Professional Documents
Culture Documents
ABSTRACT (ABSTRACT)
Two consecutive majority governments in Canada from 1984-1993 focused on reducing the debt and budget
control. From 1984-1988 the program was for debt control and deficit reduction, and it met with success. From
1988-1993 the concentration was on zero inflation and it did not succeed.
FULL TEXT
Two consecutive majority governments in Canada, from 1984 to 1993 focussed federal government budgetary and
fiscal policy on deficit reduction and debt control. From 1984 to 1988 this policy was successful as the economy
grew with the support of monetary policy and deficits declined. After 1988 monetary policy shifted to pursue a
target of zero inflation, interest rates increased, economic growth declined and budget deficits and debt increased,
despite continued improvement in the government's operating budget surplus. This experience demonstrated the
importance of the policy mix to the success of past and future deficit and debt control plans. The Mulroney years,
1984-1993, provide an interesting study in economic policy and performance. While this was a period of two
consecutive majority governments, economic policy during all but the last two years was the responsibility of the
same minister of finance. Inflation rates were stable in the mid-single-digit range both domestically and
internationally, and commodity and energy prices were stable to declining. While there were dramatic political
developments in Eastern Europe and the Soviet Union, a short but sharp financial crisis in 1987 and the Gulf War in
1991, these do not appear to have had significant impact on the domestic economic policy agenda. Nor did
domestic political turmoil surrounding two rounds of constitutional negotiations seem to have much effect. In
general it was a period in which the government could define and pursue its economic policy agenda with a
minimum of disruption from internal or external economic events, at least in comparison to the experience of the
preceding decade. The newly elected government set out, in 1984, a clear fiscal policy agenda, and would pursue
that agenda for the entire two terms of its mandate. Deficit reduction and debt control were the primary fiscal
objectives, expenditure control and revenue enhancement the broad means to achieving those objectives. Even the
much more wide-ranging initiatives on privatization, free trade with the United States, and tax reform were nested
in the larger framework of revenue enhancement through economic growth, driven by private sector responses to
improved economic opportunities. Annual budgets and budget papers routinely reported on progress towards
deficit and debt control, advances and setbacks in the pursuit of the goal, new policy initiatives consistent with
deficit reduction, and new forecasts of the progress to be made in the succeeding three years. The thrust of
budgetary and fiscal policy was consistent over the entire 10 years that the Mulroney government was in power.
The Mulroney government's record on monetary policy, however, provides an interesting contrast to the observed
consistency in fiscal policy. In its first term (1984-88) monetary policy was in the hands of Bank of Canada
Governor George Bouey. Bouey continued to identify inflation control as a key objective for monetary policy, but
oversaw monetary conditions that accommodated economic expansion. The Bank forsook its previous
DETAILS
Subject: Fiscal policy; Budgets; Economics; Inflation; Canadian history; 1939 1993; Economic
policy; Finance
Volume: 32
Issue: 1
Pages: 135-152
Number of pages: 18
ISSN: 00219495