Canada has hit the headlines as a model for the coalition Government seeking to cut Britain’s national £156 billion deficit. Canada’s Liberals turned a national deficit of 9.1 percent in 1993 to a small surplus by 1997, followed by 10 more years of surpluses, making the country the envy of G7 finance ministers. They did it, it is argued, by cutting the budget by 20 per cent and overcoming opposition to what even ministers described as a “bloodbath budget” in 1995.
David Cameron announced last week that the Tory-Liberal Democrat Government would slash public spending by up to 20 per cent, softening people up with a call on the nation to support measures that will change Britain’s “whole way of life” and pinning the blame on Gordon Brown’s Government. The £6 billion cuts already announced – some of them hitting the young and unemployed – are just the beginning.
In the process, there will be “unprecedented” public consultation, a re-examination of the public sector’s size and a new “star chamber” of cabinet members scrutinising all departmental budgets – all measures borrowed from Canada’s cuts programme.
Simple, then – well, no actually. The circumstances are very different and, indeed, the facts, too, can get in the way.
Canada’s then finance minister Paul Martin – later a less successful Prime Minister – is much sought after. A tough minister, even he seems embarrassed at being labelled a “minimalist” over the state’s role in providing services.
In controlling finances, he also believed governments shouldn’t be so vulnerable to bankers – hence, Canada maintained tight banking regulations that were to serve it well in the 2008-09 banking crisis.
While Cameron and Chancellor George Osborne have been telling us of their consultations with Canadian counterparts, these are none other than fellow Tories Stephen Harper and Jim Flaherty, both firm advocates of reducing public services, who are happily taking credit for an earlier Liberal government’s actions.
What really happened in Canada?
After a crushing defeat of the Tory government in 1993, the Liberals cut budgets by 20 per cent. That wasn’t going to be achieved by pay freezes and efficiency savings only, so Prime Minister Jean Chrétien ordered a total spending review of what was essential and what could either be delivered by someone else or cut altogether – in his words, “nothing is off the table”.
Senior civil servants set stiff departmental targets, which were then followed by the ministerial “star chamber” designed to overcome departmental competition to duck the cuts they had to take. Televised sessions involving economists, business and labour leaders gave the process a “consultative” gloss.
Some public budgets – such as benefits for the elderly and spending on aboriginal peoples – actually increased, but that meant bigger cuts elsewhere. The science and transport budgets were halved (the national railway, airports and air traffic control were privatised), while overseas aid and fishery subsidies were hit badly.
Defence was cut by 15 per cent, much of it achieved by merging the armed forces command. In all, 40,000 public sector jobs went – close to 12 per cent of all civil servants.
The heaviest cuts were passed onto the provinces, which run the key front-line health and education services. Hospital waiting lists shot up, thousands of nurses lost their jobs and some hospitals closed, leading to overcrowding and higher infection rates. School class sizes rose from 25 to 35 children and many special needs classes closed.
Any myths about Canadians’ support for all this need to be greeted with some scepticism. True, the Liberals were re-elected in 1997 with a reduced but still-significant majority, but that owed much to the lamentable state of the Tories, with just two MPs after the 1993 debacle. They only recovered after first splitting and then re-forming in 2003.
Provincial results – where because the cuts were felt locally political retribution might have been severe – are inconclusive. The Liberals were defeated in some provinces, notably Quebec by the Parti Québécois, but elsewhere there was little shift in allegiance except in Canada’s largest province, Ontario, where an extreme right-wing Tory Party benefited from the struggles of the left-leaning New Democrats in trying to deal with the recession.
Most importantly, the world wasn’t in economic recession and Canada’s immediate neighbour was booming. The United States economy was buoyant, with the recently-agreed North American Free Trade Agreement easing trade barriers and a weak Canadian dollar helping to increase exports – Canada’s lumber industry flourished as housing demand rocketed, while extensive natural resources, especially oil, and agricultural produce helped it survive.
During the five years of public austerity Canada’s economy grew by about 3 per cent a year, boosting finances through rising tax revenues and enabling Canada to avoid tax increases.
Economic growth is not forecast for Britain’s coalition. Indeed, cuts in public spending will only depress the economy further, adding pressure on public finances.
Politically, Tory strategists hope to pin all the blame on Labour, with the Liberal Democrats left on the sidelines as Cameron and Osborne reap the benefit.
Unless Labour under new leadership finds a formula that truly separates it from New Labour and provides constructive alternatives, in which case the Lib Dems won’t escape blame for the coalition.
And, back in Canada, where the Tories continue to govern as a minority government, they’ll be watching to see if the coalition survives.
