Liberals can take cue from Mulroney

CONSIDER THE BATTLES OF THE FUTURE WHEN FIGHTING THOSE OF TODAY. — HAGUE Right way, wrong way to balance budget

An editorial in Saturday’s National Post posed the question of whether Prime Minister Justin Trudeau’s Liberals will follow former prime minister Jean Chrétien’s example when he balanced the budget. Let’s hope they don’t, as there is a right and a wrong way to do things.

When Pierre Trudeau became prime minister in 1968, he inherited a budget surplus of $1 billion ($7.3 billion in 2020 dollars). When he resigned in 1984, he left behind a $37.2-billion deficit (which would be worth $ 91 billion today). As Chrétien said at the time, “we left the cupboard bare.” In the early 1980s, the term “stagflation” was coined to describe double- digit unemployment and inflation numbers. Interest rates were over 20 per cent, which is sky-high by today’s standards, and the deficit was out of control. This is what the Mulroney government was left to deal with.

In order to deal with what was, at the time, an unprecedented fiscal mess, we got our fiscal house in order. In 1984, when the Progressive Conservatives came to office, program spending exceeded revenues by $ 16.1 billion. By 1991-92, the operating balance was $ 6.6 billion in surplus, a $ 22.7- billion swing from what we inherited from the previous Trudeau government. In effect, excluding debt- servicing costs, the government was being run in the black. Government spending on programs was reduced from $1.23 for every dollar in total revenues in 1984, to 97 cents by the end of the 1993 fiscal year.

Prime minister Brian Mulroney’s government cut the average increase in program spending by 70 per cent, from 14 per cent a year over the previous 15- year period, to 4.1 per cent a year. In fact, according to the Fraser Institute, Mulroney’s government recorded average annual per- person spending declines of 0.3 per cent, making him one of only two prime ministers in Canadian history to have done so.

But we also did other things to ensure that the bloated and inefficient government we inherited would be a thing of the past. We deregulated the energy, transportation and financial services sectors and completely overhauled the government’s regulatory process. In the energy sector, for example, the National Energy Program was abolished, along with the petroleum and gas revenue tax. We abolished the Foreign Investment Review Agency and privatized or dissolved 39 Crown corporations and other holdings. Legislation was introduced and administrative changes were implemented to eliminate or consolidate 41 agencies, boards and commissions.

Those initiatives, along with operational efficiencies, resulted in 90,000 jobs being removed from the federal payroll. All of these things led to the lowest prime lending rate in 20 years and brought inflation down to 1.5 per cent — a 30-year low.

That would be the right way to proceed when faced with tough fiscal choices. The wrong way is to make someone else pay for it, which is precisely the approach that Chrétien and his finance minister, Paul Martin, adopted. Their cuts to transfer payments, particularly for health care, averaged 24 per cent between 1995 and 1998, leaving debt as their largest provincial transfer.

And not only financial debt. “As finance minister, Paul Martin introduced the Canadian Health and Social Transfer in the 1995 budget, which accelerated the provincial wave of cost- cutting that led to hospital closures and significant reductions in health human resources, as well as the corresponding erosion in timeliness of care and public confidence,” noted Antonia Maioni of the Institute of Social health and Health Policy at Mcgill University.

There was nothing courageous about that approach. By 1989, the Tories had reduced the deficit to 4.4 per cent of gross domestic product, from 8.3 per cent. At that time, Mulroney could have adopted the approach that Chrétien took, slashing transfer payments to the provinces and eliminating the deficit entirely. But he judged it to be irresponsible and not worthy of a prime minister in our federal system. So he didn’t.

Writing in Policy Options in 2002, at the same time as Chrétien and Martin were taking a victory lap for their sound management of public affairs, MP Scott Brison acknowledged that the “deficit did disappear under Martin’s watch,” but noted that it “had more to do with the bold initiatives taken by his predecessors than anything done by his government.”

“The economy had been restructured; Canada was open for business again. The free trade agreement with the United States had been signed, the GST and deregulation put in place and privatization begun. Since 1993, free trade has created four out of five new jobs in Canada,” he wrote. “In 1988, just before the implementation of free trade, Canada exported $ 100 billion of goods to the U. S.; in 2001, merchandise exports reached $360 billion. When services are included, yearly two- way trade now amounts to $ 700 billion, or roughly $2 billion a day. Tax and other revenues have climbed by more than 50 per cent since the government was elected, mainly because of economic growth generated by free trade coupled with tax revenue growth fuelled in part by the GST. Despite some recent tepid tax reduction measures, the government will still collect about $ 175 billion this year, compared with $ 116 billion collected the year it was elected.”

The fact is that the Mulroney government left the incoming Chrétien administration with a lower deficit, lower interest rates, lower inflation, increased job creation and increasing revenue. Not a bad place for any new government to find itself in.