IF PIGS CAN FLY
The Harper government is full of promises for Canadian families. So far the Conservatives have promised to allow income splitting for well-off families with children under 18; they have promised to double the contribution to tax-free savings to $10,000, another benefit for well-off Canadians; and, they have promised to double the fitness credit and to extend it to adults. The catch is that none of these promises will be implemented until the deficit is eliminated.
In the March 2011 Budget, the deficit was forecast to disappear in 2015-16, but in the Harper platform released on Friday, the Prime Minister promised the deficit would now be eliminated a year earlier, in 2014-15. Promises, promises, and more promises; if you believe these promises will happen, then you probably believe “pigs can fly”.
Let’s look at the forecast for the deficit. In the budget, the government forecast a small deficit of $0.3 billion in 2014-15 and a surplus of $4.2 billion in 2015-16. The Parliamentary Budget Office’s (PBO) most recent forecast is for a deficit of $14.6 billion in 2014-15 and $11.0 billion in 2015-16. The International Monetary Fund, in its review of Canada, forecast deficits of $10.0 billion and $5.4 billion for the same two years. Although there might be some improvement in these forecasts given the somewhat better economic outlook presented in the budget, the impact would not be large enough to result in surpluses in their forecasts. As we have argued in our assessment of the March 2011 Budget, the fiscal track is not credible.
Both of these Institutions have also concluded that the deficit includes a structural component that will not disappear on it own. The government has been warned many times that, after 2015, the combination of an aging population and the resulting impact on economic growth and government revenues and expenses will result in ongoing deficits and increasing debts – a fact the Conservatives have failed to acknowledge to date.
So how does Harper plan to eliminate the deficit a year earlier, especially when it is highly unlikely to be eliminated in 2015-16? According to the Harper platform, this will be achieved by “specific measures to constrain the growth of program spending’ and completing “a one year comprehensive review of government spending”. Transfers to individuals and provinces for health care, education, and pensions are excluded from this process. It is interesting to note that the March 2011 Budget stated that the transfers to provinces for the Canada Health Transfer and the Canada Social Transfer post 2013-14 are subject to change. The Harper platform was silent on what would happen to these transfers post 2013-14. However, on the day of the release, Mr. Flaherty stated that, if re-elected, the Harper government would confirm the 6-per-cent annual growth in the Canada Health Transfer post 2013-14. Like the Liberals, it was surprising that he would commit to this in advance of beginning formal consultations with the provinces. He was silent on what would happen to the Canada Social Transfer.
It was claimed in the budget and again in the Harper Platform that a “Strategic and Operating Review” could yield savings of $1 billion in 2012-13, $2 billion in 2013-14 and $4 billion ongoing by improving “the efficiency and effectiveness of government operations and programs”. In other words,in the language of budget planners “we don’t have a clue where to find the savings so we will put in a “plug” of $4 billion”. If it is easy now to find $4 billion in annual savings through “efficiencies” then why didn’t the government start 5 years ago?
These “savings” are on top of the restraint measures announced in the March 2010 Budget. In that budget, departments were required to fund the 1.5-per-cent increase for 2010-11 in annual wages for the federal public administration through internal reallocations. In addition, for both 2011-12 and 2012-13, operating budgets of departments were to be frozen at the 2010-11 levels. This means no increases for negotiated wage settlements, inflation, etc. Again, such pressures have to be found through internal reallocations and efficiency gains. The key issue is how often can one go to the “efficiency” well before it is found to be completely dry. Anyone who has actually been involved in controlling and cutting program expenditures will tell you that it is not possible to find savings of that amount through “efficiencies”. To find credible savings that would generate $4 billion ongoing would require elimination/cuts to existing programs.
The March 2011 Budget claims that about $80 billion of direct program expenses will be reviewed with the objective of finding annual savings of $4 billion by 2014-15, which the Harper government claims is about 5 per cent of the review base. But what is exactly included in this base. Total direct program expenses in the March 2011 Budget amounted to $118.0 billion in 2014-15, of which $30.6 billion was for transfer payments, $5.5 billion for capital amortization, $56.2 billion for “operating expenses subject to the March 2010 Budget freeze” and $25.8 billion for “other operating expenses”. What elements of these programs make up the $80 billion is not clear.
The Harper government claims that these savings can be found through “rationalization of the information technology system and attrition”. However, the Auditor General, in her in spring 2010 report to Parliament, stated that the IT systems are seriously out-of-date and significant new funding will be required. Savings may be possible but only the current IT systems are brought up-to-date. These costs, which will be significant and will take time to implement, are not included in the Harper platform.
Then there is attrition, Public service personnel costs total about $27 billion. The Prime Minister has said it would be easy to find $4 billion annually through attrition, not replacing employee who have retired or left the public service for other reasons. That would require a 15% cut in personnel costs. This implies that current services can be delivered with substantially fewer resources. Such a cut would be impossible without actually eliminating programs - something that this government has not been willing to do since 2006.
The fact is the deficit will not be eliminated in 2015-16 let alone 2014-15.
If you believe it will then you believe “pigs can fly”