Finance Minister Jim Flaherty is poised to release a two-headed budget next week, one that includes billions in aggressive stimulus spending yet also braces the public for lean times ahead.
Virtually every major economist is telling the government this is the right approach, but Conservatives acknowledge it is not a simple story to tell. And getting the story wrong could have serious consequences – both for the country's economic recovery and the party's grip on power.
Different audiences will tune in next Thursday wanting to hear different messages from Mr. Flaherty. Workers in struggling sectors want continued stimulus, markets want a plan to tackle the $56-billion deficit, civil servants want to know whether their jobs and pensions are safe, and voters want assurances the government has all of these conflicting demands under control.
Mr. Flaherty's move to stimulus spending was a reluctant one, and Tories know the record deficit does not sit well with core supporters. They also know there are political risks in moving too fast with tough talk about axing public spending.
Veteran Tories recall the strong public backlash from what has become known as the Musical Ride syndrome – public servants ordered to trim their departments' spending and offer cuts that they know will be unpopular. The Tories witnessed Brian Mulroney's Conservative government attempt across-the-board cuts to tackle the deficit. The RCMP responded by informing the media that the popular Musical Ride was at risk, while the CBC shut down its station in the prime minister's Baie-Comeau riding.
But there are economic risks as well.
David Herle, a pollster who worked closely on budget communications as an adviser to former Liberal finance minister Paul Martin, said the government's messaging won't influence consumer behaviour if cuts are seen as affecting only public servants in Ottawa. But that would change if consumers believed cuts would affect them directly, either through lost services or higher taxes.
“That will be damaging to what is currently a fragile recovery,” he said.
This budget will be more about process when it comes to restraint. A second year of stimulus spending, worth about $19-billion, will run its course until April 1, 2011. This buys Treasury Board President Stockwell Day up to a year to give speeches and consult as he fleshes out a multiyear plan for erasing the deficit.
“It's the famous double-dip [recession]. That's the risk that we're trying to avoid, but also, that's the risk that you cannot discount,” said one government official. As a result, Conservatives speak of “flexibility,” giving them the option of delaying the transition out of stimulus should the economy take a surprise turn for the worse.
The government is repeating last year's message that stimulus spending is temporary, expecting that Canadians will understand that a period of restraint will naturally follow when the economy rebounds.
“The two aren't necessarily contradictory. You also have to put it in perspective [as a] timeline that is falling into place,” the official said.
Canada is host of this year's G20 meetings, at which the transition from stimulus to restraint is expected to dominate the discussions.
Nariman Behravesh, chief economist with HIS Global Insight of Lexington, Mass., one of the world's largest forecasting firms, said all countries must look at their domestic situation to get the timing right.
China and other emerging economies are ready to withdraw their stimulus now, Canada and the United States are on the verge of being ready, while Europe's fragile economy means full withdrawal may have to wait.
“There's two risks here: One is you [withdraw] too little and your budget deficit and debt get out of control,” he said, pointing to Greece as an example of a state with major debt problems. “The other is you do too much [restraint] too soon and you jeopardize the recovery.”
Mr. Day is expected to increase his public presence after the budget release as the government narrows its approach to cutting back. He has already asked public-service unions to help find ways to trim the government's staffing budget, which did little to appease already-apprehensive federal workers.
Setting up the deficit fight as a battle against Ottawa largesse could backfire, Mr. Herle said, because the Musical Ride syndrome could return to haunt the Tories.
Others think the Tories can manage the message.
“Nobody said it would be easy,” said Kory Teneycke, Prime Minister Stephen Harper's former communications director. “But I think if you're making sensible changes and there's a public mood to have fiscal discipline, then I think the government has a reasonably strong hand.”
