This article was originally published in Maclean's Magazine on March 1, 1999
Martin's 1999 Budget
"I wasn't sure if he was running for leader of the party or president of Cuba," one Liberal backbencher whispered as Finance Minister Paul Martin wrapped up his one-hour, 20-minute budget speech to Parliament last week. It may have been a sprint - compared with the multi-hour marathons Fidel Castro is famous for. But Martin certainly missed no opportunity to squeeze in lofty references to the Canadian values of compassion and care, and the Liberal party's determination to defend them. Jean Chrétien gives Martin enough leash on budget day to deliver what is almost a surrogate throne speech, a tour through the Liberal government's current state of mind. And behind Martin's rhetoric about now being "a time to act upon a new national dream - a dream anchored in the good sense of Canadians and their sense of the common good," his message was straightforward. We share your alarm about the state of health care. Money is on the way. And we hear your cries about high taxes, so take these minor cuts now as down payment on more to come later.
There are still a few things Canadians can take to the bank on budget day - notably that the rhetoric will flow just as thickly from the government's critics. Opposition parties claimed the government had made all the wrong choices. Too few tax cuts, stormed the Reform and Conservative right; not enough spending on the poor, wailed the NDP from the left. Business leaders muttered that high-income earners were not getting a big enough tax break, and used surprisingly strong language to suggest the extra $11.5 billion Martin plans to spend on health care over the next five years was a sign the days of fiscal discipline are over. "Mr. Martin's taken out his credit card and he's really going to town," was Canadian Chamber of Commerce president Nancy Hughes Anthony's description.
And as usual, everyone argued about the numbers. Quebec's separatist government denounced Ottawa's decision to restore the original spending formula for social programs, which divides federal health dollars among provinces on a per capita basis. In 1990, Brian Mulroney's Tories capped payments so the three richest provinces - British Columbia, Alberta and Ontario - got less per capita. But Martin's move meant Quebec's total share of the new health-care money was lower than Ontario's, something Premier Lucien Bouchard called "too dangerous" to go unanswered. Martin shot back that Quebec was benefiting from the other element of federal-provincial transfer payments: equalization, which sends money from rich provinces to poor. Under that formula, and largely because of the booming Ontario economy, Quebec will get another $1.4 billion this year, up from $3.9 billion. "Bouchard should not complain," said one Martin adviser. "Paul just balanced Quebec's budget."
Bouchard claims the federal changes were a sneak attack on Quebec's "right to affirm our distinctiveness." But it was hard to see how anyone could be shocked by a Martin budget, given the finance department's propensity for leaking details in advance. Finance officials insisted restoration of the old per capita system had been discussed at several federal-provincial meetings. And every Canadian has known for months pretty well what was in store. Certainly the premiers had a clear picture once they concluded their social union agreement with Chrétien at 24 Sussex Drive two weeks before budget day. At that meeting, Chrétien promised the premiers substantial up-front money for health care, and pledged to restore most of the health-care cuts Ottawa made to provincial transfer payments during the height of the deficit fight.
On budget day, Martin came through. Ottawa promised to raise transfer payments to the provinces from $12.5 billion to $14.5 billion for the next two years, and to $15 billion for three years after that, with the new money to be devoted to health care. And he gave Health Minister Allan Rock $1.4 billion for new federal programs, such as monitoring the performance of the health system. That made Rock and the provincial premiers (other than the inconsolable Bouchard) some of the happiest people in Canada last week. "I think the feds did the right thing," said Alberta Premier Ralph Klein. Ontario's Mike Harris, eager to cement his tax-slashing image in advance of his province's coming election, even began referring to the budget's lower taxes as the "Harris-Martin tax cuts," since provincial taxes are a percentage of federal rates and will fall in step.
The 1999-2000 budget had been planned along the health-care theme for many months. The only outstanding questions to be resolved were exactly how much the Liberals could afford to spend, and whether they would give the money directly to the provinces or do something with it themselves - like launch a new national home-care program. Chrétien never believed a lack of money was the root of the strains on Canadian hospitals, arguing that provinces waste dollars in a well-funded system. Meanwhile, Martin was standing guard over the federal safe, telling anyone who would listen that global economic uncertainty required a cautious approach to new spending. In November, he told a frustrated Rock to expect as little as $500 million in new money in the coming budget.
Martin's fingers were eventually pried loose by two developments. The first was the sheer size of the surplus, now clocking in at $11.7 billion so far this year. Despite gloomy predictions last fall, the Canadian economy continued to dodge the worst of the fallout from the troubles in Asia, Russia and Brazil, and Ontario's booming economy kept the revenues flowing in. The Liberals knew they had to find a way to get those surplus billions off the current year's books or else, under federal accounting rules, see the whole amount given over to pay down the federal debt. And ministers lining up for the money knew it, too. "We'd ask the Finance guys where the hell's that money going to go if not to health," said one adviser to Rock.
The other reason for the Liberals' sudden generosity rests with swings in public opinion, which began increasingly to see Ottawa as a culprit in the strains on health care. Health care was far and away the "top of mind" issue among Canadians - in the Liberals' internal January polling, it registered 22 per cent, compared with just four per cent for high taxes as the most pressing problem. But whereas Canadians had previously been far more likely to blame their provincial governments for the deteriorating health system, every new poll was showing more and more people fingering Ottawa's funding cuts as the cause.
So with the books in good shape and Canadians less likely to distinguish between who was to blame, Chrétien called the premiers to Ottawa in early February and struck a deal. Martin's budget plowed the billions back into provincial transfer payments for health. The only other major new spending was $1.8 billion for innovation and research programs - one of which attracted criticism from the World Trade Organization later last week - aimed at improving Canadian living standards.
Martin and Chrétien had been tempted to make this a "productivity budget." But Liberal strategists countered that the mere mention of productivity conjured images of layoffs and downsizing. Furthermore, most economists agree the surest way to increase Canadian living standards is to take a healthy whack out of taxes, and Martin could not afford to cut taxes and ante up billions in new health-care money at the same time. Instead, he gambled that Canadians will stomach high taxes for a bit longer, provided they believe they are getting good services in return. The cuts will have to wait for next year. Martin's advisers are already putting out the word that not everyone should expect deep savings in next year's budget, one that will be aimed, they say, at providing relief for the middle class. Just so there will be no surprises.
Total federal tax relief as of July 1, 1999 (combined 1998-1999 and 1999-2000 budgetary measures)
Annual income: $25,000; tax relief: $202
Annual income: $50,000; tax relief: $379
Annual income: $75,000; tax relief: $595
Annual income: $100,000; tax relief: $813
Single parent with one child
Annual income: $25,000; tax relief: $620
Annual income: $50,000; tax relief: $529
Annual income: $75,000; tax relief: $653
Annual income: $100,000; tax relief: $871
Family of four with one wage earner
Annual income: $25,000; tax relief: $1,008
Annual income: $50,000; tax relief: $652
Annual income: $75,000; tax relief: $688
Annual income: $100,000; tax relief: $906
Family of four with two wage earners
Annual income: $25,000; tax relief: $970
Annual income: $50,000; tax relief: $556
Annual income: $75,000; tax relief: $629
Annual income: $100,000; tax relief: $711
Maclean's March 1, 1999