Earlier this year, Mark Carney announced his intention to cut 15 per cent in federal spending over the next three years. But given the dire situation facing Canada’s economy, this is likely only the beginning. How far will Carney go?
Canada’s recent history of Liberal rule can help shed some light. In the mid to late-1990’s, the Liberal government of Jean Chrétien carried out perhaps the deepest austerity at a federal level in Canada’s history. In his election victory speech, Carney called Chrétien a “source of inspiration,” while pledging to continue Chrétien’s tradition of “fiscal responsibility”—a not so subtle nod to Chrétien’s efforts to gut public services while in office.
The Chrétien years can thus offer something of a guide on what to expect from the Carney government in the period ahead.
The 90s debt crisis
Much like today, in 1993 Chrétien’s Liberals were elected amidst a serious economic crisis. The economy had been in recession and unemployment over 11 per cent.
Chrétien promised to introduce a national child care plan and a limited public works program. He also promised to abolish the regressive Goods and Services Tax (GST) introduced by the previous administration of Brian Mulroney. He rode to power on these promises.
In addition to these popular measures, Chretien vowed to shave down the federal deficit in response to demands from Canada’s ruling class at the time. Canada’s federal debt had reached record highs of around 68 per cent per cent of GDP by the early 90’s. This led to a downgrade of Canada’s credit rating and fears on international markets that the country would not make good on its loans.
During that time, the Wall Street Journal ran a widely-read editorial dubbing Canada “an honorary member of the Third World.” Investors took to calling the Canadian dollar “the northern peso.” The fear in Canada was that investor anxiety would drive up the cost of interest payments, further adding to the country’s debt load and so trapping it in a vicious spiral.
Of his promises, Chrétien only kept the pledge to lower the federal deficit—and he did this at the expense of the workers and poor.
Chrétien’s drive to push down spending had little to do with ideology. In previous decades, both Liberal and Progressive Conservative administrations had run large deficits and could do so comfortably knowing that Canada’s debt burden was relatively low.
The ceiling had been reached by the time of Chrétien’s election. The very real threat of further credit downgrades and even withheld loans was too much for Canada’s business elite to bear. They demanded that their party act—but they would not be the ones to pick up the check.
The pressure from the ruling class was immense and all of Canada’s major parties started to embrace austerity measures. Chrétien was therefore not alone. Painful austerity was also being meted out in many of Canada’s provinces, even by the NDP under Roy Romanow in Saskatchewan.
Chrétien’s austerity
In 1995, Chrétien’s Liberals unveiled a budget that The Globe & Mail described as “the biggest federal spending cuts in Canadian history.” The budget proposed cuts of nearly 10 per cent over two years to non-defence operational spending.
This included cuts to healthcare transfers, restrictions on access to Employment Insurance (EI), 45,000 layoffs in the federal workforce, and an end to the federal government building social housing. Chrétien also went ahead with the privatization of CN Rail and Petro Canada, a process that had been started under Brian Mulroney.
The impact of Chrétien’s cuts on working-class people was enormous—and can still be felt today. Federal spending on healthcare fell so low that it took until 2004 to return to the pre-1993 level. Canada went from having 5.4 hospital beds per 1000 people in 1993 to 3.5 in 2003, and has since declined further. Those waiting hours for treatment in hospital hallways today have Chrétien to thank.
From 1993 to 2002, the proportion of people eligible for EI fell from 57 to 38 per cent. The exit of the federal government from social housing has been a major contributing factor to Canada’s housing crisis today. Moreover, a great deal of formerly public land that could have been used to build housing was sold off at a steep discount during the privatization spree of the 80’s and 90’s.
These are the real human and social costs of Chrétien’s “fiscal responsibility”—the same costs that Carney’s austerity will have.
From Chrétien to Carney
There are important similarities between Chrétien’s first period in office and Carney’s. Both governed during periods of economic crisis that necessitated deep cuts to spending on social services, at least from a capitalist standpoint.
Carney plans to cut as deep as Chrétien, if not more. Whereas Chrétien made cuts totalling 10 per cent over two years, Carney pledges cuts totalling 15 per cent over three, although using slightly different metrics and targeting different areas—at least for now. Carney’s claims that his cuts will be painless are thus as hollow as his predecessor.
Both also made promises of minor reforms in order to secure their election victories. Chrétien abandoned those commitments once his position in office was secure. It should come as no surprise if Carney ends up pulling off a similar ruse.
However, there are also important differences. Though Chrétien claimed his measures helped save Canada from becoming “another Greece,” it is widely acknowledged that Canada’s economic recovery from the 90’s on had more to do with the recovery in the world economy—namely, the opening of China and the upturn in the U.S. economy, both major trading partners with Canada.
Carney faces no such situation in the global economy today—precisely the opposite. His measures will thus have all of the downsides of Chrétien’s, and are unlikely to lead to a huge economic recovery.
Unlike Carney, Chrétien also governed during a period of unrivalled U.S. hegemony. Canada’s coverage under the massive U.S. security umbrella meant its military spending could be kept relatively low during Chrétien’s time in office. In turn, while Chrétien made the bulk of his cuts to social services, he also took the axe to the Canadian Armed Forces—including by laying off thousands of troops and closing bases. Defence spending actually fell during Chrétien’s time in office, from the equivalent of 1.9 per cent of GDP in 1993 to 1.1 per cent in 2003.
Carney has no such room to maneuver. His commitment to raise defence spending to five per cent of GDP will mean an even greater degree of cuts elsewhere and in a more concentrated area—that is, in the areas that most affect the average worker.
Carney’s austerity measures will be like Chrétien’s before him—but deeper, more sustained, and more targeted against those who can least afford it. On this scale, no program is too sacred. Hospitals, universities, EI, child care benefits—all stand before the axe to a degree not seen in several generations. The cuts being prepared today’s government will make Chrétien’s look like child’s play.
In those conditions, Carney’s popular support can wear out fast. Millions of Canadians can draw radical conclusions in a relatively short period about what needs to be done in order to secure a decent way of life. Explosions of class anger on multiple fronts are implicit in the situation.
Chrétien enjoyed 10 years in office and was able to overcome opposition and implement his regressive program. It’s up to us to make sure Carney does not succeed.
