a mandate to promote, rather than repel, foreign direct investment. It took steps to reduce government subsidies, and it identified Crown corporations for privatization. It steadily improved relations with Canada’s allies, particularly the United States. And it established a renewed spirit of co-operation with provinces that would ultimately lead to a unanimous agreement to amend the Canadian constitution. There was a litany of accomplishments that Mulroney could parade in front of conservatives and Canadians to demonstrate that his government was making a constructive difference.
Turning the nation’s finances around was another matter. To western Canadians in particular, dealing with the deficit was as much a sacred trust as protecting old-age pensions was to seniors. “The fiscal conservatives particularly in Alberta expected the Conservatives to balance the budget, reduce the taxes, and reduce the debt,” said Preston Manning. “When everything went in the opposite direction [Mulroney] just lost that whole constituency right there.”
But what was Mulroney’s record on the deficit? Did the Reform party happily exploit a myth, or did the PCs deserve rebuke for failing to balance the budget?
On entering office the Mulroney government faced a projected $42 billion deficit and a burgeoning level of public debt. While there is little doubt that finance minister Michael Wilson ushered in a new era of responsible financial management, progress on deficit reduction was slow, if not invisible.
Before Mulroney came to power, Liberal finance minister Marc Lalonde had seemed more concerned with putting the federal deficit into perspective than actually dealing with it. In April 2003, Lalonde wrote, “High interest rates and the recession have raised the federal deficit substantially. With the recovery expected to be moderate and gradual and with the international oil market outlook as weak as it is now, large decreases in magnitude of the deficit will not be easily achieved … I do not hold the view that the deficit must be brought down immediately…. There has been ample room for the federal government to finance the deficit without causing an increase in interest rates… The deficit must be brought down to lower levels as appropriate for the economy.” In other words, Lalonde was telling the country that dealing with the deficit was for some other finance minister at some other time.
Contrast the words of Marc Lalonde with those of Michael Wilson. In a document tabled in the House of Commons on November 8, 1984, barely one month after the change in government, Wilson reported, “For too long, the government has ignored the causes of the problems and has dealt only with the symptoms. For too long it has allowed the fiscal situation to deteriorate and the debt to increase ... we must put our fiscal house in order so that we can limit, and ultimately reverse, the massive build-up in public debt and the damaging impact this has on confidence and growth.”
The Liberal government saw debt as a tool to manage the economy. Wilson said that the deficit and the debt were the problem. When Wilson made this statement, government projections were calling for deficits over the ensuing four years to be in the range of $34 to $36 billion. In a November 1984 statement, measures were announced that would reduce government spending by about $4 billion in the short term.
Wilson’s first full budget came in May 1985. Actions were specified to reduce the deficit, including the de-indexation of various tax items and social payments. Under Wilson’s budget proposals, only increases in inflation beyond three percentage points would be automatically reflected in key elements of the tax and social security system. At the same time, to spur investment and job creation, the government announced a $500,000 lifetime capital gains exemption. The change in direction and policy from the previous administration was stark and clear.
Tough measures to control spending were coupled with an increase in tax revenue. (De-indexation was a method of increasing personal income taxes.). But the deficit was still projected to be in the range of $32 to $35 billion over the next few years. The actions might have seemed bold, but the results were modest.
Those who thought some quick-fix belt-tightening and a change from the big-spending Liberal ways would solve the problem were severely disappointed. Even with Conservatives in power there was no plan or reasonable expectation that the deficit would be eliminated in the foreseeable future.
Finance Minister Wilson wanted to lead on the deficit problem, but a number of people in the Mulroney government were not convinced Canadians were up for a stiff round of belt-tightening. Geoff Norquay, a PC party scribe and policy guru since 1981, was one of many who were frustrated by the government’s inability to persuade Canadians of the severity of the deficit problem in Mulroney’s first term as prime minister.
Norquay had been a leading backroom figure in the party for more than thirty years. His career in the policy field began with stints in the Ontario and Alberta governments. Before signing on with the PC Party, he was director of research for the Canadian Council on Social Development. When he was hired as research director for the PC party, he was interviewed by MPs who both sup- ported and criticized party leader Joe Clark. (Such was Clark’s command of the caucus in 1981, after the electoral defeat of February 18, 1980.) After the 1984 election, Norquay took on various responsibilities in the office of the prime minister, including speech writing and policy development. He “held the pen” for Jean Charest and the party during rebuilding efforts after the 1993 campaign and became a frequent commentator and panellist for the party in the national media. He served as communications director for Belinda Stronach in her run for Conservative party leader and for Stephen Harper when he was leader of Her Majesty’s Official Opposition.
Norquay contends that the government was way ahead of the public in its desire to tame the deficit. “People forget how just about every element of Canadian society vehemently and vigorously opposed doing anything about the deficit. The first response [to cutbacks] of the CBC was to publicly announce that the first thing they would do was to close the television station in Baie Comeau [Mulroney’s hometown]. There was controversy in the press that went on for months about killing a study on seagull eggs as part of cutting back. Just about every institution in Canadian society opposed what we were trying to do, including corporations. The Catholic church was at war with the government of Canada over social and economic policy. No one wanted to deal with this.”
As it was, the government did not hold firm on its plan to de- index old-age pensions. The change in position can be traced to a pledge made by Mulroney during the 1984 election, to treat government social programs as a “sacred trust.” The pledge was made in an attempt to quell fears that a Conservative government had a hidden agenda and would “slash and burn” government spending on the altar of the deficit. Mulroney comforted voters before the election by assuring them that savings would be found elsewhere in the system. Even hard-line western conservative John Weissenberger, a key figure in the creation of the Reform party who considered deficit reduction a priority, questioned the decision to target seniors’ programs. One event galvanized public opinion against Mulroney on the pension issue: an unplanned confrontation with a sixty-three-year-old Solange Denis, who was protesting outside Mulroney’s Langevin block offices. The prime minister was caught off guard when Denis said, “You made promises that you wouldn’t touch anything... you lied to us. I was made to vote for you and then it’s goodbye Charlie Brown.”
“We cut tail and ran,” said Norquay.
Despite the lack of visible progress on the deficit, by almost every objective measure Mulroney and Wilson had changed the course of government finances for the better. The problem for Conservatives was that it took expertise on government finances to understand what they had accomplished.
Governments are like oil tankers: very hard to turn. In fact, most government spending is subject to long-term commitments that make it difficult to institute any sort of quick fix. In 1984–85, 23 per cent of all spending was on interest. The government could hardly reduce spending by repudiating its debt. About 22 per cent of all spending was payments to individual Canadians for universal social programs: Old Age Security, Unemployment Insurance, and Family Allowance. The “sacred trust” promise made it difficult to reduce these costs. Besides, Canadians would only be prepared to cut payments to individuals once they were satisfied that government waste and inefficiency had been addressed. Transfers to provincial government for health care, education, social assistance, and equalization amounted to about 17 per cent of all