by Paul Wells
After the election Harper moved quickly to show he was concentrating on the economy. He met with the premiers in Ottawa, for the first time in two years. On October 30, he swore in a new cabinet, promising: “The central responsibility of our new mandate will be to ensure Canadian families and businesses have the security they need to weather any global economic storm.”
During the campaign he’d been categorical: his government would allow no budget deficits going forward. “Our election platform is not full of grandiose, costly promises,” he wrote in the Toronto Star on October 14. “It’s a prudent approach. We can afford it. We’ll never go back into deficit.”
October 14 was election day. By October 17, three whole days later, previous certainties no longer held. Funny what victory can do to rattle a man’s convictions. In Quebec City, asked whether deficits were on the way, Harper said, “I don’t think we’re in a position to know all of the information. And I think it would be premature to speculate in that regard.”
When swallowing yourself whole, keep swallowing. “One message was very clear,” Harper told reporters after meeting with bank economists in Toronto on November 7. “Don’t be afraid to run a deficit if the deficit is in the best interests of the economy.” The government wouldn’t “force a surplus” if a surplus was “clearly not in the economic interests of the Canadian economy.” Having run as the man to protect Canadians from deficits, Harper was now protecting them from surpluses.
“Already, governments around the world have been responding with large budgetary actions,” he told the Commons on November 20 in his address in reply to his government’s Speech from the Throne. “China has announced a half-trillion-dollar package to bolster domestic spending. The United Kingdom and the United States, though already deeply in deficit, are moving ahead with additional fiscal stimulus. In short, world governments have resolved that they will undertake whatever financial, monitoring and budgetary measures are necessary to cope with the crisis. And, let me be clear: this is also the position of the Government of Canada.”
Was he just giving China and Britain and the United States a hearty clap on the back as they dug themselves into deficit holes? Nope. He was preparing to join them. “We will undertake whatever short-term fiscal measures are necessary to be part of a global economic solution to a global economic problem.”
All of which takes us most of the way to Flaherty’s Economic and Fiscal Statement, which he was to deliver in the Commons on Thursday, November 27. The fall update is a staple of the federal budget cycle. Halfway between one spring budget and the next, a finance minister tells MPs, and through them the nation, how the economy is doing. It is always a big day. This year it would be crucial, because the fiscal woods were on fire.
But first Harper had to spend a weekend in Peru. The 2008 Asia-Pacific Economic Cooperation summit was in Lima. Harper’s main public solo event was a speech to the affiliated APEC CEO Summit on Saturday, November 22. Listening now to the audio recording of that speech, it is possible to hear how uncertain Harper was over the fix Canada was in, and over the proper way forward.
A speaker always needs an opening joke. “Some have observed to me recently that winning re-election right now is a bit like winning a vacation in the Caribbean during hurricane season,” he said. Heh-heh. But seriously, folks: “As everyone here knows, the financial crisis has become an economic crisis, and the world is entering an economic period unlike, and potentially as dangerous as, anything we have faced since 1929.”
What should countries do? Canada had already done a lot, Harper said, recasting the tax cuts of 2006 as prudent fiscal stimulus instead of as raiding the pantry to reward the electorate for dumping the Liberals. But now it was starting to look as though more fiscal stimulus was needed. “These are, of course, the classic circumstances under which budgetary deficits are essential,” he said.
“Now, I say this with some reluctance.” Here he departed from his written text for emphasis: “In fact, some great reluctance.” He’d helped create the Reform Party of Canada twenty years earlier in part to fight long-term structural deficits, he said. “So whatever short-term fiscal stimulus or government spending our government pursues, we will ensure that Canada does not return to long-term, structural budgetary deficits.”
The way he spoke it, the sentence didn’t make a lot of sense. Whatever government spending our government pursues? And in fact, the printed script he was reading from said: “whatever deficit spending.” He had inserted “government” in place of “deficit” unconsciously. The word was in his speech but he couldn’t bring himself to pronounce it.
But despite his reluctance, he was working himself into not just arguing for deficits, but preparing to deliver them. Since his written promise never to spend more than the government took in was only five weeks old, this took some mental contortions. Harper’s new thesis: the greatest economic crisis of the twentieth century was pushed along by a mindless allegiance to fiscal discipline. Not for the first time, or the last, an observer would have wished for nothing better than to watch the latest Stephen Harper debate a Stephen Harper visiting from the recent past. On November 7 and again on November 20 and 22, Harper had spoken, with clarity rising to urgency, about the need to ignore budget balance in the rush to stimulate the economy. His examples, China and the United States and Britain, had already spent big and would spend further. It had become impossible to watch the prime minister and not conclude that he was sorely worried about the economy; that he saw major fiscal stimulus as the response; and that time was wasting.
This is why Flaherty’s fall update came as such a surprise and a disappointment.
Ottawa is never a good town for keeping secrets. On Wednesday, November 26, the day before Flaherty’s fall update, Don Martin’s Calgary Herald column began: “Like it or not, MPs will personally feel the economic squeeze this week. Federal politicians of all parties, along with senior civil servants, will be tapped for sacrifices in Thursday’s fiscal update—with moves expected to include a freeze in their pay, a cut in their discretionary spending and a clampdown on travel and assorted parliamentary perks.”
Martin’s sources were calling the undefined moves “a dramatic and symbolic gesture to capture public attention” and “reflect Ottawa’s empathy” for ordinary people hit by the bad economy. Best yet, the cuts inside the Ottawa bubble would be “almost impossible for opposition parties to oppose without appearing petty.”
Martin quoted Kory Teneycke, Harper’s relentlessly partisan communications director: “It will set the tone for government, Parliament and the bureaucracy. It will happen at a leadership level and affect political parties and politicians across the board.” But Teneycke was more eager to marvel at how awesome the government’s move would be than to describe it comprehensibly. He did say MPs’ salaries wouldn’t be touched, nor their generous pensions. All he would say beyond that was, “There will be much bleating from political parties, but it will hit the government disproportionately. It will be deeper and broader than anyone expects. The other thing I will predict is that the public doesn’t care—in fact, they want it.”
Teneycke’s comments would wear their desired aura of mystery through most of Wednesday and then his office distributed another round of leaks. By dinnertime, the Conservatives’ plans were making headlines. At 8:32 p.m. the Canadian Press moved a story from reporter Julian Beltrame under the headline, “Tories expected to slash party funding.” It said that “a political grenade—ending the $30 million public subsidy to parties” would be a “highlight” of Thursday’s economic update:
“Finance Minister Jim Flaherty will ask the five political parties to give up the $1.95-per-vote subsidy they get to pay for staff and expenses. Opposition parties are likely to see the measure as a declaration of war only weeks after the election because of the Conservatives’ commanding strength in fundraising. The president of the Treasury Board rejected that suggestion. ‘It would hurt us the most,’ said Vic Toews, although he
refused to confirm the measure publicly.”
Beltrame’s story spelled out the consequences. Cutting per-vote subsidies would cost “the cash-strapped Liberals” $7.7 million, the NDP $4.9 million, the Bloc Québécois $2.6 million and the Conservatives fully $10 million. “But proportional to revenues raised last year, the taxpayer subsidy represents 37 percent of the totals raised by the Tories. That’s far less than the 63 percent chop for Liberal coffers, 86 percent for the Bloc and 57 percent for the NDP.”
The story accurately predicted the opposition’s reaction to the surprise move. A Postmedia reporter asked NDP MP Pat Martin what he thought of the rumoured change to party funding. “This means war,” Martin growled.
Where did the idea of eliminating the per-vote subsidy come from? A broad consensus within the Conservative Party that taxpayer money shouldn’t prop up a fading party. Where did the decision to announce this now come from? One man: Stephen Harper. “There had been backroom discussions about this idea of doing something with party finance,” one former Harper advisor said. “But most people thought this was going to be something that was going to happen in the next budget, not something that was going to happen in the statement. There had been a discussion about, well, do we cap it? Do we phase it out over four years? You know, what do we do with it?”
The Conservatives’ beef with the per-vote subsidy was as old as the subsidy itself. On February 11, 2003, Jean Chrétien introduced an array of changes to party funding as a bill in the House of Commons at a time when the sponsorship scandal was a source of daily headlines alleging that government contracts to promote Canadian unity in Quebec had gone to promoters who were willing to kick back a portion of their windfall earnings to the Liberal Party of Canada. As damage control, Chrétien moved to sharply limit corporate and personal political donations. In return the government would pay each party a small sum for each vote it received in the latest general election.
After Chrétien introduced the bill, Harper spoke as leader of the Canadian Alliance opposition. “Obviously, the biggest beneficiary is the Liberals and they will benefit regardless of how people’s views of them may change in their performance as a governing party,” he said. The Liberals had no culture of raising serious money in small increments from legions of highly motivated donors. They were addicted to big corporate donations. Cut off that revenue line and only one hope remained for the Liberals: guaranteed taxpayer funding.
Now Harper could do something about it. Just before Flaherty’s fall statement was to go to print, only a few issues remained for Harper’s final approval. He made those decisions in Lima, during the APEC summit. Jeremy Hunt, Ray Novak’s replacement as Harper’s body man, phoned the PMO with the boss’s final call: “We’re eliminating party finance.”
This was a big surprise, even within the PMO, for two reasons. First, eliminating the vote subsidy was not part of any public debate. The Conservatives were less than two months past a national election campaign in which they hadn’t breathed a word about the issue. And then there was the way they were planning to do it. No cap, no phasing out of the subsidy over years. It would simply be cut. “The PM made a unilateral decision to, you know, ‘Let’s just go for it,’ ” the former advisor said. “In the end everyone said, ‘Okay, well, the PM has made up his mind, let’s just go do it.’ I think the assumption was—and this is the fatally flawed assumption—that the NDP would not be enthusiastic supporters of this but would go along with it, seeing it as a way of weakening the Liberals and furthering their long-term objectives.”
It was indeed a flawed assumption. In his book How We Almost Gave the Tories the Boot, NDP strategist Brian Topp says he received an e-mail from Jack Layton just before six p.m. on Wednesday. “CTV is reporting that the per-vote public financing scheme is to be cancelled in tomorrow’s update,” Layton’s e-mail said. “I believe that the Liberals could be tempted by our earlier proposition, faced with such a catastrophic proposal. Self-preservation could provoke out-of-the-box thinking.”
The “earlier proposition” was the notion of replacing the party that won the most seats in an election with a government formed by a coalition of smaller caucuses. Topp reveals that an NDP committee whose members included Topp and former Saskatchewan premier Allan Blakeney had met repeatedly to discuss such options throughout each federal election campaign since Layton became leader: in 2004, 2006 and again in 2008. Every time, the nameless group—Topp retrospectively dubs it the “scenarios committee”—based its calculations on the obvious fact that the relative size of each party caucus would affect an opposition coalition’s chances of success.
Ten days before the 2008 election, Topp writes, the scenarios committee met. “I suggested that the best possible outcome would be an election result that gave the Liberals and the NDP in combination a majority of the house.” Blakeney agreed that would be a wonderful outcome. But it probably wouldn’t happen. If the NDP and Liberals fell short, the Bloc Québécois’s support would be needed. “Blakeney considered a direct deal with the Bloc to be political poison,” Topp recounts, “and preferred that the Liberals, who would benefit by leading the government, pay the price of obtaining that support.”
On October 14, the election results added up to a severe case of Blakeney’s scenario: 77 Liberals, 37 New Democrats, 49 Bloc, 143 Conservatives. “Nonetheless, Layton gave it a try,” Topp writes, but his election-night telephone pitch to a dejected Dion got nowhere. Even then Layton didn’t drop the notion, and he directed Topp to open a line of communication with David Smith, the veteran Liberal senator and campaign organizer.
Harper knew none of this. “Had we known that, I think we might have reacted differently,” the former Harper advisor says. “Our working assumption was that Jack Layton wanted to replace the Liberals as the principal opposition, and position the NDP as the principal party of the centre-left. That was his overriding objective, and therefore we had common interests.” Harper was hoping to play one opposition party against another. He did not believe he would set them all against him.
Harper also had the unanimous support of his MPs. Shortly after he returned from Peru, the Conservatives held a special evening caucus meeting in the Railway Committee Room off the Hall of Honour in Parliament’s Centre Block. The room was a holdover from Confederation’s early days, when the railway was the connecting thread for a young nation’s transport, communication, economic development, patronage and more. As one of Parliament’s largest and most ornate meeting rooms, it usually holds enough chairs for the weekly Conservative caucus meeting. But tonight there was standing room only. Flaherty outlined his fall update, including the party-funding measure Harper had decreed only days before. “Everybody applauded,” somebody who attended the meeting said. “Everybody thought, ‘Yes, good good good, because that’s a Reformer-ish thing. It’s a little more red meat, we want some more red meat. Tough times are coming, and this is the chance to turn the knife and bankrupt the other parties.’ ”
A Conservative MP said, “Despite all the navel-gazing afterwards, there wasn’t a voice against it in caucus. Amongst MPs, as you walked around the government lobby”—on the day of Flaherty’s update—“everyone thought, ‘Right on. This is fantastic. This is the right thing to do.’ ”
On that same Thursday morning, the Liberals were having an emergency caucus meeting to decide how to respond to the threatened attack on their funding lifeline. They settled on a clever communications strategy. Instead of decrying the change to party funding, they would link it to a broader story about Harper’s sleepy, useless response to the global economic crisis. Going into the meeting, the chief object of their concern was their own imperilled backsides; on the way out they wept for the orphaned nation. “Stephen Harper is playing silly politics,” Liberal MP Gerard Kennedy said. “While world leaders are bringing their parliaments and their parties together to work on economic problems, Stephen Harper is playing silly divide-and-conquer games to further his political agenda.”
Th
is would have been a ridiculous talking point if the economic update had contained the immediate fiscal stimulus Harper had described as “essential” on several recent occasions. It didn’t. Given the economic near-panic in the land, the 132-page Economic and Fiscal Statement Jim Flaherty delivered on Thursday afternoon still stands as one of the more witless documents the Harper government has ever produced.
Its title was “Protecting Canada’s Future.” The thrust of it was that everything that needed doing to protect Canada’s future had already been done in the past. The Goods and Services Tax cuts and the modest increases in infrastructure spending of 2006 and 2007, it turned out, were the work of a clairvoyant government that had blunted the effects of the crisis years in advance. Without mentioning, until now, that that was what they were trying to do. How modest of them.
The document listed no new measures regarding fiscal stimulus. The word “deficit” appeared not once in the main economic update document. Nor was the move on party financing the only bit of jiggery-pokery in the update. There was a provision to suspend the right of public sector unions to strike until 2010, and another that removed the right of women to complain to the Canadian Human Rights Commission over pay equity. All of this is hard to square with Conservatives’ later claim that they hoped the NDP would support the government on the elimination of party financing. The economic update was a whole, and there was no way the NDP could support it with all this stuff in it.
The former advisor offered this explanation: “The PM, because of his interactions with the G-20 and so on, had decided that everyone was going to do stimulus and Canada was going to play ball. But he didn’t want to do it in a haphazard way. It was thought that the natural time to do that was going to be the 2009 budget, and basically he wanted the November 2008 fiscal statement to be a base-setting exercise, just to strictly lay out the numbers and hint at more action to come.”
