Day's Spending Problem

With the upcoming federal budget, Stockwell Day has been appointed as the new Treasurer minister to be Harper's pointman heading up spending cuts. There's been a lot of talk about whether the Tories can even cut enough to balance the books. I think Day does have his work cut out for him, but it's not as bad as some people think.

The Federal Government in the fiscal year of 2008-2009 spent about $238 Billion CDN.  A recent report by the Parliamentary Budget Officer Kevin Page indicates that the government needs to find $19 Billion CDN in savings over the next five years to balance the budget.  In a nutshell the Tories have to cut government spending by a total of 8% over the next five years from current levels (I'm assuming that inflation was not taken into account by Mr Page in his figure).

The department of finance provides the following pie chart to illustrate where that money actually goes.  I have decided for simplicity not to look at the projected spending levels as I believe looking at the 2009 numbers should give us a good enough idea of the general fiscal layout of the land.

Keep in mind here that the government has already committed to the following restrictions:

1)  Taxes will not be raised.

2)  Major transfers to governments will not be touched

3)  Major transfers to persons are ixnay for cuts too

That leaves 41.7% of the federal budget ($99 Billion CDN) that Flaherty will have to trim $19 billion from.  I think we can safely assume that national defense will not be touched since I think the move would be electoral suicide with the Conservative base.

The categories of Crown Corporations, Subsidies and other transfers, and Operating expenses will be where the government will have to trim.

Really this boils down to the following areas of cut backs:
1)  Operating expenses (I would assume this would mean the civil service and general costs of running the federal government) ($42 billion)
2)  Crown corps ($8 billion)
3)  Miscellaneous program expenses like labour market training programs etc ($30 billion)

To be frank if I were a member of the civil service up in Ottawa I would be polishing up my resume at this point.  I think it's clear that of these three areas where the government can cut a significant portion of savings can come from reducing the size of and costs of federal civil service and the operating costs of government in general.  This fits well with recent stories of possible planned cuts.  A 20% cut in the costs associated with the civil service would get the Tories half of the way they would need to balance the budget in five years.  The Tories could choose to spread out the cuts over the five year period to 4% a year to shelter the blow.

This is again assuming todays spending levels.  That $19 billion dollar figure was based on future predicted spending levels which will be higher than today and the potential for savings would also be higher.

Crown corps make such a low portion of the question.  They could very well privatize outfits like AECL and they would move maybe an inch towards the goal.  They may still try to do just that, but I think the effort is almost wasted, when you have thirty billion dollars of miscellaneous subsidies and transfers that could be tackled.

In short - the picture isn't bad.  It's very doable to make the cuts that are needed from what I can see here.  The only questions are do the Tories have the guts, is there enough pressure on the opposition, and will Canadians support these types of moves?  Are we prepared for it to take longer to get passports processed?  What about income tax forms?  To me it's worth it to ensure that we aren't perpetually living off of borrowed money, leading to higher interest rates, and a debt that will have to be one day repaid by a shrinking workforce.