SPECIAL REPORT

Harkening back to sunnier days

Costly initiatives in an era giddy with promise

JOHN GEDDES March 9 1998
SPECIAL REPORT

Harkening back to sunnier days

Costly initiatives in an era giddy with promise

JOHN GEDDES March 9 1998

Harkening back to sunnier days

SPECIAL REPORT

Costly initiatives in an era giddy with promise

JOHN GEDDES

The baby boom generation likes to look back on it as a time of exhilarating upheaval. But the melody Canadians were humming in 1970, the last time a federal government ended its fiscal year with balanced books, was Anne Murray’s Snowbird—not exactly an anthem of revolution. This year, as Ottawa’s deficit finally disappears again, another Nova Scotia-born singer has the hit of the moment. The day after Paul Martin tabled his budget last week, Sarah McLachlan bumped the finance minister’s face off the front pages by winning the best female pop vocal Grammy for her song Building a Mystery.

And just as it is tempting to hear in Murray’s trilling about flying away in spring something of the innocence of those earlier times, McLachlan’s melancholy lyrics seem to come straight out of an era less inclined to optimism. “Can you look out the window,” she sings cynically to a lover, “without your shadow getting in the way?”

Martin certainly sounds as if he is harkening back to sunnier days. Having wiped out the deficit, the finance minister is predicting a return to the sort of sustained strong economic growth that Canada enjoyed in the 1950s and 1960s. If he expects Canadians to share in that unclouded vision, though, he is asking for a dramatic change from the more skeptical outlook that has set in during the past three decades. After all, the balanced budget in the fiscal year 1969-1970 turned out to be the last hurrah of the postwar boom. It was followed by punishing inflation, rising tax burdens and swelling government debt. “In the late 1960s and early 1970s, there was this notion of limitless opportunity,” says Allan Gregg, president of the polling firm The Strategic Counsel. “Canadians today believe progress isn’t inevitable—in fact, the prospects of things getting worse are as likely as the prospects of things getting better.”

Such a jaded perspective would have been hard to conjure up back when then-Finance Minister Edgar Benson was tabling his balanced budget in the spring of 1969. It was a year almost giddy with promise—bathed in the afterglow of Pierre Trudeau’s election in 1968. In the summer after Benson delivered his good-news fiscal plan, Trudeau, his closest aides and some trusted cabinet ministers headed to Stratford, Ont., for a few days of policy brainstorming, broken by theatre outings and the occasional swim. That was the way it was: a fun, thoughtful, culturally attuned prime minister setting the tone. A sense of mission permeated the Liberal ranks as they consolidated the reforms of the 1960s, pouring more money into everything from seniors pensions to universal health care. “It was the period when we created the social safety net that Canadians use to define what their values mean,” recalls Deputy Prime Minister Herb Gray, who first entered cabinet in 1969.

It turned out the government could not pay for what it was promising. Before the mid-1970s, Canada’s economy had steadily produced new jobs, along with higher incomes. Banking on ample

tax revenues, Ottawa plunged ahead with a raft of costly initiatives. One of the most expensive was indexing the tax system to inflation. The aim was to prevent taxpayers from losing out by being lifted into higher brackets as inflation pumped up their incomes without really improving their living standards. Fair enough, but it also meant that the federal tax haul remained static—even as Ottawa’s payments increased because social programs like Old Age Security were also adjusted for inflation, as were federal transfers to the provinces for health, education and welfare. Meanwhile, Ottawa kept expanding into areas like regional development. The economy failed to support Liberal ambitions. “Productivity came to a screeching halt in the late 1970s,” says one veteran finance department official. “Inflation took off like crazy and the economy slowed and then basically stopped on a dime—the 1981 recession.”

With the benefit of hindsight, some events of 1969 seem like harbingers of the financial unravelling that lay ahead. Just two days before Benson tabled his budget, the National Arts Centre

opened in Ottawa. It cost $46.4 million in 1969 dollars—compared with the $9 million originally estimated. But nobody was paying much attention to the bottom line—there were so many more interesting distractions. Rusty Staub, the new Montreal Expos’ beloved Le Grand Orange, was batting .302 with 29 homers. Abortion and homosexuality laws were being liberalized. The Concorde was soaring for the first time—like a paper airplane for grown-ups. A man walked on the moon. And anyway, who could worry about dollars and cents when the salmon à la maison at Victoria’s The Swiss Restaurant, named British Columbia’s best eatery that year by Maclean’s, could be had for $3 flat?

Apologists argue that big things were being accomplished while Ottawa was embarking on the path that would lead it deep into debt. But the record is mixed. Trudeau listed his top three priorities in 1970 as correcting regional disparities, solving what he called the “French-English language problem,” and promoting economic growth.

The department of regional economic expansion his government created in 1969 is now a memory. Its legacy of regional industrial subsidies continues, but high unemployment has persisted in the have-not regions, especially the Atlantic provinces and Quebec.

While the Official Languages Act, also of 1969, succeeded in making French a language of the federal government as never before,

Quebec’s future in Canada remains uncertain.

As for the economy, Canada’s gross domestic product grew by five per cent or more 13 times from 1953 to 1974, but has topped five per cent in only three years since then.

Even with the return of black ink to the federal balance sheet, grand visions remain out of style these days in Ottawa. Prime Minister Jean Chrétien’s incrementalist approach dovetails comfortably with the modest expectations of government that Canadians were left with after the setbacks and disillusionments of the 1970s and 1980s.

“In this environment, Chrétien is a perfect leader,” says Gregg. “He is very happy to roll along and manage things.”

Martin seems only slightly more inclined to reach for loftier goals. (Back in 1969, he was a young trouble-shooter in Paul Desmarais’s Power Corp. conglomerate, building experience by putting lacklustre companies back on a solid financial footing— a pattern that seems to have followed him into public life.) The core theme of Martin’s latest budget is not about ambitious new programs. Instead, he and Chrétien highlight funnelling cash to parents trying to pay for their kids’ educations after high school. And Martin unveiled tax breaks for low-income earners—with a tantalizing promise of wider tax relief for middle-income Canadians as federal surpluses grow in the next few years.

If Martin’s message does not sound much like an echo of the summer of 1969, it is not meant to. In looking back further—to the sustained boom times of the 1950s and 1960s—Martin may be aligning himself with an earlier generation of legendary policymakers. James Ilsley, the brilliant finance minister who set the economy on course for the prosperity that followed the Second

World War, was a determined tax-cutter. C. D. Howe, like Martin a businessman-turned-politician, focused in the 1950s on developing key industries like steel, a bent that may parallel Martin’s interest in fostering the information-technology sector today.

And if the era of Ilsley and Howe is the model for the new balanced-budget age, then the right sound track might not be supplied by Sarah McLachlan after all, but by another Canadian who made an appearance at last week’s Grammys—Diana Krall, the jazz pianist and singer from Nanaimo, B.C. Krall closes her current, acclaimed album of retro swing with That Old Feeling— somehow making it sound at once nostalgic and contemporary. It is a trick Martin may want to emulate as he bids to put the deficit decades to rest—and to make prosperity seem possible again for the new millennium. □