Budget watchdog says Federal government cost-cutting will eliminate 14,000 jobs - Macleans.ca

Budget watchdog says Federal government cost-cutting will eliminate 14,000 jobs


OTTAWA – The federal government’s most recent “jobs and growth” budget will wind up costing Canada both jobs and economic growth over the next few years, the Parliamentary Budget Officer says in a new report.

The PBO’s latest estimates on the impact of the 2013 budget handed down in March show the cumulative impact will be to reduce economic growth by 0.12 per cent and job creation by 14,000 by 2016.

Combining the latest budget measures with the cutbacks unveiled in 2012 means there will be 62,000 fewer jobs in 2016, rising to 67,000 fewer in 2017, than might otherwise be the case without the cuts.

The PBO cautions the estimates do not mean the cutbacks will result in a loss of jobs, but that employment will be lower than it might have been absent the measures. In economic speak, that means that government spending will act as a drag on economic growth, rather than a stimulus.

The report, released on the same day the government will table legislation to enact the budget, notes that revised spending levels in the latest economic blueprint will have a minimal positive impact on jobs — actually a statistically meaningless net gain of one this year and next — but the longer-term effect is fewer jobs in 2015, 2016 and 2017.

The report also projects that the economy will grow at a slower rate than Finance Minister Jim Flaherty counts on in the March budget — by 1.5 and 1.9 per cent this year and next, compared with the budget estimate of 1.6 and 2.5 per cent respectively — but this will not undermine Ottawa’s plans to balance to budget in 2015.

In fact, the PBO calculates that the government will report an even bigger surplus — $3.7 billion rather than $800 million — in the critical 2015-16 year when the Harper government is due to face the electorate in a fall vote. That’s because it believes Flaherty has built-in a bigger-than-needed fund for downside economic risk, and because of rising employment insurance premiums.

“Based on PBO’s current economic outlook and measures and revisions … PBO projects a significant improvement in the government’s budgetary balance over the medium term,” the report states.

“PBO projects a budgetary deficit of $25 billion in 2012-13, which improves over the projection horizon, resulting in a budgetary surplus of $7.6 billion in 2017-18.”

The lower growth profile will result in unemployment remaining above seven per cent until 2016 and the Bank of Canada maintaining its current low interest rate setting until the spring of 2015.

The report is the first major analysis of the economy and government finances under interim PBO head Sonia L’Heureux, who replaced Kevin Page last month.

The new breakdown will likely both be welcomed and ruffle some feathers inside the government, which has been critical of Page’s work for years.

While the estimate of job losses will grate, the PBO broadly agrees with Flaherty’s contention he will be in position to balance the budget in a few years. In fact, once the budget risk adjustment is removed, the report says be about $2.5 billion further in the black by then.