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What previous governments did

As Canadians wait to see how the Tories deal with this economic crisis, reporter Michael Valpy looks back at previous governments and how they dealt with a depression, a recession and a deficit.

Globe and Mail Update

R.B. BENNETT SEES THE LIGHT TOO LATE

Who

Richard Bedford Bennett became Canada's 11th prime minister in 1930; he also served as his own finance minister. He was a progressive thinker for the times, on the left end of the Conservative Party. But he didn't see the Depression coming, didn't recognize its magnitude until it had swamped Canada. He also had an unattractive personality. He was erratic, insensitive, conceited, self-obsessed, a one-man band without the capacity to share successes and responsibilities with his ministers and as cold as an Arctic breeze - none of which helped him.

What were his troubles?

The Depression brought hardship that neither he nor any other politician was equipped to handle. He led a party that did not condone government interference in business practices. His popularity plunged like the stock market as the country sank into its worst financial difficulty in history. He and his government appeared indecisive and ineffectual and he became a symbol of the sins of capitalism and the butt of jokes (automobiles pulled by horses and oxen because their owners were too poor to buy gasoline were known as Bennett buggies).

What he did

In January, 1935, he made a series of national radio broadcasts (his government created the forerunner to the CBC) rejecting his former policies, declaring that laissez-faire capitalism had failed and introducing a Canadian version of U.S. president Franklin Delano Roosevelt's New Deal - a minimum wage, regulated work hours, health and unemployment insurance, government regulation of banking and trade and other social measures. His reforms were subsequently introduced as legislation.

What was the effect?

The reforms came too late to save his government, which was defeated in October. Moreover, Britain's Judicial Committee of the Privy Council - at that time Canada's final court of appeal for constitutional matters - declared his New Deal beyond the jurisdiction of the federal government to enact and struck it down. On the plus side, the JCPC's decision emphasized the need for Canada's Supreme Court to become the country's final court of appeal. And the Depression eventually ended.

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THE 1980s RECESSION

ALLAN MACEACHEN TRIES FOR FINGERS IN THE DYKE

Who

As finance minister in Pierre Trudeau's Liberal government, Mr. MacEachen introduced a budget in November, 1981, proposing massive income-tax reforms in the midst of an economy collapsing into recession, high unemployment and soaring inflation. Mr. MacEachen justified the tax reforms in the name of equity and maintaining a tax regime that was competitive with that of the United States, but his many critics claimed they further flattened the economy, torpedoed the capital markets, did nothing to combat inflation and unemployment, and irritated just about everyone.

What were his troubles?

Increasing numbers of Canadians viewed the government as incompetent in managing economic affairs. The negative repercussions of the 1981 budget, especially from business, forced Mr. MacEachen to withdraw many of his tax reforms. The economic numbers made it apparent that the minister and his department had seriously misjudged the severity of the global recession. Moreover, with the government already deep in deficit, Mr. MacEachen refused to shift his priority from fighting inflation to using fiscal stimulus to create jobs.

What he did

In his budget of June, 1982, Mr. MacEachen backtracked from his 1981 budget, but insisted the way out of recession was to bring down inflation and increase productivity, to which end he introduced the six-and-five program - limiting annual increases in federal public sector wages and related federal expenditures to six per cent during the next 12 months and five per cent the next year, and requesting private-sector voluntary compliance.

What was the effect?

Unions declared the program a war against workers; provincial governments, most of which had introduced stimulus measures, refused to endorse it, and Mr. MacEachen was replaced as finance minister in the fall by Marc Lalonde. Mr. Lalonde introduced a stimulus package in October and a short-term, stimulative "special recovery" budget the next spring as the economy began to recover.

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THE 1990s

SLAYING THE DEFICIT WITH PAUL MARTIN

Who

Finance minister Paul Martin declared in 1994 that Canada must stop drowning in red ink. The federal government was running a $40-billion deficit, and the provinces another $25-billion - almost 10 per cent of GDP. Canada's total indebtedness reached 55.9 per cent of GDP, or $22,000 for every man, woman and child. The minister declared that past pledges by his predecessors to cut program spending hadn't worked and that Canada needed a smaller, smarter government. He vowed that his budget of 1995 would deliver just that.

What he did

His 1995 budget cut various business subsidies by 60 per cent, reduced dairy subsidies by 30 per cent, reduced foreign aid by 21 per cent, cut subsidies for grain shipments, closed military installations and announced the axing of 45,000 civil-service jobs. Corporate and gasoline taxes were raised. Adult immigrants were assessed a $975 landing fee. Ottawa's transfers to the provinces for health, education and welfare were rolled into one - to give the provinces greater spending flexibility, it was claimed -- but the catch was the total amount would be reduced $7-billion over two years. Unemployment insurance was renamed employment insurance, and benefits were reduced and eligibility made harder for seasonal workers. Crown corporations Canadian National Railways and Petro-Canada were privatized. Mr. Martin whacked again in 1996: another $1.4-billion in cuts to provincial transfers; further reductions to foreign aid and defence; the end of tax deductions for those who made child support payments.

What was the effect?

Final numbers for the 1995-96 fiscal year showed Mr. Martin had bettered his own targets and was on track to bring the deficit down to $9-billion - or 1 per cent of GDP - by 1998-99 with no significant tax increases. His work was praised by business and condemned by social activists, women's groups, many provinces and labour. In 1998, the federal government began a decade of budgetary surpluses.

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