The Liberals are proposing a 15-per-cent reduction in direct program spending over the coming three fiscal years: 7.5 per cent in the first year, rising to 10 per cent in the second year and 15 per cent by the third.Carlos Osorio/Reuters
The federal Liberal government calls its nascent plan to reduce the cost of government “ambitious.” The main federal public service union decries the expense reductions as a “path of deep cuts.”
Both are wrong. The restraint program that Finance Minister François-Philippe Champagne rolled out to his cabinet colleagues last week only looks ambitious (or reckless, if you prefer the take of the Public Service Alliance of Canada) if compared to the very recent fiscal past of the federal government.
A longer view reveals Mr. Champagne’s austerity drive for what it is: at best, a first step in reducing the bloat in the federal government.
At first blush, what the Liberals are proposing does sound impressive, a 15-per-cent reduction in direct program spending over the coming three fiscal years: 7.5 per cent in the first year, rising to 10 per cent in the second year and 15 per cent by the third. (That category includes both the operating expenses of the federal government and “other transfer payments.”)
But even if the Liberals reduced spending by a full 15 per cent, something that is pretty much guaranteed not to happen, the result would be to roll back Ottawa’s direct program spending to a level far higher than pre-pandemic budget of fiscal 2020, as the accompanying chart shows. In that year, the government’s direct program expenses tallied just $149.6-billion.
But the government’s operating costs and transfers for things such as business grants, have soared since then. Last fall, the government projected that its direct program expenses would hit $230.7-billion.
Using the most favourable assumptions, Mr. Champagne’s “ambitious” spending constraint would reduce that tally by about $34-billion to $196-billion, still nearly a third higher than in 2020.
But the real-world result is likely to end up being much less impressive than that less-than-impressive outcome.
For one, the starting point of the exercise will be higher than what appeared in last fall’s economic statement. The Liberals have added billions of dollars in spending since then.
PSAC has suggested there is some fuzziness to the cost-cutting efforts, with the second and third year spending reductions being ceilings rather than hard targets.
The Treasury Board has reportedly said that the Department of Defence, the RCMP and Canada Border Services Agency will have a much lower savings target of just 2 per cent. And there are reports that the government is eyeing an overall target of $25-billion.
The biggest caveat of all is this: any reductions will be swamped by increases in defence spending. That is inevitable. Increasing military outlays over the next decade will cost tens of billions of dollars annually.
That serves to underscore that the Liberals’ cost cutting effort must be a start, not an end, if swelling deficits or tax hikes are to be avoided.
Prime Minister Mark Carney has already placed large portions of the federal budget off limits for cuts. The Old Age Security program and other transfers to individuals will not be trimmed. Nor will transfers to the provinces and territories.
All the more important, then, to crimp what remains, for the most part, the direct program expenses of the federal government. Part of that effort should involve a protracted effort to reduce the size of the federal civil service.
Mr. Carney has hinted that artificial intelligence could be used to boost the productivity of the (presumably smaller) civil service. Ottawa should not wait on years-distant technological tools to re-engineer the workings of government, however.
Even bigger savings are lurking in those “other transfer payments,” if the government is willing to find them. In the current fiscal year, Ottawa has said it will spend $100.1-billion on such transfers, nearly triple the $35.1-billion that was spent in fiscal 2015.
As this space has argued previously, many of those programs are useless, or worse, in promoting growth. If the Liberals wish to demonstrate that they are truly ambitious, they can propose a path of deep cuts to those tens of billions of dollars in wasteful spending.