Budget credibility

Posted by cwaddell under All, Election 2011, Election 2011 Campaign strategy, Election 2011 Faculty links

Christopher Waddell

While everyone remembers that the Chretien government balanced the federal budget and produced a surplus in the mid-1990s, there’s another aspect of what Paul Martin did as Finance minister that gets much less attention. He also returned credibility to the federal budget process.

Fixed budget dates in early February, a $3-billion annual contingency fund that could be used only for unexpected debt servicing costs or would go to debt reduction at year-end and even under-promising and over-delivering (until that tactic became too obvious) all played a part in restoring the credibility of the federal Finance department, the minister and the budget-making process.

It was needed following a Conservative government under Brian Mulroney that regularly promised the deficit would be eliminated two or three years into the future, yet annually delivered $30-billion shortfalls and could rarely say no to spending on unexpected and unbudgeted political demands.

It was also essential to restore Canada’s international economic reputation even though the Liberal government of the day couldn’t resist more and more tinkering as its time in office grew.

The importance of budget credibility for Chretien may have also reflected his own experiences as Finance minister to Pierre Trudeau. In August 1978 Trudeau returned from spending time with German Chancellor Helmut Schmidt and announced a series of budget cuts on television without even informing his Finance minister. Chretien was subsequently described as being “publicly humiliated by the prime minister and PMO” and thought about quitting but didn’t.

It’s a story worth remembering at the end of this week as the credibility of both the budget-making process and the current Finance minister Jim Flaherty have been demolished.

Those are the inescapable conclusions from interviews conducted by Maclean’s Paul Wells and CBC The House’s Kathleen Petty with the minister after the release of the Conservative platform document yesterday. He sounded almost as blindsided as Mr Chretien had been.

Flaherty’s reputation had never completely recovered from the economic statement released in December 2008 as GM and Chrysler headed for  bankruptcy and the US economy spiraled downwards three months after the collapse of Lehman Brothers.

In that statement Mr Flaherty predicted “After taking into account the impact of economic and fiscal developments since the March 2007 budget, as well as the tax and debt reduction proposed in this Statement, the revised planning surplus is about $1.5 billion in the current year and the next two years. Starting in 2010, surpluses rise substantially.”

Three weeks ago the March 22 budget papers noted  “Savings from the Strategic and Operating Review have not been recorded in Budget 2011. The Government will report on the results of this review in Budget 2012. The Strategic and Operating Review will support the return to balanced budgets, possibly one year earlier, and provide fiscal room to continue paying down debt and investing in the priorities of Canadians, including lowering taxes for families.”

Suddenly the possibility of an earlier return to a balanced budget and what was described in the same budget document as “the objective of achieving at least $4 billion in ongoing annual savings by 2014–15 or 5 per cent of the review base” have become certainties with no ability by Mr Flaherty to explain intelligibly how this will happen (listen to Mr Flaherty’s interviews).

The coherence of Liberal budget-making in this campaign is in no better shape as Elly Alboim has noted in his reaction to the announcement from both the Conservative and Liberal campaigns that they would extend the 6 per cent annual escalator in health transfers to the provinces for at least two more years after 2014 and perhaps indefinitely.

Whatever sort of government emerges after May 2 will have to deal with a $40-billion deficit just as the Chretien government did in 1993 but there is a crucial difference. Part of that election was about how much to cut and how fast to eliminate the deficit. In this campaign that debate is nowhere to be heard in the rush to spend money governments don’t have.

What will be the same is the need for the winner to restore quickly a badly damaged budget process and the credibility of the Department of Finance.

Christopher Waddell is director of the School of Journalism and Communication at Carleton University. He is a former reporter, Ottawa bureau chief for the Globe and Mail and a former CBC-TV parliamentary bureau chief and executive producer-news specials for CBC TV News. You can follow him on Twitter @cwaddell27