Fiscal responsibility is the dominant theme for the 2004 federal budget. Fiscal responsibility defined as a commitment to never run a deficit, to commit billions of dollars each year to pay down the federal debt, to trim $1 billion a year from federal programs. 

This emphasis on fiscal responsibility has to be seen in context. It stems from the current crisis around the sponsorship scandal. Farther back, it has roots in the Liberal government’’s experience of chronic fiscal deficits as the main challenge it addressed in 1993, when Paul Martin undertook the job of Finance Minister. It has been encouraged by international organizations like the International Monetary Fund, which has been preaching fiscal restraint, smaller government and a bigger role for the private sector. In this context, Canada appears as the poster child for fiscal propriety, at least in the eyes of the IMF. 

But there is another perspective to fiscal responsibility. It is the broader context of public responsibility. The federal government has a responsibility not only to balance its own books. It has a responsibility to create laws, implement policies and manage its finances to foster the public good. 

Ralph Goodale’’s budget portrayed a government focussed on prudence and fiscal responsibility. Restrained public spending and an emphasis on steady reduction of the federal debt took centre stage. Mr. Goodale called it "prudence with a purpose". Here is his explanation. 

Now I know that bringing down the debt-to-GDP ratio sounds like something only a finance minister or a lonely economist could get excited about. But the simple fact of the matter is, everyone benefits. That’’s because a declining ratio means a stronger financial position overall, and a stronger financial position is what helps to keep interest rates low, so people can buy that first home, start a business, upgrade some farm equipment or otherwise invest for tomorrow. 

And as we look just a bit down the road, we know that an aging population will soon have at least two profound effects on our society: there will be fewer people working, and therefore fewer contributing to the social programs we so value and, at the same time, there will be greater demand for those same programs, particularly health care. By prudently managing our finances today, we make sure we have the resources we will need to better satisfy these growing demands. So I am proposing that Canada set a reasonable goal of lowering its federal debt-to-GDP ratio to 25 per cent within 10 years. 

It was with that kind of foresight that we restored the foundations of our public pension system, so Canadians can be confident that it will be there for them when they need it. The Canada Pension Plan is now actuarially sound for at least the next half century—one of the very few public pensions in the world to be so secure. 

What does it mean to say that by prudently managing our finances today "we have the resources we will need" to satisfy the needs of the future? If future governments are equally committed to balancing budgets at a time when "there will be fewer people working, and therefore fewer contributing to the social programs we so value", this can only mean the federal government will spend less in the future on the programs we will need. 

A weakness in this logic arises from the fact that from a broader perspective, the Canadian balance sheet is not nearly as rosy as the federal budget makes out. Take the fact that the federal government has devoted $52 billion dollars since 1997 to pay down Canada’’s federal debt. The Finance Minister points out that this is saving the federal government $3 billion dollars a year in interest payments. True enough, but there is also a cost to having used the money to reduce the federal debt –– what "lonely economists" call opportunity cost. Consider that municipalities have estimated there is a $60 billion infrastructure deficit accumulating in Canada, which is climbing by $2 billion dollars a year. While the federal government has pledged to develop new sources of funding for municipalities, using the gas tax possibly, the fact is the federal government has had ample resource available for years to help fund municipal infrastructure. 

Consider another opportunity cost –– rising student debt loads. While the federal government is saving money through lower interest payments, today’’s post-secondary education graduates are forced to make far higher debt payments. Had the federal government increased core funding for post-secondary education with some of the money it used for the federal debt, they could have avoided shifting a greater debt burden to students. 

The relative merits of fiscal prudence 
Should we simply accept the assertion that paying down the federal debt is good for the economy, and thus good for all Canadians? The premise of that assertion lies in one school of economic thought which holds that government spending squeezes out private spending. Ostensibly, government debt increases interest rates which reduces private investment and slows economic growth. 

Yet that is just one interpretation of how the economy works. Another school of economic thought holds that public spending stimulates economic activity. Indeed, there are public goods –– roads, sewers, water systems, schools –– which the private sector cannot delivery as efficiently or effectively as government. Failure to invest adequately in these public goods not only erodes the well-being of households and communities, it undermines the environment for private business. 

One has only to recall the massive blackout in Ontario last summer to recognize this. Years of under-investment in the power system –– both in Canada and in the US –– and experiments with relying on the private sector to run the electricity system created the circumstances which led to the week-long power outage. This not only inconvenienced households. It also cost the private sector. 

What about the national effort to end child poverty? 
Prime Minister Martin has spoken passionately about the need for a great national effort to end the disgrace of child poverty in Canada. The 2004 holds out little hope for progress on that front. 

Post-Secondary Education 
The learning bonds program for newborns in low income families is perhaps the social policy show piece of the 2004 budget. Touted as part of a package to increase opportunity for individuals, the learning bonds come with measures to enrich incentives for low and middle income parents to save for their children’’s post-secondary education. The only glitch is that the budget offers no remedy for escalating tuition rates. Saving for their children’’s education is likely to remain a moving target for most families. 

Affordable housing 
In the 1990s, when Paul Martin took over as Minister of Finance, the federal government, along with most provinces, experimented with the idea that governments could leave affordable housing construction to the private sector. Thus public funds for new social housing dried up. Governments relaxed rent controls and waited for the flood of new rental housing to be built. It didn’’t happen. Rather emergency shelters sprang up, foodbanks multiplied and the lineups for food and shelter assistance grew. 

The lack of affordable housing imposes costs, both financial and emotional, on many households who are either in core housing need, at-risk of becoming homeless, or homeless. The burden cascades on communities which have had to mobilize to set up systems for delivering emergency food and shelter programs. The costs of unstable and unaffordable housing affect children, for whom frequent changes of household impacts their ability to do well in school and establish lasting friendships. This likewise impacts schools which must work to help students and their families cope with the insecurity caused by the chronic shortage of affordable housing. Housing insecurity puts stress on parents and this, too, is felt by children. 

Early childhood education and care system 
Today, there is widespread recognition of the importance of high quality early childhood education and care. One approach is to let parents search for the best care they can find for their children. The market will respond to parental demand for high quality programs. The immediate problem is that families with young children –– almost as a rule –– are short on income. On their own, they could not afford the salaries needed to hire highly trained early childhood educators or build the centres where these programs could run. Nor could they finance the training programs to develop the workforce of well-trained early childhood educators. This is a classic example of an area where public investment is essential to develop the institutional capacity to meet community needs. Countries throughout Europe have done this. Quebec has demonstrated that it is possible to create a new program for families with young children. The lesson is that it requires significant and sustained public investment in addition to parental fees. It also takes time to build a mature program. 

The absence of a high quality early childhood education and care system leaves families on their own to find and pay for what child care and early childhood education programs they can afford. It leaves service providers short of resources to maintain and improve their facilities. It means early childhood educators are among the lowest paid workers in the Canadian labour force. It means that young children are being denied the best chance to develop their capacities from the earliest stages of their lives. 

A glimmer of hope can be seen in the 2004 budget’’s commitment to put a little bit more money into the Multilateral Framework on Early Learning and Child Care. But the additional $75 million a year in each of the next two years is still a far cry from what it will take to create a national system of early childhood education and care that is affordable and accessible to all families. 

Child Benefits 
On income security, the down payments on a full child benefit system that were made in previous budgets remain just that. The 2004 budget offers no indication when, if ever, the federal government plans to finish the job. 

Nothing to get excited about 
Perhaps Mr. Goodale’’s first inclination was right. A declining debt-to-GDP ratio is something that only a Finance Minister or a lonely economist can get excited about. Consider the reaction of the National Housing and Homelessness Network. "As expected, there are zero (i.e. NONE) new dollars to meet Canada's nation-wide affordable housing crisis in the 2004 federal budget....The 250,000 people who will experience homelessness this year, and the one-in-five Canadian households trapped in the affordable housing crisis, have been condemned to another year of misery by federal budget 2004." 

We need political resolve more than fiscal caution if we hope to make progress on child poverty. Mr. Goodale promises debt reduction will help all Canadians. Although he likens his debt reduction plan to the fiscal foresight used to shore up Canada's public pensions system, the comparison does not fit. The government raised premiums to put the pension system on a firm footing. Likewise, we need to raise more revenue to fund a full fledged national strategy to end child poverty. Debt reduction won't end child poverty. 

So where can we find hope in this budget? 
There are many ways the federal government already manages the public finances to promote public justice. 

The tax and transfer system fosters distributive justice, by reducing the disparities in income and assuring a basic standard of living for many people. This is most obvious in Canada’’s very effective retirement income system, built as it is upon the foundation of the Old Age Security and Guaranteed Income Supplement programs and the Canada/Quebec Pension Plan. The Canada Child Tax Benefit supports the incomes of families with children. There are many other tax credits which recognize, if only partly, things like the costs of caring for family members with disability and illness. 

The federal government also foster public justice when it assures different levels of government and public institutions have the resources they need to carry out their own responsibilities. Cash and tax transfers for health, education and social services through the CHST and equalization programs, contribute to this. Whatever the shortcomings of changes to these programs in the past twenty years, it is undeniable that the federal government played a vital role in strengthening and encouraging the development of excellent public health and post-secondary education systems in Canada. 

The context of recognizing past accomplishments in fostering public justice gives perspective for assessing how well the current federal budget fulfills that task. 

The emergency support to Canada’’s beef farmers is an important example of the role of the state in safeguarding the well-being and livelihoods of many households and communities hit by a disastrous economic crisis. 

Providing a full rebate on GST paid by municipalities is another example. The GST that had been paid basically amounted to a tax on municipalities main source of revenue –– property taxes. It imposed an additional financial burden on municipalities. 

These are a few of the positive measures that are to be found in the 2004 federal budget. Unfortunately they are overshadowed by a narrowly defined notion of fiscal responsibility. Ultimately, budget 2004 comes up short not just with funds, but with a vision of the public responsibilities of the federal government in promoting public justice. 

Over the past several years there has been an upsurge of interest in the relationship between faith and politics. Internationally this has been fostered by the violent clash on September 11th between Islamic fundamentalism and the political-economic values of the Western world, and by the difficulties of introducing democracy into post-war Iraq.

In Britain and the United States this interest has led to detailed examination of the faith commitments of Prime Minster Tony Blair and President George W. Bush and the impacts which such commitments might have on the foreign policies of their governments. Ethical concerns over globalization and the ethical failures of companies like Enron and WorldCom have led to demands for better internal and governmental regulation of multinational corporations. And whenever the issue of establishing higher ethical standards arises, questions arise as to the role which the oldest source of ethical standards – namely, faith-based ethics – should play in such endeavours.

Likewise in the Canadian Parliament, political debates over the definition of marriage – an institution rooted in faith commitments as well as law – and how to regulate the frontiers of the genetic revolution – frontiers fraught with moral and ethical dilemmas – are also bringing the faith/politics interface into greater prominence in the media and in the public mind.

At the same time as we are being confronted by more and more issues with “faith/politics” dimensions, the old ways of handling such issues appear to be less and less adequate. For example, the doctrine of separation of church and state is often cited as a tried and true guideline for managing this interface. But while it is possible and advisable to keep the institutions of religion and the state separate, it is simply not possible to separate the spiritual from the political in terms of public attitudes and values. And pretending that we can do so does more harm than good by flying in the face of political and religious realities.

As most practising politicians know – particularly those who have a close relationship with their electors and who have done polling on their most deeply held beliefs and positions – the spiritual and the political cannot be separated into watertight compartments. Faith-based values and commitments inform political opinions and vice versa, and in many constituencies – even in so-called “secular Canada” – the faith-based commitments of electors are much stronger and more deeply rooted than any of their political commitments.

Similarly, moral relativism – the traditional refuge of most secular politicians when confronted with deeply felt religious differences – is also proving to be less than adequate as a means of managing the faith/politics interface. The mantra of the moral relativist – “You believe what you believe, and I’ll believe what I believe, and everything will work out fine as long as we respect each other” – breaks down in conflict situations which call for transcendent standards.

Of course the Enrons of this world would like the flexibility of morally relativistic accounting standards whereby one plus one equals whatever the vice-president of finance wants it to mean. But the public and the investment community are rightfully insisting on moral absolutes in corporate accounting where one plus one makes two regardless of what Enron’s accountants or vice-presidents of finance believe.

And although moral relativism has been the ethical norm in Ottawa for decades, on September 11th not even Prime Minister Chrétien could have responded with credibility to the violent events of that day by saying, “Well, let the Islamic militants believe what they believe, and let the Americans believe what they believe, and somehow it’s all going to work out.”

Instead, and rightly so, our Prime Minister joined other world leaders in denouncing international terrorism as “evil” – a pejorative term – and called for a transcendent standard of international behaviour from which no state or interest is immune by virtue of its particular beliefs.

Of course once we label someone else’s actions as morally wrong and declare or imply that our own responses as morally right we invite the question, “By what standard do you judge such actions to be right or wrong?” And however we respond to that question, it will of course be only a matter of time before others will apply to our actions and positions the same standards by which we say the actions and positions of others ought to be evaluated. But at least now we would find ourselves engaged in genuine moral discourse, something moral relativism by definition avoids.

And so, given the upsurge in interest in the faith/politics interface, and the inadequacies of old ways of dealing with this intersection, where do we go from here? A few suggestions.

First, there is a need to rediscover and re-examine the spiritual heritage and current spiritual dimensions of our own society, particularly as they relate to the political world. For example, it is almost impossible to understand the political development of Western Canada (my home base) without at least examining the spiritual dimensions of its indigenous political movements such as the Riel Rebellions, the rise of the Progressives, the Depression movements of Social Credit and the Canadian Commonwealth Federation, and the more recent Reform and Alliance parties. There is of course a huge role for universities and for scholarship in this
rediscovery and re-examination.

Second, there is a need for more informed and purposeful discussion of the faith/politics interface in academia, in Parliament and the legislatures, in the media, and among the public at large. I stress the need for informed and purposeful discussion – discussion that is as free as possible from anti-religious prejudice on the one hand and unreasonable religious passion on the other, discussion also that aims for principles and conclusions that will be of practical help to people actually living and working at the interface of faith and politics. 

Third, there is a need for secular decision makers in government to learn to manage the faith dimension in some way other than denying it or relativizing it into nothingness. A step in this direction would be to make sure that representatives of faith communities have “standing” – in practice as well as in theory – before the courts, the regulators, the legislators, the public policy makers, and the decision makers, so that their perspective is at least on the table.

Fourth, and perhaps most important, there is a need for people of faith to learn to conduct themselves wisely, not foolishly or threateningly, at the faith/politics interface. Representatives of faith communities who preach and practise the persecution of others or who seek to advance their values by compulsion or interest-group tactics do great damage to the credibility of genuine faith. Leaders of faith communities need to teach their followers to be “wise as serpents and harmless as doves” – the guideline given by Jesus of Nazareth to his earliest followers when he first sent them out to do “public work.”

1. February 12, 2004
Since the release of the troubling results of the Auditor General's investigation on Tuesday, our Government has very clearly expressed how it judges unacceptable actions which cannot be tolerated. Canadians are outraged by the cases of mismanagement and breach of trust that have been revealed. As Prime Minister, I share that feeling wholeheartedly. Canadians need to know that this government takes full responsibility for resolving this matter. We will not turn our backs on our responsibility to find out what happened and ensure it never happens again.

As a member of Cabinet, I take personal responsibility for dealing with this matter. I am politically accountable for my actions and Cabinet Ministers are ultimately responsible for the actions that we manage on the public's behalf. But we rely on the fact that people will act with integrity and expect that oversight mechanisms will identify when people do not. And I am sick and deeply, deeply troubled about what happened. I profoundly regret that something as objectionable as this occurred and for the unconscionable disregard that some in Government, bureaucratic and political, showed for the law and for appropriate behaviour. 

Let me also repeat something that I said yesterday: the end does not justify the means. As noble a mission and as absolutely crucial as the unity of our country, it does not justify the disregard for public funds or the wilful breaking of the rules and law. It just doesn't. It doesn't matter how much or how little was spent. The point's the same, that it cannot be justified.

Now there are a number of questions that have been posed. A number of questions have been raised which I feel deserve an answer, because it is important that as Prime Minister I be very clear about what I know and what I did not know. It's very important for public confidence that as Prime Minister I be clear about the degree of my knowledge of this matter.

First, people have asked me what I as a former Finance Minister knew of the matter and when. It's a fair question. My reply is as follows. The Sponsorship Program began in 1997. We all understood what it was about. Questions concerning management, however, began to be raised in the year 2000 when an internal audit was conducted by Public Works and was made public that fall.

Now at that time the department put in place an action plan to correct what it identified as administrative problems. In 2002, the then Deputy Minister said before a parliamentary committee that they detected no sign of dishonesty or fraud at that time. However, in the same year, 2002, the auditor general reported on three files involving Groupaction and found very serious problems.

That is when I began to understand that what had occurred went far beyond administrative failures and involved possible criminal conduct. But even then no one understood the full scope of what was involved until the Auditor General's report came out recently.

Now I know as well that some can't understand how as a Quebec minister I could not have known about the conduct of this program. Well, the fact is that very few ministers, Quebec ministers did. Furthermore, it is no secret that I did not have an easy relationship with those around the former Prime Minister. It stemmed primarily from the fact that we held different views on Quebec. A number of you have written of those views and that I wanted to succeed him. This did not get in the way of a successful, professional collaboration but it did obviously affect personal and political relationships. In short, my advice was not routinely sought on issues related to Quebec.

Before I finish and take your questions, I want to stress another of our concerns, which is whether this Government is prepared to do everything that was possible to remedy the problem. I am deeply troubled by what I have seen concerning the role played by crown corporations in this matter.

Crown corporations operate at arm's length from the Government with their own boards, their own management teams. In respect of that separation, I've asked the Treasury Board President to conduct a review of the adequacy of the response by crown corporations to the AG's report. Furthermore, I want it understood that crown corporations are expected and will respect the Auditor General's findings. They are expected to appear when called before the public inquiry. They are expected to appear if they are called before the Public Accounts Committee of the House of Commons and they are expected to cooperate with the Treasury Board President's work. Simply put, they will answer for their actions.

I note that there are also reports today that Mr. Gagliano will be offered a compensation package for his time as our Ambassador to Copenhagen. Those reports are wrong.

Let me just say, raise a couple of issues. One was whether or not people knew that public funds were being used to fight for unity across the country and combat the separatist idea in Quebec. Yes, people knew that was happening. The second issue, however, is whether people knew that others were stealing money, that they were not doing the work that they said they were doing, whether they were enriching themselves. And let me tell you that anybody who knew about that and did nothing should resign immediately. Anyone who knows anything that could help shed light in this area - in the government, in the caucus or anywhere in the country, corporations or in the Liberal Party - should come forward and not wait to be compelled to do so as they will.

In closing, let me just simply say that I believe that what occurred in the Sponsorship Program, the broken rules, the abuse of taxpayers' money and the breach of public trust is inexcusable. Let me assure you that those who are responsible, regardless of who they are, where they work or whatever they may have worked in the past, will face the full consequences of their actions.

Here are some of the major findings reported by Auditor General Sheila Fraser: 

• Senior government officials running the federal government's advertising and sponsorship contracts in Quebec, as well as five Crown corporations –– the RCMP, Via Rail, Canada Post, the Business Development Bank of Canada and the Old Port of Montreal –– wasted money and showed disregard for rules, mishandling millions of dollars since 1995. 


More than $100 million was paid to various communications agencies in the form of fees and commissions, Fraser found. In most cases the agencies did little more than hand over the cheques. 

The sponsorship program was designed to generate commissions for private companies, while hiding the source of the funding, rather than providing any benefit for Canadians, Fraser said. 

"I think this is such a blatant misuse of public funds that it is shocking. I am actually appalled by what we've found." 
"I am deeply disturbed that such practices were allowed to happen in the first place. I don't think anybody can take this lightly." 

Details of some of the sponsorship programs: 
 

• The government's $3-million sponsorship of the RCMP's 125th anniversary celebrations was wasteful, because the Mounties were already required to display the "Canada" word mark. Three ad agencies –– Lafleur, Media/I.D.A. Vision and Gosselin –– deducted $1.3 million of the money before passing the remaining $1.7 million to the Mounties. Some bank records of Quebec Mounties were destroyed. 

• In the $5-million sponsorship of a television series about Maurice Richard, to be produced by the private firm L'information essentielle, communication firms, including Lafleur, Media/I.D.A. Vision, Gosselin and Groupaction, received $440,000 in commissions without signing any contracts or doing any work. The program also used Via Rail as a conduit to transfer nearly $1 million to the television series through a "fictitious contract," reimbursing the Crown corporation for all but $160,000 of the money. Lafleur received $112,500 to handle the transfer. In addition, Canada Post paid $1.6 million to sponsor the series without any deal being signed or any documentation whatsoever, breaking the corporation's own rules.

• Communications Canada gave $1.5 million to the Old Port of Montreal to buy a new screen for its science centre, but funnelled the money through Lafleur and Media/I.D.A. Vision, which collected $225,000 in commissions. The auditor general's other findings: 

• The Department of Indian Affairs didn't properly track its spending in land claims settlements worth $1.2 billion. The department also failed to follow guidelines in hiring outside budget managers, paying $7 million to managers who didn't go through a public tender process. 

• Contracts worth $101 million to buy two government VIP jets, used to transport the prime minister, cabinet members and other VIPs, were untendered and unnecessary. Fraser said the Department of Defence was satisfied with the performance of the existing planes. 

• While the surplus of the Employment Insurance system reaches a record $43.8 billion, 65 per cent of people calling EI centres for assistance get busy signals. 


"Service in some regions was significantly and chronically below targets, and repeated efforts to improve services have had little impact."
 

• The government has been neglecting Canada's parks and its heritage documents. Some historically important documents are rotting because of improper storage, others are being snapped up by private collectors. The 170-year-old Fort Henry in Kingston, Ont., could crumble in two years, she said. 


"Once a piece of history is lost, it's lost forever, and the situation is not improving." 

Ottawa — Two of the top officials in the previous Liberal government, Jean Pelletier and Alfonso Gagliano, helped divvy up the sponsorship cash pie among a handful of plugged-in advertising firms, retired civil servant Chuck Guiéé said Thursday.

Directly contradicting his onetime political masters, Mr. Guité said he received clear input in the “allocation” of contracts to agencies such as Groupe Everest, Lafleur Communication and Groupaction Marketing Inc., generous donors to the Liberal Party of Canada.

Mr. Guité's testimony to the parliamentary inquiry into the sponsorship scandal suggested that political officials had extraordinary influence in a program that, according to the Auditor-General, went off the rails.

Mr. Guité reserved his toughest remarks for Prime Minister Paul Martin, saying that the office of the former finance minister was the worst offender when it came to political interference in communications contracts.

“There were many contracts with a local company, Earnscliffe, and I had interference from a minister's office, the Finance Department, which was Mr. Martin's office at the time,” Mr. Guité said.

A spokesman for Mr. Martin said the allegation is false.
“Mr. Guité, given his position, cannot be taken at face value,” spokesman Scott Reid said.

Speaking in a packed room in Parliament's Centre Block, Mr. Guité lived up to his billing as a sharp-edged former civil servant who had his hand in almost all federal advertising files in the 1990s.

He joked at times with MPs on the committee, but forcefully disagreed with those who said the sponsorship program was mismanaged and a waste of public dollars.

“The Crown got value for money,” he said. “I haven't broken any rule in the book.”

The RCMP has charged the head of one advertising firm involved in the program with 18 counts of fraud, and more charges are expected soon against another firm.

Mr. Guité said he was not aware of any wrongdoing, such as the fake invoices mentioned in the Auditor-General's report earlier this year.

“If the agency has forged that invoice or whatever, I have no way of knowing that,” he said.

Still, Mr. Guité's testimony showcased his tight links with the heads of some of the advertising firms. He said he went to the cottage of the president of Groupaction in the mid-1990s along with the president of Groupe Everest.

From 1997 to 2003, the Chrétien government handed out $150-million to hundreds of sporting and cultural events, mostly in Quebec, in exchange for the placement of flags and banners at the event sites. 

To manage these sponsorships, a handful of advertising firms received $100-million in fees and commissions –– a figure that the Auditor-General deemed exorbitant.

While a total of 15 firms were eligible for contracts, two of them, Groupe Everest and Groupaction, received more than 50 per cent of the funds under Mr. Guité's tenure.

Mr. Guité said he received directives on the appropriate amounts for each advertising firm in his regular meetings with Mr. Pelletier –– the long-time chief of staff to former prime minister Jean Chrétien –– and former public works minister Mr. Gagliano.

“Did the PMO and ministers provide input and decisions with respect to specific events that were sponsored and the allocation to specific firms? Absolutely,” Mr. Guité said in his opening statement to the inquiry.

Under questioning, he explained that he brought detailed lists of sponsorships to his meetings with Mr. Pelletier and Mr. Gagliano, including the names of agencies that were to receive 12-per-cent commissions to manage the deals.
“It's certain that during those discussions, the minister or Mr. Pelletier would have said, ‘‘Look, it's a little heavy on that side,'” Mr. Guité said.

In previous testimony, Mr. Gagliano and Mr. Pelletier insisted that they never got involved in the allocation of contracts or any other administrative issue.

“We, at the Prime Minister's Office, were in no way involved in the administrative management of the program. I want that to be very clearly understood,” Mr. Pelletier said.

Speaking Thursday, Mr. Guité said he wanted to drop his famous analogy that the sponsorship program was a key element in Ottawa's “war” with Quebec separatists. 
He quickly went back to that image, however, when he was asked whether he was acting by himself or as part of a larger group of civil servants and political officials.

“I was one of the generals,” he said.

As part of the battle with the separatists in Quebec, Mr. Guité said he received a directive from the Privy Council office to keep minimal paperwork on file to foil any attempts to use the Access to Information Act to obtain the Canadian government's battle plan.

Throughout the hearings, Mr. Guité disputed the findings of Auditor-General Sheila Fraser's scathing report in February that the sponsorship program suffered from a “consistent and pervasive” pattern of non-compliance with federal regulations.
Mr. Guité said that all of the paperwork was on file when he retired in 1999, and that it must have disappeared after that.
Mr. Guité also rejected the allegations of Liberal and opposition MPs that some advertising firms received unwarranted six-figure commissions to transfer funds between government agencies. He said that being paid on commission, the agencies made large profits on some files, which compensated for losses on others.

“What happens in a system like that is that you will have a project where you will lose your shirt. You will have another project where you'll make the money,” he said.

"I haven't broke any rule in the book," he told the public accounts committee. "I paid to get visibility and I got it. Is it different from Pepsi or Coke? Not at all." 

As for Auditor-General Sheila Fraser's contention that record-keeping was inadequate and there was no way of knowing where roughly $100 million went, Guité said Fraser was wrong, and implied that documents must have disappeared from the files. 

For every one of the 1,900 sponsorship projects, he said, "There was a contract, there was an invoice, and there was an affidavit or a post-mortem on the file. 

"If I could have access to those files and could sit down with those auditors, I could show where every penny went." 
The now-retired civil servant was appearing before the committee to shed light on how $100 million in fees and commissions went to Liberal-friendly advertising firms as former prime minister Jean Chrétien's government tried to raise Canada's profile in Quebec after the 1995 referendum in Quebec. 

In his testimony, Guité denied that he systematically ignored government spending guidelines at the Communications Co-ordination Services Branch, which administered the sponsorship program. 

Specifically, he said: 

• During his tenure, his office never selected an ad agency without following the Treasury Board-approved process for doing so. The Prime Minister's Office and public works ministers David Dingwall and Alfonso Gagliano gave "input" on projects that should be funded, but did not get involved in the agency selection process. 
• His office kept "minimum documentation" on some sponsorship activities around the time of the 1995 Quebec referendum because he didn't want sovereigntists to obtain ammunition against Canada by using federal access to information laws. "A good general doesn't give his plans of attack to the enemy," he said. 
• The auditor general's report on the scandal "has given the perception to the public that $100 million has disappeared into thin air." This was not true, he said, listing how money was spent in two specific cases: a tour of the Bluenose schooner and the establishment of a Canada Pavilion at one edition of the Canada Games. 
• He had to channel money to VIA Rail and the RCMP through advertising firms, which took large commissions, because sending payments directly would have classified them as grants, which meant the federal government could not control how the money was spent.

Guité also expanded on previous testimony by Dingwall, his first cabinet minister under the Chrétien government. 
Dingwall had said he couldn't recall any specific meeting with Guité, who at that time was running an earlier version of the department, set up during Brian Mulroney's term as prime minister. 

But Guité said his memories of the day he first went to Dingwall's office were as clear as most people's recollection of what they were doing when U.S. President John F. Kennedy was shot, or singer Elvis Presley died. 

After Guité refused to describe how or whether Mulroney's Tory government had been involved in making political decisions about where federal funds were directed, Dingwall congratulated him on his discretion, Guité said. 

"You won't rat on them, you won't rat on us," Dingwall said, according to the retired bureaucrat. 

Freed from his oath of confidentiality as a civil servant for the purpose of testifying this week, Guité told the committee that funding operations he oversaw during the Mulroney years were "very, very, very political," with political appointees within his office deciding where the money would go. 

By contrast, he said, the Liberals let the bureaucrats operate the sponsorship program, with political staff providing "input but not interference." 

Guité answered questions in a calm voice throughout the day and made the occasional joke, but showed pique as well toward two Liberal cabinet ministers and a whistle-blower within his own department: 

• He said Diane Marleau wanted nothing to do with him or the sponsorship file during her time as public works minister, so he went to the Prime Minister's Office and asked for permission to report directly to chief of staff Jean Pelletier. He continued to do that until Gagliano replaced Marleau. 
• After Guité left the civil service and his role in the sponsorship scandal started to emerge in the media, another former public works minister, Don Boudria, publicly said he had met him only once. Guité reeled off a list of events at which he had organized Boudria's presence, including a hot-air balloon event in Boudria's riding and a Montreal Grand Prix race. 
• He called sponsorship whistle-blower Allan Cutler "a problem employee who took off and started to build a file [cataloguing problems with the program]…… My comment that Mr. Cutler tinkered with the file, I stand by that today."

"I have never thumbed my nose at Parliament, furthermore at Canadians," he said. 

But as a result of Williams' "unacceptable" comments to the media about ways of forcing Guité back to Canada to testify, he said, "Canadians are thumbing their nose at me and my family." 

During his vacation, he said, "We had Canadians driving by our trailer and yelling obscenities at us." 

On the eve of Guité's testimony, Jean Lapierre, a high-profile Liberal candidate from Quebec, called for charges to be laid quickly in the affair so that Quebec voters can be assured wrongdoing is being addressed. 

Guité's testimony is expected to last all day Thursday. On Friday, he will testify again for at least half the day. 

Written by CBC News Online staff 

Jean Pelletier, who was chief of staff in the PMO from 1993 to 2001, testified on Tuesday before the public accounts committee investigating the sponsorship scandal. 
"The PMO …… gave no direction," Pelletier said. "It was handled by Public Works." 

The decisions on what events to sponsored were up to "civil servants and not the Prime Minister's Office," he said. 
Pelletier was a key player in Chréétien's unity strategy, about which he told the committee "there was no more important file for the prime minister." 

He said any prime minister, of any party, would take a special interest in the national unity file. 

Pelletier told the committee he had regular meetings with Chuck Guitéé to discuss sponsorships, but always at Guité's request. 

Guité ran the scandal-plagued sponsorship program, which was designed to promote Canadian unity, especially in Quebec following the narrow defeat of separatist forces in the 1995 referendum. 

The sponsorship program was used to funnel $100 million to Liberal-friendly advertising firms, often in exchange for little or no work. 

Asked if it was normal for the prime minister's chief of staff to meet with mid-level bureaucrats, Pelletier replied, "I would have seen the janitor if it would have helped the cause of Canadian unity." 

He said the problems with the sponsorship program were with the management of the program. 

Pelletier was fired from his post as chair of Via Rail last month after ridiculing Olympic gold medallist Myriam Bédard. 
Bédard said in February that she was turfed out of her marketing job at Via after she raised questions about excessive billing by one of the companies at the heart of the sponsorship scandal. 

Pelletier called her "pitiful" and said she was trying to get attention. 

He has since sued the federal government and Via Rail claiming defamation and illegal dismissal. 

Written by CBC News Online staff 

Allan Cutler, who had the job of negotiating prices and terms of federal ad contracts, told the Commons public accounts committee on Thursday that commissions were paid for no apparent service and improper advancements were made to agencies, all approved by Guité, who oversaw the sponsorship program from 1996-1999. 

Cutler said he complained to Guité and then found himself in hot water. 

"It quickly became apparent to me, my job was in jeopardy," he said. 

No action was taken on the irregularities Cutler pointed out and according to his union, Cutler was shoved aside and eventually left his post at Public Works. 

Cutler did not work with Guité when the federal sponsorship program began in 1997, but he said that many of the problems identified in the scandal, originated earlier. 

"It seems to me …… the real culprit in this whole mess is Guité," said Public Accounts Committee member Shawn Murphy. 

The committee intends to call Guité as a witness to hear what he has to say. 

Written by CBC News Online staff 

Opposition MP’’s on the Commons Committee investigating the scandal are surprised Pelletier met with the civil servant in charge of the program, given the difference in their stations. 
Pelletier was fired by Martin as the head of Via Rail last month after he called Olympic double gold medallist Myriam Bedard a ``pitiful'' single mother seeking publicity. 

OTTAWA—The investigation of the federal spending scandal must be greatly expanded, says a former senior federal official who witnessed the fiasco develop first-hand. 

Judicial and parliamentary inquiries must be extended back to cover the early 1990s when the forerunner of the sponsorship program was doling out million-dollar advertising contracts under Liberal political direction, says the one-time public works department official. 

It was well known in that department as early as 1994 that Liberal cabinet ministers were influencing the dispersal of millions of dollars in advertising funds through a small branch of Public Works, the source disclosed. 

That branch of the department was headed by Chuck Guité, who became a key figure in the current scandal after his group in Public Works was expanded in late 1996 to handle $40 million a year in sponsorship payouts as well as government advertising contracts. 

"People knew that there was something amiss with the way the program was being operated" well before 1996, said the former official, who asked not to be named. 

"I don't think there were any secrets about his (Guité's) relationship with the ministers —— both (former public works minister David) Dingwall and (Alfonso) Gagliano. 

Dingwall was public works minister in former prime minister Jean Chrétien's government from 1993 to 1996 and Gagliano ran the department from 1997 to 2002. 

"Guité had a relationship with both ministers and their chiefs of staff," said the former official. He said it was well known that Guité and the ministers and their aides consulted on advertising contracts to ensure Liberal-friendly advertising firms received a large chunk of federal advertising spending, which totalled $69 million in 1995. 

The former official said Canadians don't understand the activities that led to the current scandal were taking shape much earlier than November, 1996, when the sponsorship program was officially established by Chrétien. 

Today's investigations focus on the 1997-2002 period when the sponsorship program was fully operating, but the pattern of contracting irregularities based on political favouritism was already entrenched in the branch headed by Guité before the sponsorship program was born, he said. 

Auditor-General Sheila Fraser has included Dingwall and Gagliano among the former cabinet ministers who should be brought before the Commons committee probing the scandal. 

Last week, Gagliano denied Fraser's statement that he had intervened with Guité's branch to steer money through Liberal-friendly firms. 

Dingwall, who is now president of the Royal Canadian Mint, is not publicly discussing his role in sponsorship and advertising activities at Public Works, Phil Taylor, a communications adviser at the mint, said yesterday. 

Both men will be called by the Commons public accounts committee, which wants to hear testimony on the sponsorship affair from all former public works ministers of recent years. And both men have said they will appear before the committee. Gagliano is expected to testify next week, while no date has been set for Dingwall. 

Guité, who was located in Arizona recently, has declined to be interviewed. But in a 1993 Financial Post interview discussing how federal ad money should be allocated, he said: "My role is totally as a bureaucrat, and I administer the policies as set by the minister of the day." 

In a scathing report on Feb. 10, Fraser alleged that Guité was one of the federal officials who blatantly ignored government contracting rules while handing out sponsorship funds to promote the "Canada" image at community events, mostly in Quebec, in the late 1990s. 

Of the $250 million dispersed, $100 million went to advertising and communications companies who funnelled the money from Ottawa to local event organizers. Much of that $100 million is unaccounted for and may have gone to the advertising agencies involved in the sponsorship program for little or no work, Fraser said. 

Before the sponsorship program emerged, Guité and a small group of officials handled contracts for federal advertising. 
Guité was already working in Public Works when the Chrétien government took power in 1993. In keeping with election promises to clean up after the scandal-prone Brian Mulroney government, the Liberals reformed the guidelines for letting federal advertising contracts. 

But the rules still allowed individual cabinet ministers to sign off on advertising contracts for their departments, which gave ministers the right to choose which companies would do the work while ignoring the results of competitive bidding. 
By 1995, companies with Liberal ties were receiving large chunks of the lucrative federal advertising account. 

In 1995, Vickers and Benson Advertising Ltd. of Toronto, which had helped with the Liberals' election campaign, received $29 million in federal ad contracts, nearly 32 per cent of the total for the year, according to Access to Information documents obtained by researcher Ken Rubin. 
In 1996, public works official Allan Cutler quietly tried to warn his superiors of mismanagement in the operation of the branch of the department handing out advertising and promotional contracts under Guité's direction. 

The whistleblower's action led to an audit of the branch — then known as the Advertising and Public Opinion Research Sector (APORS) — in 1996. Cutler narrowly escaped being fired, according to his union representatives, and the results of the investigation by Ernst & Young auditors were kept secret until last month, when the existence of the audit was revealed in testimony before a Commons committee. 
In the audit, Ernst & Young found many of the same irregularities that Fraser unearthed in her audit of the sponsorship program seven years later. 

Officials in the APORS branch regularly ignored government procurement rules, according to Ernst & Young. The files governing millions of dollars in advertising deals lacked required paperwork, including legal and cost analysis in some cases. 

The auditors said officials sometimes signed off on deals exceeding their contracting authority. And it was not clear if all bidders had been given an equal chance to qualify for contracts. The auditors also recommended that contracting policies be changed so that cabinet ministers would not have final authority to approve the winning bidders. 

Conservative MP Gerald Keddy, a member of the Commons public accounts committee, said the probe of the sponsorship scandal will have to hear testimony from Dingwall and other former Liberal cabinet stalwarts and look at the advertising contracts in the early 1990s. 

"He's the first minister, so he certainly is the first one we need to talk to," said Keddy (South Shore). 

Noting that Dingwall was a close ally of Chrétien as well as the Liberal political chief for the Atlantic region, Keddy added: "This guy knows where the bodies are buried." 

The former senior public works official who spoke to the Star yesterday also dismissed the notion that the scandal at the department was the result of a small group of rogue officials. When Fraser first released her report on the sponsorship affair last month, Prime Minister Paul Martin blamed a dozen federal employees for the scandal. 

The source scoffed at the idea, saying many more people in the department had to know what was going on in programs that paid out hundreds of millions of dollars over a number of years. 

The Leger Marketing survey found that 21 per cent of respondents from outside Quebec thought the level of patronage was the same, while 12 per cent thought there was less patronage in the province. Seventeen per cent said they didn't know. 

The poll was conducted Feb. 17-22 as the sponsorship scandal continued to rock the federal government after the auditor general concluded that Quebec communications firms with Liberal ties pocketed $100 million from $250 million in government contracts. Predictably enough, the response from Quebecers surveyed was quite different. 

Twenty-six per cent of Quebecers thought their province was home to more political patronage, compared with 47 per cent who thought there was no difference and 14 per cent who believed the practice was less common in Quebec. 

Another question revealed that 60 per cent of respondents in the rest of Canada thought Quebec had "more of an advantage with the federal government compared to other provinces." 

Twenty-three per cent said there was no difference, while seven per cent believed Quebec had less of an advantage with Ottawa. 

Among Quebec respondents, 13 per cent thought they were favoured, 34 per cent said there was no difference and 49 per cent replied the province had less of an advantage than other provinces with Ottawa. 

The poll of 1,501 Canadians, including 357 Quebecers, is considered accurate within 2.6 percentage points, 19 times out of 20, when the entire sample is taken into account. The margin of error is higher for the regional breakdowns. 

During the polling period, the sponsorship scandal remained fresh in people's minds amid various events and statements, including: 

Feb. 17: - Liberal MP Joe Comuzzi apologizing for saying the sponsorship scandal is just the way politics is done in Quebec. 

Feb. 18: - Jean Lapierre, the Liberals' Quebec lieutenant, ordering an audit of the Quebec wing's books. 

Feb. 19: - Auditor General Sheila Fraser saying she doubts whether Canadians would get to see much of the money obtained by the Liberal-friendly firms. 

Feb. 20: - Prime Minister Paul Martin promising transparency in getting to the bottom of the sponsorship scam. 

Feb. 21: - The Liberals announcing an independent audit of all donations received in the last six years. 

Feb. 22: - Reports surfacing that an unknown number of executives of Crown corporations would be fired or disciplined. 

Nelson Wiseman, a professor of political science at the University of Toronto, said the perception still exists in certain quarters that Quebec gets more out of the federal system than do other provinces. 

"People in Western Canada perceive, irrespective of transient political events, that Ontario and Quebec disproportionately gain," Wiseman said in an interview. 

"The only place where the Quebec card plays is now in the West and, to some extent, in the more conservative rural parts of Ontario - precisely the areas where the Conservatives and Alliance have done relatively better." 

But citing Quebec's election-financing reform, which limits the amount of money people can contribute to a provincial party, Wiseman said the reality is that Quebec has been the leader in many respects in fighting patronage. 

"This expectation of patronage is actually more common and been more prevalent for a longer period of time in Atlantic Canada than it has been in Quebec. And Quebec has been a pioneer in modernizing public administration." 

Stephen Harper, who is seeking the leadership of the Conservative Party of Canada, said every part of the country believes it's not getting what other regions are getting. 

"I think that's a consequence of decades of Liberal rule where they're always playing one region off against another," Harper said in an interview.

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