Jim Flaherty had heard enough. It was December, 2008, and the minister was on the road, working his way through a heavy schedule of meetings with business executives, local and provincial politicians, and other groups.
Everything was riding on a budget he was scheduled to deliver in less than six weeks. The minority Conservative government had barely survived the autumn; it prorogued Parliament to avoid defeat in the House of Commons. Meanwhile, the global financial crisis had been gathering speed for months. With each passing week, the economic outlook got worse.
For the Finance Minister, two days in Saskatoon drove the message home. On Dec. 17, provincial and territorial finance ministers flew in with grim reports from across the country. The next day, at the city’s Delta Bessborough hotel, Mr. Flaherty met with business leaders for several hours. All had a similar message: Their businesses were feeling the pain of a bad economy.
“A light went on in my head at about 2 o’clock in the afternoon: This is worse than I thought,” Mr. Flaherty recalls. When the second day of meetings wrapped up, he placed a call to Prime Minister Stephen Harper.
“ ‘You know, we hoped we could run a deficit of fifteen or twenty billion dollars and manage the problem at that level. But I don’t think so,’ ” Mr. Flaherty says he told the Prime Minister. “ ‘It’s deeper and darker and it’s at all levels of business.’ ”
That’s how Mr. Flaherty, a conservative who’d risen to political prominence in Ontario as a member of the cost-cutting Mike Harris government, ended up delivering one of the largest deficits in modern Canadian history. The red ink for the fiscal year 2009-10 was nearly $56-billion. When adjusted for inflation, it was on par with the federal deficits of the early 1990s, when Canada was considered a financial basket case.
“And I’m glad we did,” Mr. Flaherty says.
Five years later, the products of Canada’s massive stimulus program are still visible. Cities and towns across the country have new roads and updated hockey rinks. Many homeowners enjoy finished basements and new decks because of a temporary home renovation tax credit. Some of Canada’s native reserves now have new schools, meaning students no longer have to spend hours of their day riding a bus to a neighbouring town.
Another lingering part of the stimulus is debt.
When Mr. Flaherty’s 2009 budget announced a federal stimulus package worth $47-billion over two years, the plan was for Ottawa to be back in surplus by now. That target has since been pushed back to 2015-16.
By the time the books are balanced, seven successive years of deficits will have increased the federal debt from $458-billion in 2008-09 to $620-billion. That rise of $162-billion represents about $4,600 for every person in Canada.
Provincial finances took an even harder hit. An era of recession and unprecedented government spending is on track to add more than $200-billion to the combined provincial net debt.
Wrestling deficits back to the verge of surplus has meant several years of spending cuts. Rating agencies are watching Ontario and Quebec closely to see whether their debt can be managed. Ontario – where manufacturing took a heavy hit during the recession – saw its credit rating downgraded in 2012. In Ottawa, the government is putting its unions on notice that hard bargaining lies ahead in 2014 over sensitive issues like sick leave. A rare strike by federal public servants could be on the horizon.
The question, now that the dust has settled five years later, is was it all worth it?
The political backdrop
Conservatives now realize that Sept. 7, 2008, was a terrible time to trigger a federal election. Modern campaigns are heavily-scripted, micromanaged affairs designed to avoid improvisation at all cost. The economy did not co-operate.
By week two of the campaign, Wall Street was in crisis. Lehman Brothers Holdings Inc. filed for bankruptcy on Sept. 15. The next day, Washington stepped in to bail out American International Group, the largest insurer in the world.
The American financial system appeared to be coming unglued. The Dow Jones industrial average recorded its biggest-ever one-day point drop on Sept. 29, with just over two weeks to go before the Oct. 14 Canadian election.Report Typo/Error