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Back then, Canada faced a quiet crisis: Our debt had blown past $500 billion, more than 70 per cent of the country’s annual GDP. Our credit rating had been downgraded repeatedly, enough for the Wall Street Journal to make the problematic declaration that we were an “honorary member of the Third World.” On Chrétien’s list of priorities, recounted in the book “Double Vision,” the IMF may have been our biggest threat.

How Chrétien remedied that crisis has significant parallels with our current moment. And Prime Minister Mark Carney, heir to Chrétien’s brand of centre-right liberalism, is making clear that he intends on learning some lessons from his predecessor.

On the campaign trail, Carney had euphemistically promised to find $28 billion in “savings from increased government productivity.” In recent weeks, that pledge crystalized into marching orders to cabinet. In a letter to his colleagues, Finance Minister François-Philippe Champagne asked them to “bring forward ambitious savings proposals to spend less on the day-to-day running of government,”

That letter has set off in the offices of the public sector unions, who warn that “ambitious savings” is code for steep cuts. David Macdonald, senior economist at the Canadian Centre for Policy Alternatives, : “For cuts this deep, it would require across-the-board job losses and major service reductions.” This austerity, he writes, would rival Chrétien’s 1995 effort “as the most extreme budget slashing in Canadian history.”

Indeed, Chrétien’s first budget, written with his Finance Minister Paul Martin, cut government spending by 20 per cent and eliminated 40,000 civil service jobs. Ottawa slashed welfare programs and slimmed down provincial transfers. Corporate subsidies were cut by more than 60 per cent. The Liberals were forced to abandon virtually all of their big campaign promises and keep the GST, which they had vowed to axe.

But this was not an ideological or punitive exercise: It was necessary. If Ottawa couldn’t get its books in order, it risked the kind of debt crisis which later roiled Europe. Instead, two years later, Ottawa posted a budget surplus — the first Canada had seen in a generation, and continued posting them for years. Growth returned, inflation stayed low, employment rose, wealth accumulated, and the country prospered. By the early ‘00s, our credit ratings returned to their pristine status. When financial crises hit, Ottawa had ample fiscal room to respond quickly.

Chrétien achieved his goals: The federation stayed together, we remained independent of America and we kept our creditors at bay. (Chrétien would offset his early years of prudence by binges in wanton spending followed by needless austerity, so we must take our lessons selectively.)

Chrétien and Martin found those savings by doing a line-by-line spending review, where ministers interrogated each line with five questions: Does it serve a public interest? Should the federal government be the one running it? Should the government be doing it at all? Could any of this be done by the private sector? And, finally, could this be made more efficient?

Over the past ten years, it’s clear Ottawa stopped asking itself those questions. 

Here’s the good news: We’re not back in 1995. Our credit ratings remain good, and our spending is not entirely off the rails. Our debt-to-GDP ratio is a manageable 42 per cent — but, still, ten points higher than it was a decade ago. 

We have, however, just added a pile of necessary spending. We are facing a likely recession due to our trade war with America. AI is already prompting layoffs, even as the actual value of this technology to replace humans remains unproven. And we are facing an immediate need to recapitalize our military, urgent demands from our health care system, and a desperate obligation to improve our social services to meet demand.

We can’t manage all of this and continue spending as we currently are. 

Carney’s critics on the left say he should axe his increase to defence spending. But that would be self-defeating: It is costing us billions to keep extending the life of our aging equipment, which plunges us into a downward spiral. At a certain point, it’s more expensive to keep repairing your old car than it is to buy a new one.

On the right, the C.D. Howe Institute is pitching , coupled with reductions of transfer payments to the provinces and a two-point increase to the sales tax. But this would cool consumption and worsen services: Exactly things we want to avoid.

The only good option here is, armed with Paul Martin’s five questions, to go line-by-line through our spending and see what we can lose. And there’s a way to do it right: Giving ourselves more room to invest in our services and while actively improving our public sector.

As I wrote last month, we are spending billions to subsidize businesses and getting poor returns. Yanking that public money will prompt emotional opposition, but it’s the right thing to do. Just ask Chrétien. In 1999, the Liberals pulled the plug on the Cape Breton Development Corporation, which operated Sydney’s coal mines and employed hundreds of people, including my father. The backlash then was intense, with locals calling it tantamount to a death sentence for the island. It was, looking back, absolutely the right thing to do.

We also need to weed out the ineffective goodies stashed throughout our tax code, such as the nearly $1 billion per year we spend subsidizing first-time homebuyers. This is popular, but self-defeating: Sending taxpayer dollars to chase scarce resources, inflating housing prices further.

We need to dramatically reduce the $18 billion we spend on professional services and outside contractors, including the . These outside contractors should be creating efficiencies: And yet the Parliamentary Budget Officer has found that outside IT contractors often cost about than just doing things in-house.

To that end, some of the best savings will come through investments. To reverse years of outsourcing, we will need to hire and promote technology-literate civil servants who can help us . It may cost a few million now, but it can avoid billion dollar boondoggles in the future.

We also have to reverse Ottawa’s addiction to remedying every problem with more teams, more processes, more silos in the bureaucracy. “If you keep adding teams of people who don’t do real work, you get into a situation where things can’t progress,” one civil servant told me last year. “I think you could fire a third of the public service overnight and not see any effect of service delivery.”

That may sound drastic, but it comes from genuine frustration. Civil servants don’t get into the bureaucracy with a plan to be inefficient. But when the policy goals are nebulous, where you are competing for scarce resources with many other teams, where endless meetings are required to untangle internal complexity, and where failure can lead to a national scandal — workers tend to burn out and give up.

This problem flows upwards, which is why cuts should begin at the executive and management level, whose ranks have swelled much faster than the civil service at large. Even the Privy Council Office, nucleus of the civil service, has become “,” per Kathryn May, Policy Options’ fantastically well-sourced public-sector reporter.

There are good signs that Carney wants to fix this. His new Clerk of the Privy Council Michael Sabia has a rare pedigree of serving in senior roles in both the public service and corporate Canada. We should hope that he has a clear view for where renovations are needed and how to make them happen.

Make no mistake, renovations are needed. If the status quo maintains, we will have to forgo priorities later: Building fewer homes, hiring fewer doctors, and fighting a trade war with one hand tied behind our back. 

As ex-Finance Minister Chrystia Freeland warned us late last year, it is Ottawa’s obligation to keep “our fiscal powder dry today” so we can fight the trade war tomorrow.