BUSINESS

REALITY BITES

Special-interest groups are curbing their demands and supporting Martin

E. KAYE FULTON February 20 1995
BUSINESS

REALITY BITES

Special-interest groups are curbing their demands and supporting Martin

E. KAYE FULTON February 20 1995

REALITY BITES

BUSINESS

Special-interest groups are curbing their demands and supporting Martin

In a relentless crusade to expose inequalities in Canada’s tax system, Liberal MP George Baker has turned the art of political lobbying into an embarrassing act of rebellion. Last October, the Newfoundland backbencher uncovered Revenue Canada statistics that revealed that 14 Canadian millionaires collected unemployment insurance. Next, he brandished records that showed that 77 corporations with profits of more than $25 million paid no income tax at all. Baker’s latest target: Finance Minister Paul Martin’s budget process. Last week, Baker publicly accused the finance department of secretly meeting with big business and banking officials to lay out federal budget options, a meeting Martin flatly denies took place. Among the options Baker says the group rejected was a oneper-cent wealth tax of private assets worth $2.5 trillion that would net Ottawa $25 billion a year.

Asked Baker in a Feb. 1 letter to Martin: “Isn’t that what the finance department expected from that group of people?”

Although Martin’s office dismisses most of Baker’s accusations as far-fetched, the maverick MP has touched a raw nerve. Just who the finance minister is consulting—and what they are discussing—is more than idle curiosity in the lead-up to what analysts predict will be the toughest federal budget in postwar history. Braced for an estimated $6-billion to $8-billion chop in federal spending during the 1995-1996 fiscal year, special-interest groups across Canada may soon be jostling for pennies in an empty pot. The cities of Ottawa and Hull are awaiting a cut in civil service ranks as deep as 50,000, the equivalent of laying off the entire city of Moose Jaw, Sask. And in Toronto this week, provincial finance ministers meeting with Martin will face the glum prospect of massive cuts to transfer payments and an arduous year of negotiations to keep the most money with the fewest conditions. As a result of these constraints, the tone of political lobbying has shifted at every level. “The nature of the debate had to change,” said a senior Martin adviser. “Most groups realize they can’t just march in and say, This is what we want.’ ”

In fact, some of the most vocal lobby organizations of the past are actually buttoning their lips during this budget season. During private

consultations before the 1994 budget last February, Martin held revolving-door meetings with 71 representatives from 41 different groups. In contrast, there were fewer than a dozen private sessions with Martin, spread over four months between Oct. 7 and Feb. 8. This is not, however, because interest groups have given up their causes or complaints. The Retail Council of Canada for one, led a vocal coalition in 1994 against the goods and services tax. This year, the group decided to neither ask for a meeting nor to press for a resolution of the GST issue—at least until next spring. “The reality is that foreign financial markets are far more important to Martin than citizens who live here,” said Peter Woolford, the council’s vice-president of policy. “Canadians don’t have a lot of choice any more. We’ve spent so much and been so reckless. It’s like being a teenager: we’re grounded. And the folks who own 40 per cent of our debt are saying, ‘Sorry folks, you can’t go on using the family credit card.’ ”

Despite the air of apparent inevitability, the Liberal government is boasting of unprecedented openness in its budget preparation process. The finance department laid out the scope of Canada’s woeful fiscal state last October in “Creating a Healthy Fiscal Climate: The Economic and Fiscal Update,” the so-called Liberal grey book. A subsequent two-month sweep of the country by the government finance committee gathered the predictably diverse opinions on how to address that situation from 650 groups and individuals. Much of the committee’s hastily written report, released last December with two dissenting reports from the Bloc Québécois and the Reform party, is already out-of-date. But the dire predictions stirred Canadians in record numbers to add their own two cents to the discussion. Weekly reports itemize the hundreds of calls to Martin’s office; a biweekly 15-page synopsis of the flood of faxes and letters offers as many suggestions as beefs. Said Jayson Myers, chief economist for the Canadian Manufacturers’ Association: “Ironically, Canadians may be prepared for even deeper cuts than the government can make.”

Part of that acceptance may stem from the scare in January when a jump in interest rates threw government projections awry and spooked the entire country. But the plunging Canadian dollar and rising interest rates were useful to Martin’s deficit-cutting agenda: it convinced a jittery Liberal caucus, particularly the Atlantic and rural Ontario wings, that the key deficit target of $25 billion by 1996-1997—or three per cent of gross domestic product—required brutal cuts. It also smoothed the way for Human Resources Minister Lloyd Axworthy to postpone the overhaul of social programs until Canada’s fiscal house was in order—but left intact a government plan to pare $3.4 billion from $38.7 billion of social-program expenditures over the next two years.

In government and business circles, the global economy—and its demands—have, in effect, become a mantra. And Martin himself deftly steers discussions away from the national stage to such broader issues with disarming effectiveness. Lynne Toupin, executive director of the National Anti-Poverty Organization, was sumI moned to an informal meeting with the finance minister in Ottawa I last December. She went prepared in part to argue against proposS als to redesign federal transfers that would convert much of the

money for postsecondary education into student loans and combine the rest with transfers for welfare and health into a single block fund. Such a plan, said Toupin, would “mean the probable end of the social safety net of last resort.”

Instead, Toupin said she found herself engaged with Martin in an entirely different debate. “He talked about the fact that he didn’t have a hell of a lot of room to manoeuvre; he talked about markets; he talked about what happens if the International Monetary Fund comes in,” notes Toupin. As for their differing opinions on domestic priorities, Toupin said: “He asked, What would you do if you were me?’ I said, What would you do if you were me? And we agreed that we would do exactly the same thing. We agreed to disagree.”

At the other end of the lobby spectrum, the business community found itself in a somewhat uncomfortable predicament. Canadian Manufacturers’ Association (CMA) officials—who have met four times with Martin—have made demands for radical surgery, including a $400-million cut in federal funding to the CBC and a leaner public service, with fewer benefits and reduced salaries. To pump up the private business sector, the Toronto-based group wants strengthened tax credits and the total elimination of taxes on corporate income in the manufactured goods sector. The CMA offset those suggestions with a proposed $3.5-billion cut to federal transfers and subsidies to business. But they left Ottawa realizing they were, however reluctant, partners in the exercise. “The government cannot afford to do something that will get the business community jumping up and down,” said Myers. “But the business community itself cannot say this is a terrible budget without pulling the rug out from under Paul Martin’s feet—and our own.”

Still, Martin is under tremendous pressure from business lobby groups to slash even more. The CMA is advocating a balanced budget “by, at the very latest, the end of the decade.” Thomas d’Aquino, president of the Business Council on National Issues, sent Martin a memorandum from the annual economic conference in Davos, Switzerland, on Jan. 30, warning that economists abroad thought the three-per-cent target would not provide the necessary assurance to international markets. Urging Martin to go beyond that target, d’Aquino wrote: “Surprise the markets, burn the speculators, put the separatists on the defensive, watch the dollar rally, create the environment for an easing of interest rates and gain the vital confidence that you and the government will need to go the next mile.” If the Liberals fail in this budget, d’Aquino told Maclean’s, “the cuts that are going to have to come in the next two years will make what we’re talking about now look like a kindergarten picnic.”

Such threats are commonplace in the nation’s capital. But according to a senior Martin aide, the finance minister’s three-per-cent goal is nonnegotiable. “With business groups, he tries to make the point that three per cent of GDP is a legitimate target and why going to zero is a panacea that will never happen,” said the aide. “If the time line is five or six or seven years, every government, including this one, would postpone the day of reckoning on that. It’s too far out.”

As Martin has learned, that day of reckoning carries with it an enormous political cost. Shortly after he released the government “grey book” last October, Martin walked his 174-member caucus through an audiovisual presentation of the nation’s economy. Liberal MPs then went home for Christmas, returning with the message that outraged constituents would not tolerate increased income taxes. Last week, Martin held a four-hour session with the caucus economic development committee. Among that group was Newfoundland MP George Baker—and a reminder that when it came to deciding who pays their way in Canada, the discussions have only begun.

E. KAYE FULTON in Ottawa