The Chretien legacy budget

Promises unkept and challenges unmet
February 13, 2003

Budgets are perhaps the single most important policy moment in the life of a government. Budgets are about choices. They are about when and where, by how much and for whose benefit--to raise or lower taxes, increase or decrease spending, incur or reduce debt. What a government decides, what measures it takes, reflects its values and priorities. And the consequences of these decisions can decisively affect the lives of its citizens.

Shortly after the Liberal government came to power in 1993, it decided that priority number one was to put a stop to the accumulation of deficits. It did this largely by making massive cuts to social programs. By 1998 the deficit was history, program spending had shrunk to levels not seen since the early post-war period, the income gap widened and poverty increased. Thereafter followed an unbroken string of surpluses that, in lieu of a major policy shift, is projected to continue well into the future.

Actually, the term surplus is a misnomer. What the government did by massively cutting programs was to create for itself a huge pool of unallocated revenue (or fiscal dividend) which every year it could use to pay down the debt, cut taxes, or spend.

The Liberals were re-elected in 1997 on a promise to allocate 50% of the emerging surplus to spending, and to split the remaining 50% between tax cuts and debt repayment. This promise, renewed in the 2000 election, implicitly recognized what Canadians were saying: that the war on the deficit had created a huge social debt and it was time to start paying it back.

Did the Liberals make good on their core election promise? We at the CCPA have just released a technical paper examining what happened to this fiscal dividend over the last six years. Our curiosity was sparked by the finance minister's recent assertion before the Commons finance committee that the government had come very close to meeting its 50:50 target. Our study's conclusion-- "not even close Mr. Manley." To date only 10% actually went into new program spending. The rest, 90% of the fiscal dividend, was split almost evenly between tax cuts and debt repayment.

What's more the forgone revenues resulting from the government's $100 billion tax cut--overwhelmingly captured by high-income earners--are eating up 60% of the fiscal dividend, making the 50-50 target virtually unattainable in absence of a policy reversal.

Last fall's Throne Speech belatedly recognized the huge backlog of unmet needs. It put forward a sensible, if vague, plan of social reinvestment. It is highly unlikely, however, that next week's budget will follow through with sufficient resources to implement the Throne Speech. The finance minister, like his predecessor, has been quick to lowball the surplus in order to dampen public demands, and categorically refuses to reverse the tax cuts.

With great fanfare the finance minister will (re)announce the health care accord and a few other other showcase initiatives, but as a legacy budget for the Prime Minister, it will be less than meets the eye. It will fall far short of addressing the real social challenges facing the country.

The government could choose another path. The money is there. With sufficient political will it could implement a bold social reinvestment plan over the next few years and still not reach the program spending levels that prevailed when the Liberals came to power.

But when push comes to shove, this government heeds the influential minority voices that want ever more tax cuts and debt repayment. Thus are the government's hands tied, prevented from fully meeting the basic needs of its citizens--for health care, child care, education, housing, pensions, environmental protection, social security, and the other public goods that are the hallmark of a just society.

Bruce Campbell is the Executive Director of the Canadian Centre for Policy Alternatives.