ENTERING A NEW ERA

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For much of this year, analysts and economic commentators have speculated about the size of the federal deficit for the fiscal year ended March 31,1997. As the interim deficit target of 3% of GDP was the focus of the government's first term fiscal policy, the Finance Minister's 1997 Economic and Fiscal Update was highly anticipated, perhaps more than in any other year. While the February 1997 budget indicated that the target would be beaten by at least $5 billion, private sector speculation as to the final result varied widely. The final result would be a measure of the government's success in reducing the deficit. How would the government rate?

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"I've been both pleased and surprised at the speed with which the deficit has evaporated."

Mr. David Laidler (Department of Economics, University of Western Ontario)

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With the announcement on October 15, 1997 that the deficit was $8.9 billion, almost $15.5 billion below the original target and almost $20 billion below the deficit of the previous year, it was apparent that the government's fiscal policy had been extremely successful. Indeed, the government was two years ahead of schedule in reducing the deficit.

The results were so impressive that 1996-97 came to be seen as a watershed year as well. With a Public Accounts deficit of $8.9 billion, the federal government reached a financial requirement surplus; that is, the government did not have to borrow money from financial markets to finance its ongoing programs. Most other nations use the financial requirements as their measure of government balance. By that standard, the Government of Canada had achieved a balanced budget, the only one in the G-7. Even when looking at a larger group of nations, such as the OECD, Canada is now clearly among a select few.

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"Now that we're on the threshold of a post-deficit world our situation is rather parallel to the situation in 1945 where we were at the end of the Depression."

Ms. Judith Maxwell (President, Canadian Policy Research Networks Inc.)

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By our own Public Accounts measures, the federal government is now on the verge of a balanced budget and an end to the growth of net debt, by 1998-99 at the latest. The net debt-to-GDP ratio has declined for the first time in two decades.

Canada is now entering a new era; one in which the government's bottom line will be written in black ink rather than red and one in which the Government of Canada will be able to tackle problems more effectively than in the past. Without having to concentrate its efforts on achieving fiscal restraint, the government can now turn its attention to the challenges and opportunities of the new millennium.

Having demonstrated its ability to reduce the deficit by almost $20 billion in one year, and more than $33 billion in three years, it is clear that the Government of Canada has the credibility to say it will never again run deficits and accumulate debt the way it did in the past three decades. Having demonstrated its ability to reduce program spending by over $15 billion in three years and to see the ratio of program spending decline from almost 18% of GDP in 1992-93 to 13.1% in 1996-97, it is clear that controlling spending is an achievable goal.

An additional measure to control spending is the continued application of the principles of Program Review, which is now a permanent feature of the government's spending and budgetary process. Every existing or proposed program is to be subject to six tests: is the program in the public interest? Does the perceived problem require government action? Is it necessary or appropriate for the federal government to address the matter? Could the private or voluntary sector deal with the matter? Is the program affordable? And what is the most efficient means of delivery?

The fiscal objectives of reduced deficits, balanced budgets, and restrained spending are not the government's ultimate goals. The same is true of the price stability objective of the Bank of Canada. They are merely intermediate objectives, which enable and support the achievement of our ultimate ends: fostering job creation, economic growth and opportunity for all, while

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"The challenge is to find a proper balance."

Mr. Doug Archer (Mayor, City of Regina)

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maintaining the qualities that characterize Canadian society, particularly a concern about equity and fairness. This is the balance that characterizes the government's approach and reflects the values of Canadian society. The difficult choices made in recent years tried to keep this balance in mind. The choices to be made in the future must do so as well.