Paul Martin, hell or high water budget 1995

Paul Martin cut government spending deeply in his hell or high water budget in 1995
Paul Martin, hell or high water budget 1995

Paul Martin became the Liberal government’s finance minister in 1993 and was soon convinced that Canada’s deficit and debt were unmanageable. On February 27, 1995, he introduced a budget that chopped social programs, unemployment insurance, and transfers to the provinces for health care, education, and social assistance. The battle for public opinion was fierce. Martin was famously quoted as saying he would follow through “come hell or high water.” That phrase was not used in his speech, but rather in the campaign to sell the budget.

“Our very way of life as Canadians [is] being tested”

The bottom line

There are times in the progress of a people when fundamental challenges must be faced, when fundamental choices must be made, and a new course charted. For Canada, this is one of those times. Our resolve, our values, our very way of life as Canadians are being tested.

The choice is clear. We can take the path, too well trodden, of minimal change, of least resistance, of leadership lost. Or we can set out on a new road of fundamental reform, of renewal, of hope restored. Today we have made our choice. Today we take action . . .

The debt and the deficit are not inventions of ideology. They are facts of arithmetic. The quicksand of compound interest is real. The last thing Canadians need is another lecture on the dangers of the deficit. The only thing Canadians want is clear action. Therefore let me go directly to the bottom line . . .

Spending cuts

Over the next three years, the actions in this budget deliver almost seven dollars of spending cuts for every one dollar of new tax revenue. This budget will deliver cumulative savings of $29 billion over the next three years, of which $25.3 billion are expenditure cuts. This is by far the largest set of actions in any Canadian budget since demobilization after World War II.

These measures will have a very significant impact on the level of government spending in the future. By 1996–97 we will have reduced program spending from $120 billion in 1993–94 to under $108 billion. Relative to the size of our economy, program spending will be lower in 1996–97 than at any time since 1951. The impact of these measures on the fiscal health of this country will be significant and substantial.

By 1996–97, our financial requirements, that is, what we actually have to borrow from the markets, will be down from $30 billion last year to $13.7 billion, or 1.7 percent of GDP. That percentage is lower than what is projected for the United States, for Germany, for Japan. In fact, it is lower than what is projected for all of the national governments of every country of the G-7 . . .

Smaller government

After extensive review this budget overhauls not only how government works but what government does. We are acting on a new vision of the role of government in the economy. In many cases this means smaller government; in all cases it means smarter government.

We are dramatically reducing subsidies to business. We are changing our support systems for agriculture. We will be putting government activities on a commercial basis wherever that is practical and productive.

We will be overhauling the unemployment insurance system as part of our social security reform, and reforming the system of transfers to the provinces—putting it on a basis that is more in line with the actual responsibilities of the two levels of government.

It is essential that our effort be guided by clear principles and values. First, we believe it is crucial that the government get its own house in order. Our budget must focus on cutting spending, not raising taxes . . .

Pocketbook economy 

If our purpose is to get the economy right, we need to redesign the role of the government in the economy to fit the size of our pocketbook and the priorities of our people. What is that role? It is to provide a framework for the private sector to create jobs, to see an aggressive trade strategy as central to Canada’s industrial strategy. And it is initiatives such as the prime minister’s, in Asia and Latin America, that will create opportunity for thousands of Canadians here at home.

What is the role of government in the economy? It is to ensure that the nation’s finances are healthy. It is to do what only government can do best and leave the rest for those who can do better, whether they are in business, labour, or in the voluntary sector.

This budget puts our priorities into action. It does so after a top to bottom review of all departments of government led by the minister responsible for public service renewal. As a result we will be able to reduce departmental spending dramatically over the next three years while maintaining the services that are truly needed by Canadians.

For example, between this fiscal year and 1997–98, annual spending will go down by $1.6 billion at defence, $550 million for international assistance, $1.4 billion at transport.

Over the next three years spending will be cut by more than $600 million at natural resources, almost $900 million at human resources development, over $200 million at fisheries, almost $900 million in the industry portfolio, more than $550 million in the regional agencies, and nearly $450 million at agriculture. In short, overall departmental spending will be cut by almost 19 percent in just three years.

Let me emphasize, this is not a slowdown in the increase of spending masked as cuts. These are not the cuts of yesteryear. These are real cuts in real dollars.

In the last recession, every household, every business, every volunteer group in this country was forced to face up to hard choices and real change, but the Government of Canada did not. In this budget we are bringing government size and its structure into line with what we can afford.

Cutting jobs and subsidies

As a result of the cut-back and reform of programs, the president of the Treasury Board has announced that the public service will be reduced by some forty-five thousand positions over three years, with twenty thousand being eliminated by the summer of next year . . .

In this budget, total spending on business subsidies will decline from $3.8 billion in this fiscal year to $1.5 billion by 1997–98. That is a reduction of 60 percent in three years. Remaining industrial assistance will be targeted on the key engines of economic growth: trade development, science and technology, and small and medium-size business.

Transportation and direct agricultural production subsidies are being eliminated or substantially reduced. This is historic change. Decades ago, even into the last century, those subsidies were put in place to respond to Canada’s transportation and agricultural needs then existing. As time has passed, those needs have evolved but the subsidy structure has not. For years governments have known about the need for change but they have hesitated to act. But we cannot postpone action any longer.

To that end, subsidies under the Western Grain Transportation Act are eliminated effective 1995–96, resulting in savings of $2.6 billion over the next five years. This subsidy evolved from the Crow rate established in 1897. It has played a pivotal role in the development of the prairie economy, but in more recent years it has come to restrict the ability of prairie farmers and their industry to adapt and to compete. To facilitate this change we will make a one-time payment of $1.6 billion to prairie farmland owners to be provided for in this fiscal year 1994–95 . . .

Privatizing operations

The government is committed to privatizing and commercializing government operations wherever feasible and appropriate. Our view is straightforward. If government does not need to run something it should not, and in the future it will not.

Today we are announcing that the minister of transport will initiate steps this year to sell CN [railroad]. He will also commercialize the air navigation system. When market conditions are favourable the minister of natural resources will sell our remaining 70 percent interest in Petro-Canada. The minister of public works and government services will examine divesting all or parts of the Canada Communications Group.

Let me be clear. This is not a one-shot exercise. Our effort to identify other candidates for privatization will continue. This is not ideology, it is simple common sense . . .

Reform and renewal

For too long, governments have known the need for reform and renewal—known the need, but not the will. That has been the problem with the governments of this country. This government has made its choice and it is against the status quo and in favour of a stronger country.

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Source: Canada. Parliament. House of Commons. Debates, 35th Parliament, 1st Session, February 27, 1995.

More information:
Canadian Encyclopedia, Paul Martin.

Institute for Research on Public Policy:
Half-Way Home: Canada’s Remarkable Fiscal Turnaround and the Paul Martin Legacy. 

Canadian Centre for Policy alternatives:
Hell and High Water: An Assessment of Paul Martin’s Record and Implications for the Future

Photo: Prime Minister’s Office, Dave Chan.

 

 

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