Authored by Eugene Lang, Adjunct Professor, School of Policy Studies, Queen’s University and Fellow, Canadian Global Affairs Institute
(Originally published by Canadian Global Affairs Institute (CGAI) – May 13, 2020)
Over the past 30 years, Canada has faced two major recessions and in both cases two different governments followed the basic pattern described.
In 1990, the Canadian economy fell into a slump that lasted about four quarters, with gross domestic product (GDP) shrinking by 2.8 per cent. Going into the downturn, the federal government was running a big deficit, which grew through the recession and peaked at $39.7 billion – about six per cent of GDP – by 1994-95 when the Liberals under Jean Chrétien were in power. This amounted to a fiscal crisis, with a debt-to-GDP ratio of nearly 70 per cent, interest on the federal debt eating up over 30 cents of every tax dollar, and the Wall Street Journal labelling Canada an honorary member of the Third World.
Something had to give. Enter Program Review, the most draconian departmental spending reduction initiative in the history of the Canadian government, the results of which were announced in Budget 1995. The Department of National Defence’s (DND) funding was cut by roughly a third through this process – from $12 billion in 1993-94 to $9.4 billion by 1998-99 – with DND capital spending reduced by $15 billion over 15 years. Years later, Gen. Rick Hillier coined the phrase “decade of darkness” to describe the effect of Program Review and the 1995 budget on the Canadian Forces.