V.

Prime Minister

A.

First Term

When Chrétien became prime minister in the fall of 1993, his major goal was to reduce the country’s high level of unemployment, but he was constrained by the federal budget deficit. Inherited from the Conservative government, the federal deficit was nearly C$45 billion, which represented 6 percent of Canada’s Gross Domestic Product (GDP).

To tackle the budget deficit, Chrétien appointed Paul Martin, his principal rival for the Liberal leadership in 1990, as minister of finance. Martin moved cautiously in his first year, hoping that an increase in tax revenues as the national economy emerged from the recession of the early 1990s would be enough to bring the deficit down. By the end of 1994, Martin had concluded that significant cuts in government spending were the only way to bring the deficit under control. Martin was supported by Chrétien, who established a Cabinet committee to undertake a comprehensive review of spending and made clear to other ministers that he was committed to budget cuts. With this support, Martin slashed expenses from every area of government activity. Within three years the government had reduced its spending by C$25 billion and was on the path to eliminating its deficit.

The spending cuts under Chrétien helped restore investor confidence in the Canadian economy and enabled Canada to share in a new period of growth in the North American economy. As a result, the rate of job creation increased, and the unemployment rate fell below 10 percent for the first time in more than a decade. At the same time, as the economy improved, revenue from taxes increased, which helped further reduce the deficit.

In the fall of 1993 Chrétien also faced his campaign promise to renegotiate the North American Free Trade Agreement (NAFTA). Parliament had already approved NAFTA in May 1993, but Chrétien wanted to revise it to protect Canada’s cultural industries and to limit the effects on Canada of its provisions in respect to subsidies. However, the agreement was about to come to a vote in the United States Congress, and American trade negotiators were reluctant to make any changes that might jeopardize its passage. A compromise was worked out in which the special recognition accorded Canada’s cultural industries in the original Canada-U.S. Free Trade agreement was continued and it was agreed that the contentious subsidy issues would be addressed through continuing “side” negotiations. The compromise permitted Chrétien to claim that his government’s principal objections had been met, while avoiding problems in the U.S. Congress. The Chrétien government proclaimed the agreement in December, just before it took effect in January 1994.

By approving NAFTA the Chrétien government signaled that it would continue the course of closer economic cooperation with the United States. Canadian nationalists feared that Canada might lose its political independence if the country’s economy became too closely integrated with that of the United States. They criticized this aspect of the Chrétien government’s policy.

Chrétien and his government also faced a new challenge in Québec. In the 1994 Québec provincial election, the Parti Québécois, the provincial separatist party, defeated the Liberal Party, and the new provincial government scheduled another referendum on secession for the fall of 1995. At first, the Chrétien government did not believe that the Separatists could win the referendum because the provincial premier, Jacques Parizeau, was waging a poor campaign. But support began to shift toward the Separatists when Lucien Bouchard, the leader of the federal Bloc Québécois, assumed a leading role in the campaign. Near the end of the campaign several polls indicated the Separatists would win. Chrétien felt pressure to make some concession to moderate nationalist opinion. He promised to seek recognition of Québec as a distinct society and to allow Québec a veto over constitutional amendments. His promises helped defeat the Separatists. The outcome was a very narrow victory for those opposed to the referendum, 50.6 percent to 49.4 percent. Chrétien had hoped for a decisive result that would put the issue to rest.

In the spring of 1997 Chrétien called for an election in June to seek a renewal of his government’s mandate (support from the voters). The Liberals were expected to win an easy victory because the opposition was divided; no party had a sufficiently broad national base to defeat the Liberals. The Bloc Québécois was still strong in Québec, and the Reform Party was favored in Alberta and British Columbia. In the campaign, however, the government was attacked from the right—the Reform Party and the Conservative Party—for failing to cut taxes. From the left the New Democratic Party criticized the Liberals for having cut spending on social programs and breaking its promises to eliminate the goods and services tax and to significantly renegotiate NAFTA. Québécois nationalists attacked the Chrétien government for not going far enough to address Québec’s claim to special status, while in western Canada residents blamed the government for making too many concessions to Québec.

Chrétien and the Liberals defended themselves against their critics on the right by arguing that tax cuts would be irresponsible while the government was trying to eliminate the deficit. In response to the criticisms from the left, they argued that the government had to lower the deficit or all of Canada’s social programs would be in jeopardy. Chrétien argued that some cuts to social spending had been necessary and that there was no realistic alternative to the GST. The Liberals won the election but with a reduced majority of 155 seats out of 301.

The Chrétien government’s cuts to social spending hurt the Liberals in the Atlantic provinces. These provinces had the highest unemployment rates and lowest average incomes in the country. The Liberals lost 21 of the 31 seats they had won in Newfoundland and Labrador, New Brunswick, Nova Scotia, and Prince Edward Island in 1993. They also lost 14 seats in the four western provinces, most of them to the Reform Party. The Reform Party won 60 seats in all, the Bloc 44, the NDP 21, and the Conservatives 20 (1 seat went to a candidate not affiliated with a political party).

B.

Second Term

In his second term Chrétien continued to make significant progress in dealing with the government’s deficit. By the 1997-1998 fiscal year, his government reported the first federal government surplus in 23 years. The government predicted that it would accumulate surpluses of nearly C$100 billion over the next five years based on projections of continued steady economic growth. Economic conditions continued to improve, with unemployment falling to less than 9 percent by 1999.

But separatist sentiment remained strong in Québec. In 1998 the Parti Québécois won another term as the provincial government after a campaign in which it promised to hold another referendum on separation “when the conditions are right.” The threat of another referendum continued to occupy Chrétien. In the aftermath of the 1995 referendum, his government had fulfilled a campaign commitment to pass a parliamentary resolution declaring Québec a distinct society. In addition, his government announced its support for a constitutional veto for Québec. Chrétien’s government also promised that in the absence of a formal amendment to the constitution, the government would use its own veto to prevent any change to the constitution that Québec did not approve.

At the same time, the Chrétien government sought to clarify the conditions under which it would deem a future referendum to be legitimate. Chrétien wanted to ensure that if there were another referendum, the question put to voters would be clear in specifying what was proposed and what the rest of Canada would regard as an outcome justifying separation negotiations. In June 2000 he secured the approval of Parliament for the Clarity Act, which declared that the Canadian government would recognize a vote for independence in a referendum only if the referendum asked an unambiguous question and it was approved by a substantial majority of Québec voters. Over the next three years support for separatism gradually declined, and in 2003 the PQ government was defeated by the provincial Liberal Party.

In its second term, the Chrétien government’s foreign policy reaffirmed that while Canada would remain a firm ally of the United States, it would act independently from the United States—pursuing a United Nations-based approach to international issues. Among the more notable differences were Canada’s leading role in negotiating the international treaty banning the use of landmines in 1997 and Canada’s support for the treaty establishing an International Criminal Court in 1998. The United States refused to sign both treaties.

C.

Third Term

Although the Liberal Party had won a second majority in 1997, its success was largely the result of the collapse of its principal competitor—the Progressive Conservative Party (PC)—and the defection of many of the PC’s supporters in western Canada to the Reform Party and in Québec to the Bloc Québécois. In 1999 some members of the PC Party, in an effort to overcome this divided opposition, joined with the Reform Party in forming a new national conservative party, the Canadian Alliance. To preempt the challenge from this new party, in the fall of 2000, three and a half years into his five-year term, Chrétien called an early election. His strategy worked—in part because the Alliance was unable to displace the PC Party, which continued as a significant electoral force; in part because it was seen by many voters as being too far to the right; and in part because the Chrétien government’s fiscal policies had helped produce a substantial improvement in the national economy. The Liberals were reelected with an increased majority of 173 seats in the House of Commons, and Chrétien became the first prime minister since 1945 to win three successive majorities.

Chrétien’s third term was marked by growing controversy—over policy, over his leadership of the Liberal Party, and over issues involving Canada’s relations with the United States.

Controversy over policy revolved mainly around how the government would allocate the surpluses it began to accumulate in 1997. Although the government wanted to pay down the public debt, there was pressure from conservative interests to reduce taxes and from liberal interests to restore spending on social programs. The government’s decision was to do some of all three, which ultimately did not fully satisfy anyone.

The disagreement over this issue contributed to increasingly strained relations with provincial governments. Under the Canadian federal system, the provincial governments have responsibility for delivering most social programs. The federal government’s social spending cuts had been made largely at the expense of transfers to the provinces. These cuts were widely believed to have contributed to declining standards of service in the government-run national health-care system. The provinces accused the federal government of passing off its fiscal problems and adopting a “take-it-or-leave it” attitude in responding to provincial concerns.

As to Chrétien’s leadership of the Liberal Party, controversy had begun even before the 2000 election. Many members of his party, particularly his supporters in the parliamentary caucus, felt he had centralized too much power in his own hands and governed with indifference to their opinions. In addition, many of them found during the 2000 campaign that there was growing public discontent with his leadership and a widespread feeling that the government was in need of rejuvenation under a new leader.

Some of the concerns of party members were allayed by Chrétien’s announcement that the 2000 election would be his last. However, following the election, he delayed setting a date for his retirement, and the discontent in the party broke into a full-fledged revolt. An increasing number of Liberals became supporters of a movement to make Paul Martin the party leader. The party divided into pro-Chrétien and pro-Martin factions.

When Chrétien forced Martin from the Cabinet in May 2002, it set in motion a series of events that led finally to Chrétien announcing his decision to retire. In November 2003 Chrétien convened a convention where Martin was chosen as Liberal Party leader. In December 2003 Martin replaced Chrétien as prime minister.

Finally, issues in Canada’s relationship with the United States were a major preoccupation of the Chrétien government following the terrorist attacks on the World Trade Center in New York City and the Pentagon outside Washington, D.C., on September 11, 2001. Canada offered immediate help to the United States on the day of the attacks and committed military support to the invasion of Afghanistan to bring down the Taliban regime that harbored the al-Qaeda terrorists responsible for the attacks. But the steps taken by the United States to impose stricter control at border crossings created a new series of difficult issues because the measures taken were potentially harmful to the flow of trade between the two countries.

While most of these issues were resolved through negotiation, there were differences between the style and outlook of the Chrétien government and those of the administration of President George W. Bush in the United States. These differences contributed to continuing tensions in the relationship.

Those tensions became a serious breach in 2003 when Canada sought an extension of United Nations (UN) arms inspections in Iraq. Canada refused to participate in the U.S.-led war against that country. Ironically, Chrétien’s position on this issue helped restore his popular esteem in Canada because a large majority of Canadians were opposed to the war. Even though Canada subsequently contributed funds and personnel to provide postwar humanitarian aid and to build a democratic regime in Iraq, its decision not to participate in the war had a significant effect on relations with the United States through the remainder of Chrétien’s term. See also U.S.-Iraq War.