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As the saying goes, there's something about the prospect of being hanged that concentrates the mind wonderfully. So it was for the Liberal government on Jan. 12, 1995 - then in office only 14 months - when faced with a Wall Street Journal editorial entitled "Bankrupt Canada?" that raised the prospect of Canada's having to plead with the International Monetary Fund for help. Some Finance Department officials can still quote the opening paragraph from memory.

"Turn around and check out Canada, which has now become an honorary member of the Third World in the unmanageability of its debt problem," it read.

Days later, the Bank of Canada took the desperate step of raising interest rates by a full percentage point to stabilize the crumbling loonie. How embarrassing; the recent Mexican peso crisis was morphing into a crisis involving the United States' other neighbour. We thought we were similar to the Americans; they thought we were similar to the Mexicans. Canada, too, the Journal concluded, was "flirting with the financial abyss."

So finance minister Paul Martin put on his running shoes. He had no choice.

The Liberal Red Book, drafted 10 years ago as the party's manifesto for the 1993 election, had set an "interim target" of reducing the deficit to 3 per cent of GDP within three years. But the government's February, 1995, budget set Ottawa on a much faster course. The election platform translated into a goal of cutting the deficit to $25-billion or so by the 1996-97 fiscal year. Instead, the government recorded its first surplus in the 1997-98 fiscal year. It's been in the black ever since.

The transformation after almost 10 years of Liberal budget-making is formidable. About $50-billion in government debt has been paid off, bringing the key debt/GDP ratio below 50 per cent from more than 70 per cent. In 1995, 36 cents of every dollar the government brought in went right back out to pay interest on the debt; now its 20 cents. By 2005, according to a recent study by the Toronto-Dominion Bank, Canada's federal debt burden is likely to slip below U.S. levels.

And so the Liberals are in the mood to party like it's 1969.

Jean Chrétien's last budget - his 10th as prime minister if one counts the economic statement on the eve of the 2000 election - is going to emphasize new spending. The rhetoric of last fall's Speech from the Throne has been translated into a liberal agenda today, with billions for health care, child benefits and daycare, the military, the environment, infrastructure, foreign aid and aboriginals. Still, there will be a surplus in 2003-2004. And some tax cuts, though they will take a back seat.

The right mix, say government officials. Their polling is similar to a Globe and Mail poll released Monday that found broad support for social spending so long as the new iron law of Canadian politics - no deficit - is met.

But leading Liberals know that one shouldn't exaggerate Canadians' munificence. Polling also shows they have long memories of government waste in the 1970s and '80s and are unwilling to countenance it again. The public liked the principles of program review in the mid-1990s that helped eliminate the deficit, which is why Finance Minister John Manley will find some small savings in Tuesday's budget by reallocating spending. The public has little patience for government programs that treat their tax dollars cavalierly, such as the gun registry. Indeed, when asked about specific spending, they almost invariably preferred further tax cuts to increased funds for programs within federal jurisdiction (which exempts health care and education; they fall under provincial jurisdiction).

In a nutshell, then, Canadians seem willing to let Mr. Chrétien have his day. But they probably know this can't be a trend.

And they're right.

The transformation of the government's books (at the provincial level, too) may have been successful, but the job of transforming the Canadian economy is hardly over. Productivity remains too low; the resources sector is still too dominant; and overall tax levels are still too high.

But, then, the world beyond Canada seems to know that. The day the Journal editorial appeared, the dollar hit a nine-year low by diving below 71 cents U.S. In one way, at least, those were the good old days.

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