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[Versions of this story appeared in today's Vancouver Sun , Victoria Times-Colonist, the Saskatoon Star-Phoenix, Edmonton Journal, the Nanaimo Daily News, and online at National Post]]
LIMA, Peru – On February 24, 1998, Paul Martin, then the country's finance minister, rose triumphantly in the House of Commons to deliver the budget speech.
“What I am about to say is something no Canadian government has been able to say for almost 50 years,” he said. “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.”
When Jean Chretien's government delivered its first budget in 1994, the deficit had swelled to $45-billion. And it would not be until Chretien's second mandate, in Martin's 1998-1999 budget, that the deficit would be eliminated.
“Never again will we allow the spectre of overspending to haunt this land,” Martin said in that speech. “Canadians have paid to see the movie ‘The Deficit'. They don't want to pay to see the sequel.”
Now, just over a decade later, Prime Minister Stephen Harper is bracing Canadians to watch that sequel.
It's a remarkable turn for Harper who has fought against deficits and in favour of balanced budgets his entire political life. Indeed, he and other former Progressive Conservatives left the the party of Brian Mulroney in the early 1990s partly because of their disgust in his inability to rein in government spending and tackle the deficit.
“The government of Canada today is in surplus,” Harper said Sunday, at the conclusion of the summit. “The goverment of Canada today is not planning a deficit. But if the government of Canada decides … that we do have to engage in fiscal stimulus, that government spending is essential not just to shore up economic activity but investment markets, that would be the occasion we would go into what would be called a cyclical or a short-term deficit.
“But we would only do that if we can assure ourselves that we can do that while preserving a structural surplus, that any return to a normal level of economic growth will immediately take us out of deficit. And that's the only condition under which we would consider that set of actions.”
Still, explaining the fine points of structural deficits and structural surpluses to an electorate presents a considerable political challenge. Just six weeks ago, during the recent election campaign, Harper was promising he would never go into deficit.
“In terms of the education job, I think we've done a good job at educating the public to the view that deficits are generally bad,” Harper said Sunday. “We now may be in a period where we have to educate the public to a somewhat less simplistic view. There are occasions where deficits are not only not necessarily bad, they are essential.”
Throughout his political career — as Preston Manning's chief policy advisor, to the political battles he fought to unite the right and win the leadership of the new Conservative Party of Canada, and finally in three federal elections he has fought as his party's leader — maintaining a balanced budget has been a core, bedrock commitment. It has never come with an asterisk beside it, denoting that there would be some conditions under which the Stephen Harper of five or 10 years ago — or even six weeks ago — would countenance a deficit.
“I began my political career, about 20 years ago now, in a fledgling new political party, in part to campaign for the necessity of fixing that structural deficit,” Harper acknowledged in a speech here Saturday.
But Harper is now the steward of a Canadian economy facing a crisis potentially as dangerous as Progressive Conservative prime minister R.B. Bennett did when he won office on July 28, 1930, just at the beginning of the long, painful decade of the Great Depression.
“We are talking here about the development of economic conditions around the world that we have not seen in over 70 years. We have not seen this kind of quick slowing of economic growth with widespread deflationary pressures … any time in the post-war period,” Harper said Sunday. “We have to be pragmatic and not ideological when we find ourselves in situations that are unusual.”
Bennett, who coincidentally represented a Calgary riding just as Harper does, at first raised tariffs on imports in order to protect Canadian jobs and then would later raise taxes to protect the Canadian treasury.
Harper said those sorts of measures were precisely the wrong initiatives, deepening and lengthening the depression.
APEC, on the weekend, agreed not to bring in any new trade barriers for at least 12 months, a key goal for Harper when he left Ottawa Friday.
The Depression was well underway before Bennett realized he, too, would have to engage in massive public spending. Harper will begin a spending program sooner, so long as he is convinced he will not run what he and other economists call structural deficits.
“In colloquial terms, it means you would not run long-term or repeated deficits,” Harper said Sunday. “What it means technically is that you wouldn't experience a deficit at a normal level of economic growth.”
In Harper's view, the deficits of the Trudeau and Mulroney years should have been avoided because, by and large, those were years of normal and occasionally rapid economic growth.
“It's my view as an economist, that you should run a structural surplus at a normal level of economic growth,” Harper said.
Harper, who has a post-graduate degree in economics and planned to be a professor in the field before entering politics, said that it was even more vital for governments to ramp up spending in times of deflationary pressure. Canada and most developed economies continue to see low to moderate levels of inflation but there is a danger that rapidly declining commodity prices and rapidly rising unemployment could bring about negative inflation or deflation. Most economists believe deflation to be one of the most dangerous threats to any economy.
“And we have to clear about the current situation,” Harper said. “We're not sure we're quite there.”