In Brief: In this article in Canadian Business, writer John Gray looks at the federal budget and asks whether Prime Minister Stephen Harper has pulled the ultimate about-face. One of the opinion leaders he turned to was AIMS President Brian Lee Crowley. 

For most Canadians, there were few surprises in the latest budget tabled by Stephen Harper’s minority government. In the weeks leading up to its delivery in Parliament on Jan. 27, federal cabinet ministers fanned out across the country to assure voters that a multibillion-dollar spending spree would stimulate Canada’s sputtering economy. But for those who know and work with the Conservative prime minister, the budget was not just surprising — it was downright shocking.

The government’s latest fiscal measures will put Canada in the red by about $85 billion and deliver forecasted deficits (the first since 1996) over at least the next two years. That’s not exactly the kind of economic plan many conservatives were expecting when they touted Harper’s credentials as a “trained economist” during the fall federal election campaign. “The Stephen Harper who created this budget is not the Stephen Harper I know,” says Gerry Nicholls, a conservative commentator who once worked closely with the prime minster at the National Citizens Coalition (NCC), a right-wing think-tank now headquartered in Oakville, Ont. “I don’t recognize this man.”

The government’s sudden embrace of Keynesian economics — the theory that you can spend your way out of a recession — is pretty much the mirror image of everything Harper has fought for over the past two decades. He complained bitterly about big government, high taxes and profligate spending during his time at the Reform Party (1987–1997), NCC (1997–2001), as leader of the Opposition (2002–2006), and even as prime minister, since he was first elected on Feb. 6, 2006. During the latest election campaign, Harper routinely criticized the tax-and-spend policies of his opponents, and as recently as October, he declared matter-of-factly: “I know economists will say we could run a small deficit, but the problem is that once you cross that line, as we see in the United States, nothing stops deficits from getting larger and larger and spiralling out of control.”

Few of Harper’s friends or supporters believe he honestly thinks the massive stimulus spending outlined in his latest budget will rescue Canada’s slowing economy. The measures, they say, are merely an attempt to stave off a non-confidence vote, like the one that loomed after Finance Minister Jim Flaherty threatened to remove the multimillion-dollar subsidy opposition parties have come to depend on in his economic statement in November. “Stephen Harper didn’t suddenly wake up and become a Keynesian,” says Frank Atkins, an economics professor at the University of Calgary who once taught the prime minister. “This is nothing more than a political budget.”

While conservative advocates of small government and fiscal restraint may have been surprised by Harper’s about-face, they would be wise to remember that the trained economist is also a skilled and cunning politician. Over and over, he has witnessed up-close how the art of the political compromise can easily trump the most rational of economic beliefs — no matter how closely they are held. As he makes his own compromises, the prime minister may end up provoking the same kind of backlash and disillusionment that has driven just about every major change in his own career path.

Economics have always played a major role in the evolution of Harper’s political beliefs. Early on, he was an admirer of Liberal Prime Minister Pierre Elliot Trudeau and was actually a member of the Liberal student club at his Etobicoke, Ont., high school. That changed after Trudeau introduced the National Energy Program (NEP) in 1980 — a move that penalized oil-rich Alberta and that many in the oilpatch say helped put an end to the province’s energy boom.

Harper witnessed the devastating effects of the NEP firsthand after he dropped out of the University of Toronto in 1978 and moved to Calgary to take a low-level office job at Imperial Oil Ltd. — the same company where his father, Joseph, worked as a chartered accountant. Harper wrote about the impact of the NEP in a column published in the National Post shortly after Trudeau’s death in 2000. “In 1977, economics and finance didn’t much matter to me,” he stated. “Beginning with the NEP, Mr. Trudeau would show me that they did matter — a lesson he never bothered to master himself.” It would not be the last time Harper would be disillusioned by a Canadian prime minister or the political compromises demanded of politicians.

Harper soon returned to school full-time and earned his bachelor’s degree in economics from the University of Calgary in 1985. Shortly after graduation, he moved to Ottawa to take a job as legislative assistant to Jim Hawkes, the Progressive Conservative member of Parliament for Calgary West. At the time, Hawkes was heavily involved in an initiative to overhaul Canada’s unemployment insurance policies. Harper was horrified when the government of Brian Mulroney chose to expand UI benefits, ignoring the advice of economists and other experts who had recommended scaling the program back. “That whole experience, I think, disillusioned him. Just being there in Ottawa for a year and watching the compromises and misinformation,” Hawkes told William Johnson in his biography Stephen Harper and the Future of Canada. In 1988, Harper ran against Hawkes in his first federal election for the fledgling Reform Party, but lost by a whopping 23,000 votes.

Returning to the University of Calgary to work on his master’s degree, Harper began reading the works of Austria’s Friedrich Hayek, the influential conservative economist. Hayek vehemently disagreed with the Keynesian notion that government spending could limit economic downturns, and instead warned that intervention in the marketplace would merely prolong suffering and create unintended, and harmful, consequences.

Harper’s master’s thesis — entitled The Political Business Cycle and Fiscal Policy in Canada — examined whether political parties manipulated fiscal policy during election years to improve their chances of re-election. He found some correlation between the two, but not quite enough to prove the theory. “While the electoral factor represents a major constraint upon the practice of appropriate fiscal policy,” he wrote, “the results tend not to support the premise of deliberate electoral engineering predicted by the theory.”

Harper was, according to Atkins, an excellent student who read voraciously and could quickly grasp complicated economic concepts. Even so, it would have been difficult for Atkins to conceive that his student would one day become prime minister and be forced to enact the very policies he railed against in his thesis. “Given the current situation, there is an ironic element to all of this,” says Atkins, who supervised Harper’s graduate paper.

The country’s current deficit budget is all the more ironic given it was Mulroney’s inability to cut Canada’s ballooning debt that prompted Harper’s return to federal politics in 1993 as a rising star in the Reform Party. It was also Preston Manning’s willingness to sacrifice conservative principles in favour of populist politics that ultimately led Harper to resign from the Reform Party in 1997 and leave Ottawa to join the NCC.

The NCC engaged in high-profile campaigns targeting the monopoly power of the Canadian Wheat Board and federal politicians who did not opt out of the rich parliamentary pension plan. Its campaigns were not merely talking points for Harper, but issues he deeply believed in, says Nicholls, who was NCC vice-president during Harper’s tenure. When Harper became NCC president, he cut his own salary by 15%. But none of the conservative principles of small government, low taxes and fiscal responsibility espoused by the NCC are present in the current federal budget, Nicholls complains. “The Stephen Harper who was head of the National Citizens Coalition would have torn a strip off the Stephen Harper who approved this budget,” he says.

While the NCC was successful in bringing conservative issues to the mainstream, the Liberal party continued to gain ground in Parliament. Harper watched with increasing dismay as ineffective opposition by the Reform Party, and later by the Canadian Alliance, helped Jean Chrétien’s Liberals win three majority governments between 1993 and 2000. Finally, in 2002, Harper returned to federal politics, winning the leadership of the Canadian Alliance and carrying the riding of Calgary Southwest after Manning retired. “As he was leaving the NCC, I asked Stephen why he was going back into federal politics,” recalls Nicholls. “He told me he didn’t want his children to grow up in a socialist country.”

The Canadian political landscape had changed considerably since Harper was first elected to office. In 1993, Canada was straining under a huge debt and ever-increasing budget deficits. The country appeared to be on the verge of financial collapse. By 2002, then Liberal finance minister Paul Martin had slain the deficit and was posting regular surpluses that were being used to finally pay down the large national debt. But Harper was outraged at the mounting number of Liberal scandals involving the misuse of public funds. “The government’s slap-happy stewardship of the public purse was an affront to Harper’s upbringing, convictions, and character,” Johnson wrote in Stephen Harper and the Future of Canada. “His father and two brothers were chartered accountants. Frugality and financial rectitude were bred in the bone.”

Harper lambasted Chrétien for his handling of a scandal at the Department of Human Resources Development Canada, where the auditor general found $1 billion had not been properly accounted for. The Liberal’s woes continued to mount, culminating in the Quebec sponsorship scandal that ultimately swept them from power and allowed Harper to form minority governments in 2006 and again in 2008.

But Harper’s hatred of the Liberals eventually sowed the seeds of the recent political showdown that nearly destroyed his government — and almost his political career. In November, just as the global economy appeared to be going completely off the rails, Flaherty, Harper’s finance minister, issued an economic update that predicted Canada would likely escape much of the financial carnage occurring in the U.S. and the rest of the world. With some directed cost cutting, he said, the federal government might even be able to continue to post a budget surplus. It was an incredible political miscalculation. Among the proposed cuts was the elimination of the existing political party subsidy. The move would save the government a paltry $30 million annually but would cripple the opposition parties — particularly the Liberals, who were still paying down debt accumulated from an expensive 2006 leadership race and the latest federal election campaign.

The manoeuvre galvanized the Liberals, NDP and Bloc Québécois, who quickly threatened to bring forward a non-confidence motion and replace the government with a quickly formed Liberal-NDP coalition government. Harper narrowly escaped defeat by convincing Gov. Gen. Michaëlle Jean to prorogue Parliament and put off a vote until he could submit a budget so laden with government spending that the opposition would not dare vote against it.

Trying to eliminate the political subsidy was a tactical error that made it impossible for Harper to deliver a conservative budget, says Brian Lee Crowley, the founder of the Halifax-based Atlantic Institute for Market Studies, a conservative think-tank. Crowley knows the prime minister, and for the past two years served as the Clifford Clark Visiting Economist with the federal Department of Finance. “Up until now, Harper has been a master of dividing the opposition,” he says. “Trying to remove the political subsidy was a tactical blunder that forced him to make political compromises just to stay alive.”

Harper hasn’t completely lost his conservative soul just by tabling a deficit budget, though, says Crowley. There are significant tax cuts included, and much of the spending can be quickly unwound or scaled back if the economy shows signs of recovery, he explains.

Ultimately, it may be Harper’s much-touted intellect that forced him to compromise his principles, according to Nicholls. “Ronald Reagan and Margaret Thatcher weren’t deep thinkers about their conservative principles — for them things were either right or wrong,” he says. “Stephen Harper is a deep thinker. He ran the numbers and saw that his conservative principles wouldn’t win, so he changed and ran the numbers again.”

For a growing chorus of disappointed conservatives, the current budget represents not just the loss of billions of dollars Canadian taxpayers will ultimately be on the hook for, but the loss of Harper’s credibility. The prime minster can no longer effectively portray himself as a politician who will not sell out his principles for political expediency, says Nicholls. “The people who voted for Stephen Harper thought they were getting someone like Ronald Reagan. Instead, they got someone like Bob Rae.”