unemployment insurance (UI) requirements, a reduction of benefits to most recipients and a $3.1-billion cut in UI funding over the next three years. At the same time, he announced—using

the tidy prose of budget documents—“net personnel reductions” at the department of national defence and base closures that will devastate some regions and result in 16,500 people leaving their DND jobs by March, 1998. Despite those steps, Martin insists that his budget is in keeping with his father’s legacy, because “he dealt with the circumstances of his time, and we are

dealing with the circumstances of ours.” More to the point, Martin’s budget establishes him among supporters and detractors as a man for all seasons—and reasons. Prime Minister Jean Chrétien’s Liberals portrayed themselves as both warriors and apostles—determined to battle stubborn budget deficits through cost-cutting while simultaneously preaching the merits of gov-

ernment intervention in such sectors as job training and small business programs. Predictably, critics on all sides criticized either the anticipated $39.7-billion deficit for this year, or the scale of planned cuts, and suggested Martin’s efforts were insufficient, incompatible, or both.

In the long term, Martin maintains that the combination of tightened UI requirements and $7.5 billion worth of new training programs will break the cycle of psychologi-

• Defence spending is cut by $7 billion over five years; four bases are closed and another five suffer cutbacks; 8,100 military and 8,400 related civilian jobs are eliminated over four years.

IP Unemployment insurance (UI) benefits are reduced to 55 per cent from 57 per cent of insured income for about 85 per cent of claimants. Workers will also have to work a minimum of 12 weeks—rather than the previous 10— to qualify. UI premiums paid by employers are reduced by 2.3 per cent effective on Jan. 1,1995.

P People over 65 with net incomes above $49,134 lose a S610-income tax credit over two years.

# Tax deductions for business meals and entertainment expenses fall from 80 per cent to 50 per cent.

cal reliance on unemployment insurance and create new opportunities for better-trained jobless people. In the short term, some consequences will be wrenching, both to individuals and provincial treasuries. Although Martin calls the figure “utterly unacceptable,” he acknowledges that the unemployment rate is unlikely to fall below 10 per cent in the foreseeable future. But the shortened eligibility for most classes of UI means that unemployed people, now numbering more than 1.5 million, will be transferred more swiftly to welfare, which is paid for by the provinces. At the same time, Martin has frozen the amount of transfer payments— which cover some of that cost—to the provinces.

The consequences will be felt across the country. One of the most immediate results is likely to be heightened migration to wealthier provinces such as British Columbia, where welfare benefits are higher than in neighboring Alberta and other western provinces. In Quebec, where unemployed francophones are more likely to stay at home because of language considerations, the province’s welfare payments should also rise.

In the Atlantic provinces, out-migration is already high. Now—with the closing of four military bases, the reduction of two others and the changes to unemployment insurance—that could increase further. Many Maritimers are likely to head to Ontario, a traditional magnet for people from the East. They could then land on the province’s already bulging welfare rolls. At the same time, Ontario was the hardest-hit by the closure of two bases and five other installations, and the reduction of two other bases, with close to 2,000 jobs to be lost. The budget,

0 The lifetime exemption on the first $100,000 in capital gains is eliminated.

• The program allowing first-time home buyers to use RRSP funds is extended indefinitely.

• Public sector salaries are frozen until 1997.

H Atlantic cod fishermen will get $1.7 billion in subsidies over five years.

• Foreign aid is cut by two per cent for 1994-1995 and then frozen at

$2.6 billion per year.

• Federal transfers to all provinces for welfare and postsecondary education programs will be frozen in 1995-1996. (Health-care transfer payments will be exempted from the freeze.)

said Ontario Treasurer Floyd Laughren, will cost the province’s treasury more than $3 billion annually, resulting mainly from a freeze in federal funding on the Canada Assistance Program that provides social assistance and welfare funding, and, he warned, “people are going to feel it.”

Could Martin’s budget have taken a much different direction in its major initiatives? Probably not, say most economists—although they differ over the size of the steps he took. Even staunch defenders of Canada’s social-safety net acknowledge that many existing programs cost too much and offer uncertain value to those they are supposed to help. Similarly, senior defence officials have, for a long time, privately said that at least 10 of the country’s more than 40 bases served no effective purpose other than to provide regional economic stimulus.

Now, the base closures and unemployment insurance changes represent significant action in areas where previous governments— including the Liberals—feared to tread. The federal debt of more than $500 billion is both the result and the symbol of traditional reluctance to make such fundamental changes. In fact, government spending estimates released two days after the budget show that interest costs on the national debt will rise this year by $2.5 billion to a total of $41 billion for the coming year. That is almost exactly a quarter of the anticipated overall government spending of $163.6 billion for the coming year. At the very least, that means it will take another budget before it is clear whether Martin has launched a full-fledged deficit fight—or simply sought a reprieve.

ANTHONY WILSON-SMITH