Ignatieff must keep Jean Chretien’s economic legacy alive

Liberals are gathered together in Vancouver this weekend to ratify the leadership of Michael Ignatieff.

Of course they are hoping this will be a milestone toward renewing their party.

But in preparing for that future, Ignatieff would do well to remember Liberal party policies of its relatively recent past, specifically the successful fiscal policies implemented when Jean Chrétien was prime minister.

After all, if Ignatieff wins the next election he will face a situation quite similar to the one Chrétien faced when he assumed power back in 1993. Then, as now, the federal government was in deficit. Then, as now, the problem was government over-spending. Then, as now, bold leadership was required to set Canada’s fiscal ship on the right course.

Fortunately for Canada, Chrétien had the courage to take the actions necessary to restore the country’s economic solvency. His first move was to eliminate the deficit which by 1993 had reached $42 billion. Starting in 1995 Chrétien’s government started to restrain some anticipated increases on programs, transfers and subsidies, a process which often entailed making tough political choices.

But in the end it worked. In just three years the Chrétien government succeeded in balancing the budget. What’s more, by 2003 the government could boast that it had paid down more than 10 per cent of Canada’s market debt. And over a six year period – from 1997 to 2003 – Canada’s debt-to-GDP ratio fell from 71 per cent to 49 per cent.

The Chrétien government also made dramatic moves to reduce taxes. In fact, the 2000 Liberal budget contained some of the biggest tax cuts in Canadian history:

  • An average 21 per cent cut in personal taxes over five years-and average cuts of 27% for families with children.
  • An end to the deficit-reduction surtax.
  • A three-year plan to reduce the general corporate tax rate from 28 per cent to 21 per cent to help promote entrepreneurship and to make Canada more internationally competitive.
  • An end to “bracket creep” a process which allowed inflation to push earners into higher tax brackets.
  • A lowering of the capital-gains tax by increasing the tax-free portion of profits from one quarter to one half.
  • Overall, these and other measures resulted in an estimated $100 billion in tax relief for citizens and corporations.

Some of my conservative friends will say that the Liberals took those good decisions partly because the Official Opposition at the time, the Reform Party, pushed in that direction. Whether this is (partially) true or not doesn’t change the fact that these tax cuts helped set the foundation for the economic boom Canada enjoyed in the early 2000s.

In acting as he did, Chrétien was actually following the Liberal party’s own tradition. Indeed, the Liberals have generally been a party of the political centre.

What does that mean? It means on occasion the party moves to the left, as it did in the 1960s and 70s under Lester Pearson and Pierre Trudeau, and as it did more recently under the leadership of Stephane Dion. But at other times, when the situation demands it, the Liberal party will move slightly to the right of centre, at least when it comes to fiscal policies, as it did in the 1950’s under Louis St. Laurent and as it did in the 1990s under Chrétien.

Now it’s Ignatieff’s turn to decide which direction his party will take. Which Liberal predecessor will he emulate? Will he follow the lead of Dion or Chrétien? Will he advocate policies which would lead to a more expansive and costly government, or will he seek to restrain and limit government’s growth?

As a good Liberal he can follow either path. But if he hopes to be a good leader he has but one choice: Now, more than ever, Canada will need a fiscally responsible prime minister if it has any hope of getting back to balanced budgets and sound economic policies.

Michel Kelly-Gagnon is President of the Montreal Economic Institute.

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