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FEBRUARY 22, 1994

A cautious start

The Challenge: The new Liberal government, elected four months earlier in a rout of the ruling Conservatives, inherits a cripping deficit of $42-billion for fiscal 1993-94 -- the highest ever.

Highlights: The budget projects modest deficit reduction to $39.7-billion in fiscal 1994-95. Ottawa guts the Department of National Defence, slashing 16,500 jobs and mothballing military bases. Unemployment Insurance benefits are cut, accounting for one-third of the overall savings predicted by fiscal 1996-97. Transfer payments to the provinces are frozen for welfare and higher education, while the hiring and salary freeze for the civil service is extended. Paul Martin creates his first big contingency fund of $2.4-billion, his signature cushion of extra money to guarantee that deficit targets are met.

Defining quote: "For years, governments have been promising more than they can deliver, and delivering more than they can afford," Paul Martin said. "This has to end. We are doing it."

Outcome: Widespread disappointment over the tepid measures aimed at taming the runnaway deficit. Critics charge that that tough decisions on spending cuts have simply been delayed -- just like in so many previous budgets. "This is a sad budget," said Preston Manning, then leader of the Reform Party. "It's just like the Conservative budgets -- the real cuts are going to be next year or the year after that."

FEBRUARY 27, 1995

Bold assult on the deficit

The Challenge: Debt-servicing costs are soaring, and the public, impatient with the cautious measures taken to date, demand action.

Highlights: Mr. Martin announces the biggest federal spending cuts in Canadian history, promising to shrink the deficit to $24-billion within two years. The federal civil service faces 45,000 job losses, with more cuts to the military. Transfer payments to the provinces for health, welfare and education will be cut by $7-billion by 1998. Business subsidies are slashed, the Crow rate grain subsidy is eliminated, and many services and investments are to be privatized, including CN Rail, part of Petro-Canada, and the air navigation system (now called Nav Canada). The budget increases the excise tax on gasoline.

Defining quote: "Our reductions in government expenditures are unprecedented in modern Canadian history," Paul Martin says. "In this budget, we are bringing the government's size and structure into line with what we can afford."

Outcome: This budget contributes to dramatic deficit cuts in future years. After two decades of cynicism about rosy budget forecasts, Canadians begin to see a new budget style in which financial predictions are deliberately conservative and forecasts are easily exceeded. The 1995 budget lays the groundwork for years of pitched battles with the provinces about offloading and underfunding, especially to health and education.

MARCH 6, 1996

Holding the line

The Challenge: The government's third budget can't repeat the painful cuts of the previous year's historic budget, but the Liberals can't be seen to be backsliding in their war on the deficit.

Highlights: Forecasts a budget shortfall of $17-billion by fiscal 1997-98, or just 2 per cent of GDP, down from a deficit that was almost 6 per cent of GDP in 1993-94. Spending cuts are less dramatic than in past years, and there are no tax increases. The government unveils an overhaul to the old-age security system, but says it will not take effect for five more years. They lift the salary freeze for civil servants and there are some modest tax breaks in areas such as tuition and charitable donations. Also, there are tax changes for child-support payments.

Defining quote: "The government has broken the back of the deficit," Prime Minister Jean Chrétien says. "We are not yet at the end of the road, but for the first time in a long time, the end is in sight."

Outcome: A modest budget that elicits a modest response. "Last year's budget was the watershed; they didn't have to do a heck of a lot [this year]" says economist David Rosenberg, then of Nesbitt Burns. Responding to criticisms that his deficit-cutting is too slow, Mr. Martin tells the House of Commons: "Draconian budgets are not difficult to write. The arithmetic is painless. But the human consequences are not. . . . A measured pace ensures that short-term savings will become long-term savings."

FEBRUARY 18, 1997

Turning the taps back on

The Challenge: Facing an expected election -- it is later called for June 2 -- Mr. Martin seeks to win back liberals dismayed by years of sharp cuts to social programs. He knows he has won over the fiscal conservatives.

Highlights: With the deficit now at its lowest level in 15 years -- and officially forecast to be $9-billion in fiscal 1998-99 -- Mr. Martin rolls out a modest amount of new spending on social initiatives. He boosts spending on job creation, increases the child-tax credit for low-income families, raises the contribution limit for RESPs, and improves the tuition tax credits. He also adds money for home care, drug coverage and health education. He creates the Canada Foundation for Innovation to fund university research. And he announces a plan to cut unemployment insurance premiums the following January.

Defining quote: "For us the time to cut is over. Now it's time to invest," Mr. Martin says.

Outcome: The Liberals are re-elected in June, but with a slim majority of 155 of 301 seats. The Reform Party doesn't break through in Ontario, but it becomes the official opposition after promising large tax cuts as a key plank in its election platform. Mr. Martin's tough budgets have angered some voters, including those in poorer regions hit by the large cuts to unemployment insurance. But his mild pre-election budget may have softened some of the blow.

FEBRUARY 24, 1998

Back to school

The Challenge: The books are balanced for the first time since 1970 -- a welcome surprise after the Liberals forecast a $17-billion deficit for 1997-98 in the last budget. With the fiscal ship back on an even keel, the Chrétien government starts to ponder another legacy.

Highlights: Ottawa announces its $2.5-billion Canada Millennium Scholarship Foundation to provide funding to low and middle-income students for the next 10 years. Paul Martin also adds new funds for facilities that dole out research grants, and helps students with improved tax credits, better student loan payment terms and RESP improvements. Ottawa makes its first significant tax cuts, all targeted at low and mid-income earners. The government says it will cut $7.2-billion in taxes over four years.

Quote: "This will not be a millennium monument made of bricks and mortar, but when future Canadians look around they will see its legacy everywhere," Jean Chrétien says.

Outcome: Students are offered some support from Ottawa, but Canadians see that tuition fees are soaring as provinces continue to gripe about inadequate federal funding for education. Ottawa wins praise for its tax cuts, but commentators note that only the lowest income earners will see a significant benefit. "It's minimal tax relief," says Robert Brown, past chairman of Price Waterhouse. "If you want to be optimistic, you can call it a down payment."

FEBRUARY 16, 1999

Off life support

The Challenge: In polling, Canadians tell Ottawa that health care funding is their top priority. The media is filled with reports about waiting lists, shortages and over-crowded emergency rooms.

Highlights: The federal government says it will add $11.5-billion to the health system during the next five years. Total transfers to the provinces will be maintained at $15-billion for two additional years, providing stable funding. Mr. Martin cuts personal income taxes by $7.7-billion over three years. Among the tax measures, he eliminates the 3 per cent surtax for those earning more than $50,000, raises the basic personal exemption and commits more for the child tax credit.

Defining quote: "We can never lose sight of the need to take a balanced approach. For the social and economic needs of our country are not separate. They are not in conflict," Mr. Martin says. "The balanced pursuit of both is the key to the health -- and wealth -- of our country."

Outcome: Critics are quick to note that health costs are soaring, and the new federal money isn't enough to keep up after years of cuts. Insufficient health funding will still dominate the public agenda over the next few years. The tax cuts are small, but commentators suggest Mr. Martin is holding back because he knows he has one or two more budgets before the next election.

FEBRUARY 28, 2000

Reaping the rewards

The Challenge: With the Reform Party already gearing up for the next election with promises of major tax cuts, Mr. Martin is under pressure to respond in kind. He has room to manoeuvre -- the government is flush with cash, from soaring tax revenue, thanks to a booming economy.

Highlights: The government says it will cut taxes by $58-billion over the next five years, while adding billions in new spending. Most of the tax cuts -- $40-billion -- are to personal income taxes, but corporate tax rates also fall. Mr. Martin says personal income taxes will fall an average of 15 per cent over the next five years. In a surprise move, the tax system is indexed to inflation, eliminating so-called bracket creep. Spending is increased on research and innovation, foreign content limits rise for RRSPs, and parental leave is extended to a year.

Defining quote: "It's a budget that says you can cut taxes and invest in tomorrow at the same time," Mr. Martin says.

Outcome: The opposition complains that the tax cuts are too small, but at $58-billion, no one else sounds unduly upset -- except, of course, Canada's provincial premiers. At a pre-budget meeting in January, the premiers demanded $6-billion more in annual funding, but got $2.5-billion in the budget. Afterward, they agree to unite in a strategy to demand more funding for health, education and social services.

OCTOBER 18, 2000

Reaping the rewards, Part II

The Challenge: The government is planning an election, and must address a tax plan unveiled by the new Canadian Alliance Leader, Stockwell Day, who proposes huge cuts and a 17-per-cent flat tax. With the Canadian economy still on a tear, Mr. Martin decides to issue an economic statement, known as the mini-budget.

Highlights: The government boosts tax cuts to $100-billion over five years, calling it the largest tax cut in Canadian history. Among the tax changes, Mr. Martin eliminates the surtax on high incomes, reduces the capital-gains tax, speeds up increases to the child tax benefit, and provides a $250 rebate for low-income earners facing higher home heating costs. The government also says it will pay down at least $10-billion of the federal debt this fiscal year.

Defining quote: "We are cutting tax rates for all Canadians. . . . We are going further and faster than previously pledged, and we are not waiting for some undefined time to do so," Mr. Martin says.

Outcome: The Liberal's tax-cut campaign platform makes opposition parties gulp in dismay, although they bravely step up to the microphones to criticize the mini-budget as too timid. On Nov. 27, the Liberals sweep back into power with a strong majority. But economists note that the steep tax cuts take away future flexibility on spending. Still, they add reassuringly, at least the economy remains strong.

DECEMBER 10, 2001

Keeping Canada safe

The Challenge: The economy is slowing sharply and there are big new tax cuts to finance, but the government is also facing huge new national security obligations after the Sept. 11 terrorist attacks.

Highlights: Mr. Martin says he can balance the books while boosting security spending. The federal government will spend $7.7-billion over six years to improve border and airport security. He adds a new $24-per-round-trip airplane ticket tax to pay for increased airport security. There are no new tax cuts, or new money for health and education. There's also little money for an ambitious broadband Internet program being championed by Industry Minister Brian Tobin, a rival of Mr. Martin's for the Liberal Party leadership. Mr. Martin also reduces his famous financial cushion that has helped him exceed forecasts through eight previous budgets.

Defining quote: "Our purpose is clear: to keep Canadians safe, to keep terrorists out and to keep our borders open," Mr. Martin says.

Outcome: New spending and previously announced large tax cuts offer stimulation to Canada's economy, which records modest growth in 2002 after an even weaker year in 2001. But airlines complain bitterly about the new ticket tax, pointing out that air travel is already in a slump after Sept. 11. A month after the budget, Mr. Tobin quits federal politics, saying he wants to spend more time with his family.