Former finance minister Paul Martin warned cabinet in 1995 that soaring interest costs threatened Ottawa’s finances and demanded billions in spending cuts “come hell or high water,” according to newly declassified records.Blacklock's Reporter says minutes of confidential cabinet meetings show Martin repeatedly pressed ministers to slash spending as the Liberal government confronted persistent deficits and mounting federal debt.“Our problem is one of compounding interest costs,” Martin told cabinet on Jan. 11, 1995. “Let me use the 1994 deficit results to illustrate how much the effect of compound interest is killing us.”Federal interest costs were running at $11 billion annually and were forecast to climb to $12.2 billion the following year, equivalent to roughly $23 billion today.“If it weren’t for this compound interest effect from inheriting so much debt, the fiscal situation would be fairly easy to solve,” Martin said. “But unfortunately it exists. That is why our fiscal problem is so difficult.”The cabinet minutes, released through Access To Information, show Martin insisted deficit targets could not be missed.“Ministers were reminded they were committed to achieve the deficit targets ‘come hell or high water,’” according to one meeting.“Hit our deficit targets,” Martin told another meeting. “There can’t be even a hint that we might miss.”Martin told cabinet on Jan. 17 that eliminating unnecessary government spending was essential and suggested selling government-owned operations where appropriate.“It was essential that waste and frivolous spending be eliminated,” the minutes quoted Martin as saying. “He added that privatization should be considered whenever it makes sense.”Martin said Ottawa had to demonstrate to taxpayers that it had exhausted opportunities to reduce spending before asking Canadians to shoulder the burden.“It would be important to show Canadians that the government had made every effort to reduce spending,” he said.Martin also blamed the previous Progressive Conservative government of Brian Mulroney for failing to get federal finances under control during the economic recovery.“The Tories squandered the last recovery and today we’re all paying the price,” Martin said. “We must not make the same mistake Mulroney made.”The spending reductions that followed helped Ottawa record a balanced budget in 1997, the first in 28 years.Cuts included $6 billion from health transfers to the provinces, $2 billion from Old Age Security, $200 million from the Unemployment Insurance Program and a 15% reduction in military spending.The government eliminated 45,000 public service positions, representing about 14% of the federal workforce. Foreign aid was cut 21%, dairy subsidies were reduced 30% and Ottawa eliminated the Prairie Crow Rate freight subsidies dating to 1897 as well as subsidies under the 1927 Maritime Freight Rates Act..Canadian National Railways was privatized for $2.16 billion, while civil aviation services were transferred to the newly created NAV Canada.Cabinet also abolished the Department of Consumer Affairs, closed 73 federal agencies, eliminated regional offices for cabinet ministers, imposed a $975 immigration fee and replaced the $2 banknote with a coin.Then-prime minister Jean Chrétien told cabinet the federal government was confronting a financial emergency.“The country was facing a financial crisis,” Chrétien told the Jan. 17 meeting, according to the minutes.Cabinet records show Chrétien warned ministers that selling the spending cuts to Canadians would be difficult.“The Prime Minister cautioned ministers the road ahead would not be easy and stressed the importance of ministers working together to sell the budget,” minutes of a Feb. 28 meeting said. “The budget was going to be tough on Ottawa.”Chrétien told ministers the government had nevertheless reached a turning point in its campaign against federal deficits.“The Prime Minister argued that with this budget the government had turned an important corner in its fight against the deficit,” the minutes said. “He noted the government’s fiscal strategy of adopting specific targets and using conservative forecasts was the right one.”Ottawa subsequently recorded a decade of budget surpluses through 2007.Federal debt declined from $609 billion in 1997 to $523.9 billion by the end of that period.
