What to expect from the federal budget

Slower-rising transfers and lower program spending. Basically, more of the same, writes Stephen Gordon

by Stephen Gordon

Minister of Finance Jim Flaherty gestures as he delivers a speech to the Economic Club of Canada Wednesday February 6, 2013 in Ottawa. (Adrian Wyld/CP)

Finance Minister Jim Flaherty told us yesterday not to expect much in the way of important changes in the direction of fiscal policy, and I think we can take him at his word. In budget after budget, the government has been very clear about where it wants to go.

Firstly, they will want to limit growth in transfer payments to persons — things like elderly benefits, Employment Insurance and child benefits — to the rate of growth of GDP. The last three budgets projected that these transfers would converge to around 4 per cent of GDP and then stay there:

The same story applies to transfer payments to provincial governments. The days of transfer payments growing faster than the economy are over; transfers to the provinces will continue to grow, but not faster than the federal government’s ability to pay for them:

The trend in direct program spending is different, but it too has been telegraphed for years. The basic strategy as per the projections in the 2012 budget (and in the 2011 budget and in the 2010 budget) is to hold program spending constant in dollar terms. This will inevitably lead to program cuts, since the costs of providing a fixed level of services increases over time. Expressed as a percentage of GDP, the trend in direct program spending is steadily down:

These projections are not set in stone: there will always be minor adjustments as forecasts are replaced by data. But there’s no mystery about the fiscal path the Conservative government wants to take: every post-recession budget has set out the same set of projections. So will the next one. 




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What to expect from the federal budget

  1. Harper/Cons motto ~ increased spending and fewer services!

  2. Harper started off with a $14B surplus. Then recklessly cut taxes by $44.4B/yr (according to his 2009 budget.) Now he has a whopping deficit and is gutting spending to try and tame it — including cutting the Canada Health Transfer in half. (Something he promised wouldn’t happen.)

    What was it that Harper said about the Liberals cutting transfers? If they had managed the economy properly they never would have had to cut transfers? The reality is the provinces did much better under the Liberals and the Liberals managed the economy and the books far better than him.

    “Much of the country’s resilience stems from policies—such as bank regulation and sound public finances—which predate Mr Harper.” (The Economist 2010)

    http://www.economist.com/node/16060113

    • BTW, according to Mr. Gordon (in another column,) Harper’s reckless tax cuts are actually part of a “starving the beast” agenda. It is a 4-step program: 1) Bring in big tax cuts; 2) Manufacture a budget crisis; 3) Justify deep spending cuts; 4) Go to step 1.

      Why is it that in all the “Economic Action Plan” ads we see polluting the airwaves day and night, (costing taxpayers $100M/yr,) there is no mention of how the Harper Government is hard at work “starving the beast” to create “jobs, growth and prosperity?”

      http://www2.macleans.ca/2012/11/07/starving-the-beast-what-canadian-conservatives-can-teach-us-republicans/

  3. As the Cons redouble their effort to achieve a balanced budget in time for the election in 2015, watch Flaherty attempt to sell off federal assets in order to jack up revenues. That’s how he planned to mask a massive deficit in Ontario in his last budget there, before he was kicked out.

    It’ll be déjà vu on a bigger scale.

    • Yes, I remember Flaherty said a $5.6B structural deficit was a “balanced budget” in Ontario back in 2003. Now with Kevin Page out of the picture, the neo-cons can get back to their “creative accounting” without any pesky Budget Officer “going beyond his mandate.”

      • Compared to what the Liberals have done with Ontario, a $5.6B deficit is a balanced budget. Ontario would kill for a $5.6B deficit today!

        • To the credit of the current Ontario government, it’s never tried to hide that deficit or to balance it by pawning the household silverware like Flaherty planned to do.

          Ontarioans are still paying egregious (and endlessly increasing) tolls every day to ride on the 407, a highway for whose construction they paid, and that Flaherty and his cronies sold off for next to nothing to a Spanish corporation.

          Just to balance the little leprechaun’s books.

          • “pawning the household silverware”

            Good expression. I hate when governments pad the deficit by selling off government assets. If a government sells off $5B it can make a $5B deficit appear like a balanced budget; but next year it goes right back up to $5B!

            It’s like burning furniture to heat one’s house: fiscal management at its worst.

  4. Well I guess if you believe consumers and free enterprise are more efficient than governments. Then starving the beast is a good thing. I still haven’t found a government that doesn’t like to spend…..

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