Martin's 1998 Budget

There were still three weeks remaining before budget day when Finance Minister Paul Martin sat down one afternoon for a strategy session in his fifth-floor office in the Centre Block of the Parliament Buildings.

Martin's 1998 Budget

There were still three weeks remaining before budget day when Finance Minister Paul Martin sat down one afternoon for a strategy session in his fifth-floor office in the Centre Block of the Parliament Buildings. For more than a month, Martin had known - since receiving government revenue totals at the end of December - that the first balanced budget in 29 years was now within reach. But he remained low-key about the prospect, telling aides and finance department officials that eliminating the deficit was "only one of our goals as a government." Now, he fussed and fretted over the draft of his budget speech from his favorite speechwriter, freelancer Larry Hagen. As always, Martin, pen in hand, tinkered with the copy, adding three phrases: "We will balance the budget next year. We will balance the budget the year after that. And, Mr. Speaker, we will balance the budget this year." At that point, Martin recalled last week, "I guess I realized for the first time the enormity of what we had done."

From a $42-billion deficit in 1993 to hero and zero in five budgets. For Martin, last week marked a brief occasion for reflection - before moving on to other goals. "The preparation for the next budget," he told Maclean's at week's end, "begins next week." In the meantime, predictably, his critics concentrated on the present, and all the things they claimed Martin failed to achieve in his budget. The Reform party said he missed an opportunity to cut taxes; the NDP complained that he failed to help the country's jobless; financial analysts noted that he needs to address Canada's $583-billion debt; and Ontario Premier Mike Harris bitterly criticized Ottawa for not allowing the provinces to share in the windfall by restoring previous cuts in transfer payments that, provincial governments say, affect the quality of medicare programs. But, responded Prime Minister Jean Chrétien in defence of his government's budget: "Mr. Harris has difficulties because he cut taxes by $4 billion and now he can't balance the books."

Such arguments aside, no one could deny the right of either Martin or Chrétien to boast about the significance of last week's budget. The last time a federal government managed to balance Ottawa's books was, in Martin's terms, almost half a lifetime ago; the finance minister, now 59, was a 30-year-old businessman in 1969 when Edgar Benson tabled a deficit-free budget as a member of a Liberal government that also included Paul Martin Sr., and Jean Chrétien. And the back-to-back balanced budgets that Martin is promising would mark the first such time in almost half a century.

The business of getting to zero was a five-step process, beginning with Martin's first budget in 1994. In many ways, the real breakthrough came in the landmark 1995 budget, in which Martin announced plans to reduce government spending by more than $25 billion over three years, while adding tax increases amounting to $3.7 billion. "That," says Martin, "led us to where we are today." But the last five months of that process were just as laborious and painstaking, ranging from Martin's first discussions with Chrétien and Liberal advisers after last June's election, and through a fall and winter filled with meetings and debates within the finance department. Then, finally, came last week's unveiling. As always, the most intensive part of the budget preparations began in October, as Martin commenced the round of speeches and discussions that he has instituted as a way to assess the country's priorities. By then, the Liberals were committed, because of promises made in last year's election campaign, to spend any money left over - after meeting the commitments made in their 1997 budget - on a mix of increased payments to existing social and economic programs, tax cuts and debt reduction. At that point, Martin was publicly forecasting a deficit of about $19 billion for the current fiscal year - although most of his department officials were certain the final figure would be far below that.

At the same time, the finance department was awaiting the results of one of two budget-related polls it conducts every year to assess the mood of Canadians. The survey was organized by two consultants from the Ottawa-based Earnscliffe Strategy group - David Herle and Ellie Alboim, both of whom have close ties to Martin and have played key roles in previous budgets. They, in turn, contracted out the field work to Toronto-based Pollara, headed by Liberal pollster Michael Marzolini. Alboim, an intense, precise figure who was once Ottawa bureau chief for the CBC's The National, was responsible for assessing the best way the final elements of the next budget could be packaged and "sold" to the public. Herle, a shrewd former president of the Young Liberals with a deceptively laid-back nature, helped interpret poll results.

For the first time, Herle decided to try a polling technique involving "trade-off" questions to assess priorities. Traditionally, poll respondents are given a list of budget priorities - such as debt reduction and tax cuts - and asked to list them in order of importance, or rank the various options as "very important," "rather important" or "not important." But such questions, the finance department decided, produced imprecise results. Instead, respondents were asked to choose between issues - whether debt reduction, for example, was more important than child-care tax credits or tax cuts. The overall findings, said one adviser, convinced Martin's team "that while debt reduction continually tops the list of Canadians' priorities, they don't mean that literally. What they really mean is that they want us to keep in the same direction, but not at the expense of creating some new programs."

One of those programs was the Canadian Millennium Scholarship Foundation, a centrepiece of the re-elected government's speech from the throne. Martin's office, in consultation with Chrétien, assembled an advisory board to offer ideas on the most efficient way of achieving the fund's goal: making higher education more accessible to economically disadvantaged students. (As well, deputy finance minister Scott Clark pushed the idea of direct federal grants to registered education savings plans, designed to encourage parents to start saving for their children's higher education.) The Millennium Foundation was a pet program for the Prime Minister, while Martin had been trumpeting the need to encourage younger people to improve their skills. As early as 1986, before he entered politics, he lectured friends on the need for government to do so or risk having an entire "lost generation" of unemployable youths within a decade. High-quality education, he argued, "is the key to a large middle class - and the middle class is the backbone of the country."

As December arrived, Martin, his circle of advisers and finance department officials began preparing for a round of informal but crucial meetings. The minister, Clark and other participants would gather in the 21st-floor boardroom of their downtown Ottawa office on O'Connor Street and ruthlessly debate policy issues while abandoning usual protocol. "The idea," says one adviser to Martin, "is that someone can tell their boss that he's full of crap without fearing repercussions." (Such meetings are, in shorthand slang, known as "CMOs"; the acronym stands for "Cohen, Minister, and Others," referring to onetime deputy minister Marshall (Mickey) Cohen, a bright and egotistical figure who first instituted the practice.) Martin, notorious for his love of no-holds-barred policy debate, adored the sessions, which lasted up to five hours. In January, they extended into weekends.

As 1997 neared its close, the original group of about 20 people dwindled to a smaller core as the list of items under discussion shrank. Regular members of the group, along with Martin and deputy minister Clark, included assistant deputy minister Don Drummond, Alboim, Herle, Martin's parliamentary secretary Tony Valeri, senior policy adviser Ruth Thorkelson, communications director Scott Reid - a former Earnscliffe employee - and Claude Dauphin, Martin's senior adviser on Quebec.

But the key figure, after Martin and Clark, was Martin's executive assistant and most trusted adviser, Terrie O'Leary. A diminutive chain-smoker with a rapid-fire manner of speaking, O'Leary is renowned for several qualities - including her devout loyalty to Martin and her willingness to speak to him in terms so blunt they often stun outsiders. She provided balance and a bridge between the wishes of Liberals and those of bureaucrats. Many equally important discussions were held in small groups on an impromptu basis: people such as Herle and Alboim would arrive early for meetings, head to O'Leary's office to chat, and find Martin sitting there, holding court on a couch with one leg flung up casually over the side.

For key meetings, Chrétien sent his most senior adviser and favorite troubleshooter Eddie Goldenberg, and sometimes his communications director, Peter Donolo. Increasingly, as the budget date loomed, Martin and Chrétien talked on the phone, or Martin would slip the Prime Minister a note while the two were in the House of Commons and arrange to see him after daily Question Period.

At the O'Connor Street offices, there was often another surprise visitor - a mixed-breed terrier and miniature greyhound puppy named Spenser, who became known as "The Budget Dog." Thorkelson rescued the traumatized animal from a shelter and, concerned about leaving him at home, brought Spenser to the office on many occasions. Although Spenser generally dozed through meetings, he took a particular shine to Martin, and often trailed around the office after him - sometimes leaving behind liquid reminders of his presence. "The damn dog," Martin often remarked with patently false irritation, "is no bigger than a cat."

Within the cabinet, the common devotion of previous years to budget reduction had, predictably, vanished. Through the fall and into January, Martin increasingly had to fend off demands for more money from cabinet colleagues. In almost every case, his answer was the same: "If you can tell me exactly what you'll do with the money, let's talk - but don't come and just ask for cash without any particular plan." Some debates were particularly difficult. Health Minister Allan Rock, who as justice minister was one of Martin's closest allies in cabinet, faced heavy pressure from his officials to ask for more money to launch new, but unspecified programs. As well, the provinces were pushing for increased funding for medicare. Martin took a hard line on both issues. Although Martin and Rock insisted last week that relations between them are good, acquaintances on each side tell a different story.

In December, figures showed the government was about to register its largest one-month surplus in history - $3.6 billion. That came on top of previous calculations putting revenue well ahead of projections. Buoyed by those numbers, Martin went home to Montreal for Christmas. An avid reader whose favorite books often relate to his passions of politics and economics, he read biographies of former British prime ministers Benjamin Disraeli and William Gladstone, as well as historian Christopher Moore's new book 1867: How the Fathers Made a Deal, on the making of Confederation.

When Martin returned to Ottawa in the first week of January, it was clear he would be able to balance the budget. But other questions remained, such as how to juggle any benefits the government would be handing out. After urging from Martin, who wanted the money spent elsewhere, Chrétien agreed that the total put aside for the Millennium Fund should be trimmed from $3 billion to $2.5 billion. Another suggestion was to cut a percentage point off the seven-per-cent Goods and Services Tax. But that option was quickly rejected: among other things, the government would lose about $2.6 billion in annual revenue. And Martin particularly wanted to offer a tax break aimed directly at lower-income Canadians - which he finally did. Another reason for rejecting the GST idea, though Martin did not like to admit it, was unwillingness on the part of the Liberals to remind Canadians of the GST - which Chrétien had promised to scrap. "Why" reasoned one adviser, "bring up something everyone is mad at you for?"

In the end, the result was a rather busybody financial blueprint that, with its mix of small programs, offered a little something for nearly everyone - although nothing major beyond the Millennium Fund. But Martin says it is the budget of which he is "most proud - alongside the one of 1995." The reason, he says, is the focus it puts on education, and preparing for the future. "The actions of my father and his cabinet colleagues in the 1940s in government set the stage for most events of the next 50 years," he notes. "The events of the next five to 10 years will do the same for Canada." Moreover, Martin, as always, insists that his late father - who helped introduce many of the country's existing social programs - would be pleased by his son's achievement. "My dad," says Martin, "was the kind of responsible leftist who understood that if you want to accomplish things for the guy on Main Street, you cannot be beholden to the money people on Wall Street."

As always, the final fine-tuning of the budget continued right up until 72 hours before its presentation - when Martin was obliged to attend a weekend meeting of international finance ministers in London. By then, he and most of his staff knew the details of the 275-page Budget Plan so well that they could quote many paragraphs and charts from memory. But because of Martin's trip, for the first time in five budgets, he did not conduct the many hours of painstaking rehearsals and recitations of the speech that he normally stages at home in front of his wife, Sheila. This time, she heard the speech for the first time, along with most other Canadians, when her husband rose in the House of Commons as she sat in the visitor's gallery above. "Sheila," recalled Martin with a smile, "said that it was the first time she actually enjoyed hearing the speech - because, for once, she hadn't had to endure it so many bloody times before." Perhaps, as well, her enjoyment was enhanced by the fact that her husband was making history.

Modest Proposals

Beyond the historic feat of erasing the federal deficit, Finance Minister Paul Martin's fifth budget offers a slim package of spending, tax and debt-reduction measures. Highlights:

New spending is concentrated on education. The Canada Millennium Scholarship Foundation will provide 100,000 students with grants worth up to $3,000 a year at a onetime cost to Ottawa of $2.5 billion. Other measures include giving Canadians grants of 20 per cent on the first $2,000 of annual contributions to registered education savings plans for their children.

Tax relief is targeted to lower-income Canadians. Basic deductions for those earning less than $20,000 will be increased by $500, removing almost 400,000 people from the federal tax rolls and reducing taxes for another 4.6 million. And the three-per-cent "temporary" surtax - introduced in 1986 - will be eliminated for those earning up to $50,000 and reduced for those earning up to $65,000.

The massive $583-billion national debt will decrease by $3 billion - its first downward turn in 29 years.

Maclean's March 9, 1998