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.


  1. Amen! I'm an Albertan and so OBVIOUSLY willing to do whatever it takes, we are astoundingly GOOD at this task.

    Are the the rest of those teat sucking Canadians? I doubt it.

    Conservatives, have NO problem with the notion of belt tightening, the entitled to their entitlements, despise it. CBC FIRST!

  2. A lot can be accomplished just by not replacing the baby boomers who are retiring. The civil servants do not need to be replaced.

  3. Oh yes - Canadians never care about cuts to the Civil Service and they actually should be cut, along with useless programs that fund advocacy groups ( I was a gov't employee so I know that huge changes are needed).

    Some programs are obsolete/ill-advised - gun control, Status of Women (I am a woman), Public Service Commission. A lot of boards and overseers need to go. Anything to do with cities, health and education should go back to their own jurisdictions. CIDA needs a huge re-work. Rev Can needs downsizing with simpler tax rules. Immigration is a huge must revise.

    I would actually like to retain the entertainment portion of CBC, but they should not ever be funded for news.

  4. Oh yes, and the salaries and benefits for clerks need a big review.

  5. I'm surprised no BTer picked up on the Charest story (unless I missed it)

    Quebec does NOT need to cut taxes nor program spending to balance the books in 2014.....

    because the ROC is picking up the $8B tab.

    Do all the 'have' provinces have to make cuts ;
    and the 'have not' provinces can cruise merrily along?

    something VERY wrong with that picture.

  6. I think the emphasis on protecting transfers is wrong headed, but that is because I don't see the idea of the State seizing wealth and property from the productive to give to political rent seekers and the non productive as being a proper role for the State.

    However, given political reality, cutting transfers to individuals would be electoral suicide, so about $61 billion is untouchable.

    We can still look at other areas like transfers to governments (especially governments with their own sources of revenue like offshore oil or hydro), which gives us another $46 billion to work with.

    Subsidies should be cut for another @ $30 billion

    Crown corporations should be cut as well, since that provides another $8 billion

    Adding that up, we can get $84 billion in cuts. Sustained for six years this would allow the entire national debt to be paid off, and if the program is sustained for 12 years then all unfunded liabilities (CPP, pensions, etc.) are also covered.

    Not included in this virtuous circle is the possibility of reductions in operating expenses due to the ending of so many programs, and of course the reduction of the $30 billion/year in debt payments. Real tax cuts can be made from the savings here, energizing the economy and in all likelyhyood speeding up the entire paydown process through increased tax revenues.

    Here is a real program to get behind: don't leave the debt to our grandchildren but pay it off before our children leave school!