Scenes from inside the pressure cooker

BUDGET 2009: Political fortunes will rise or fall on this document. How it came together- and what’s next

Scenes from inside the pressure cooker

Paul Desmarais Jr., co-chief executive officer of Montreal’s Power Corp., inheritor of his family’s legendary influence in business and politics, isn’t used to being told over a boardroom table that he’s got only five minutes to sum up his thoughts. Neither is Mike Lazaridis, founder and co-CEO of Research In Motion, the Waterloo, Ont.-based maker of the iconic BlackBerry. But that was the time limit Carole Taylor, the former British Columbia finance minister, set for Desmarais, Lazaridis and seven other business heavyweights, plus one tax policy guru, for the opening round of remarks at their first meeting, held on Dec. 23 in Toronto, as an economic advisory committee formed to help Finance Minister Jim Flaherty craft the high-stakes budget he delivered this week.

Flaherty summoned the committee into existence in the harried days and weeks after his embarrassing Nov. 27 fall economic update. That nearly disastrous stumble, which sparked a parliamentary crisis, was quickly followed by a growing conviction at the top levels of the Conservative government that only a rapidly delivered, massively costly budget would convince Canadians that they were serious, after all, about acting in the face of a world economic crisis. Senior Tories calculated that the economy’s plunge would make it easier for them to do things they said they never would in last fall’s election campaign, like spend their way into an enormous deficit. Anxious Canadians, they figured, wouldn’t be keeping track of their party’s policy zigs and ideological zags. “Our sense is the public isn’t interested in partisanship,” said one senior Conservative aide. “They’re interested in seeing that we’re hard at work on the economy.”

In that pressure-cooker atmosphere, Taylor agreed to chair Flaherty’s advisory committee. It included not only Desmarais and Lazaridis, but also the likes of billionaire B.C. investor Jimmy Pattison and University of Calgary professor Jack Mintz, the country’s most sought-after tax policy expert. She started off at the Toronto meeting, the first of four they held, by asking them all to compress their most urgent recommendations for Flaherty, who was at the table each time they gathered. “I said, ‘You’ve got five minutes, give it your best shot,’ ” Taylor told Maclean’s. “Tell him the two or three things he must, or must not, do.”

Just how influential the advisory group really ended up being is open to debate. According to Taylor, many of its main recommendations made it into the blueprint Flaherty tabled in the House this week. They favoured short-term stimulus spending, including not only public works but also high-tech projects, along with reforms to boost Employment Insurance payments, and permanent tax cuts targeted mainly at lower income brackets. It was all there. And not all of it was no-brainer material. Many economists had argued, for instance, that cutting taxes isn’t an efficient way to juice a slumping economy, and the lost tax revenue would make it that much harder for the government to someday dig its way back out of deficit.

Taylor said the advisory committee “struggled” with the debate over what sort of tax relief made sense as stimulus. “It seems to be that if it’s a temporary tax cut, it isn’t spent, because it doesn’t become a part of family financial planning,” she said. “If you really want to encourage consumers, it has to be permanent.” Critics contend, however, that Flaherty concocted the committee to give him exactly this sort of advice. “If you’re putting together a budget group that’s clearly weighted toward the business sector, you’re going to get business-sector type advice, like tax cuts, which don’t have a particularly stimulative impact on the economy,” said David Macdonald of the left-leaning Canadian Centre for Policy Alternatives. “If you put yourself in an echo chamber, you hear the same thing over and over.”

The debate over the economic advisory committee—was it a genuine bid to gather the best ideas, or a mere public-relations gambit?—sums up the whole atmosphere swirling around this unusually intense budget-making exercise. It’s impossible to disentangle the high stakes for the faltering economy from the big-time political wagers on the table. Unemployment might soar, fragile industries sink, but political fortunes, too, will rise or fall on this 360-page document.

Flaherty’s stature is obviously at risk. What’s left of the master-strategist reputation of his boss, Prime Minister Stephen Harper, is also on the line. As for Michael Ignatieff, the new Liberal leader has little choice but to attempt a tricky hedge bet, trying to sound critical enough of the budget to seem tough, but not so hard-edged that he’d have to defeat Harper’s minority unless he decides he’s really got no choice.

Ignatieff’s immediate reaction was to leave all his options open. But he hardly sounded, on Tuesday, like a man powerfully predisposed to vote the government out of office this week or next. “There are some positive sides to this budget,” he told reporters outside the House that evening, “which I believe are the result of the pressure and unity among opposition parties.” By unity, he was referring to the controversial coalition deal Liberals struck with New Democrats, with formal Bloc Québécois backing, after Flaherty’s fall economic update. The coalition’s aim was to defeat the Tory minority, then ask Governor General Michaëlle Jean to give them a chance to form a government, rather than call an election. Instead, Harper persuaded Jean to let him suspend Parliament until it returned this week to table the budget, after a perfunctory Speech from the Throne.

But Stéphane Dion, whose memory is already fading to a dimly recalled historical footnote around Ottawa, was still Liberal leader when the coalition was hatched. After Harper won his reprieve from Jean, Ignatieff’s ascent to the leadership was hastened when Dion stepped down, and Ignatieff’s rivals to succeed him dropped out. Although Ignatieff never declared the coalition dead, keeping alive the threat of reviving it should Flaherty deliver a budget that was impossible for Liberals to swallow, his heart never seemed to be in the concept.

And his muted first response to the budget seemed to signal that he was inclined to let it pass, even though he reserved the right to meet with his caucus and make his final decision on Wednesday this week. Among the key points that he said Liberal MPs would be hashing over were whether the budget’s Employment Insurance changes did enough for the many thousands who will surely lose their jobs in 2009, and whether Flaherty’s new billions for infrastructure could really be spent fast enough to help the economy better weather the recession. “We’ve got to look at the fine print,” Ignatieff said, which hardly sounded like a rallying cry for a quick bid to form that coalition regime, much less risk the winter election he’d earlier declared Canada needs “like a hole in the head.” Between passing the budget and voting it down, Ignatieff had a third option: reserving the right to try to amend it when it goes to a House committee for review.

Naturally, both Liberals and Tories were claiming their leaders had come out of the budget process in better shape. But could it actually be true in both cases? Pollster Nik Nanos said that Harper and Ignatieff each appear to have benefited, in different ways, from the extraordinary political period leading up to the budget.

Any lingering reputation for Conservative ideological orthodoxy that might have clung to Harper was surely washed away in the torrent of deficit spending that would, in former times, have seemed inconceivable on this Prime Minister’s watch. Conservative true-believers might mourn the loss of the old Harper, but Nanos said other Canadians would feel more at ease with the new version. “One of the concerns people always had about his Conservatives was that they were dogmatic and ideological,” Nanos said. “Now what we’re seeing is a more flexible working Prime Minister. In the long run, that could serve him well.”

Ignatieff faced a different potential challenge, not concerning his ideology, but about the way he took over his party. After all, he gained the Liberal leadership without having to go to the trouble of winning a convention. Not only did he lose out on the chance to introduce himself to Canadians by mounting a winning leadership campaign, the democratic legitimacy of his claim on Liberal party loyalty might be in doubt—a particular problem for a politician whose foes like to caricature him as a descendant of Russian aristocrats whose bearing shows it.

Instead of having to invent a way to introduce himself to Canadians, Ignatieff was able to hit the road on a budget-themed tour that put the focus squarely on how he was applying his vaunted brainpower to a pressing matter. “This process was ideally suited for him,” Nanos observed. “It’s turned into an intellectual pursuit: what should we do in this economy? His strengths are setting criteria, working the problem, trying to find solutions. He’s going to be able to render judgment on the budget. This gives him something substantive to talk about, instead of just, ‘Hello, I’m Michael Ignatieff, the new Liberal leader.’ ”

Ignatieff’s pre-budget tour was varied, taking him from a town hall in Halifax, to a business lunch speech in Toronto, to a session with enthusiastic union leaders in Montreal. Still, it couldn’t compete with the blitz of consultations the Tories staged, a process unrivalled in any recent budget. Flaherty not only met repeatedly with his blue-chip advisory committee, he also sat through many hours of by-invitation-only, closed-door, round-table meetings in four cities. Harper held his own round-table sessions, and also worked the phones to keep the provincial premiers in the loop—considered a strategic necessity, since they would have to sign onto the budget’s big shared-cost infrastructure plans.

Nobody outside a tight-lipped inner circle around both men really knows much about the personal relationship between Harper and Flaherty. A government official said their first meeting on the budget was on Dec. 16, followed by four more meetings in short succession in the first two weeks of January, and then a critical final face-to-face at a downtown Toronto hotel on Jan. 20. At that meeting, the key details were finalized. In the days that followed, control of the budget seemed to pass mostly out of Flaherty’s hands and into the clutches of the Prime Minister’s strategic communications operation. Time-honoured traditions of budget secrecy were soon shredded in a blitz meant to prepare the ground for budget day.

It started on Jan. 22, when reporters were called to a briefing on Parliament Hill, at which a government official, who spoke on the condition he not be named, coolly announced that the budget would project a $34-billion deficit in 2009-10 and $30 billion the following fiscal year. That bombshell—clearly designed to blunt the impact of those staggering numbers when Flaherty unveiled the complete budget—was only the start. Cabinet ministers fanned out to announce $1.5 billion in training funds for laid-off workers, $1 billion to upgrade social housing and $600 million to renovate homes on First Nations reserves, another $1 billion to help out mining, forestry and farming towns, and hundreds of millions for other programs.

Jean Chrétien’s Liberal government, when Paul Martin was finance minister through much of the 1990s, became famous for leaking bits of its budget plans, and floating trial balloons on potential measures. At the time, Finance Department purists shook their heads over the erosion of secrecy practices, which are designed largely to make sure all players in financial markets get key economic and financial news at the same moment. But compared to 2009’s all-you-can-eat buffet of pre-budget budget information, the selective leaks of the Martin era look, in retrospect, like thin gruel.

But have the Tories permanently altered the budget process, throwing it wide open for good? One senior government adviser said the process would likely not be repeated. The largely improvised process of wide-ranging consultations, however, might become a model for future budgets. Dozens of opinion leaders, especially business figures, were pulled into meetings with Harper, Flaherty, and other key cabinet ministers. As a direct result, many will likely be far more inclined to sympathize if the budget plan fails to work economic magic, and less prone to slamming those big deficits. “They got everybody involved,” said Rob Wildeboer, executive chairman of auto parts maker Martinrea International Inc., who attended a round-table meeting with Flaherty. “It’s probably because the economy is such a focus that this is one of the best-planned budgets that we’ve had in a long time.”

From a corporate executive, talking about the budget that will soak the federal books in red ink, that’s remarkably high praise. In the testing months ahead, Harper and Flaherty will no doubt be working their newly expanded network for support. Taylor said her advisory committee will remain intact, meeting once a month to track the economy’s progress. “This is an extraordinary situation,” she said. “It’s going to be a challenging year.” Of that, there can be little doubt. Whether this budget puts the Tories in a position to successfully ride it out, though, remains far from certain.