A few billion off the top of the budget

A sluggish economy means deep cuts are coming, but Canadians might not notice. At least not right away.

(Adrian Wyld/CP)

One thing Stephen Harper learned soon after he became Prime Minister was that Canadians have little intuitive grasp of decimal places. A government does not get 1,000 times more credit for spending $1 billion on something than it does for spending $1 million. In fact, it does not get twice as much credit. As long as the government notices a problem and nods at it, it wins approval from voters who care about that problem. So not long after his man Jim Flaherty started delivering budgets, a Harper era of small and essentially symbolic investment began.

Similarly, the ability to tell the difference between a little belt-tightening and a wholesale cut to a government service or department is not a widespread skill. So as long as the government offers only the vaguest information about its spending cuts, few Canadians will go searching for details.

This general numerical dyslexia will come in handy this year more than most, as Jim Flaherty tries to meet a zero-deficit target that is suddenly rather close—2015, give or take—while dealing with a lousy economy.

For the longest time, the Finance Department simply hoped Canada’s 15-year lucky streak, lately AWOL, would kick back into gear. Thursday’s budget has been a very long time coming. A comparison is handy. Stephen Harper delayed the 2011 budget for weeks, until near the end of March, for precisely one reason: to open up a great big hole in the winter and fill it with an unprecedented television and radio advertising barrage against the Liberal leader of the day, Michael Ignatieff. The budget that year came on March 22. The budget this year comes only a day earlier. And this time there is no electoral reason for the timing, only the hope, now extinguished, that the economy would pick up on its own.

The sun having failed to come out, expect Flaherty to describe a lot of million-dollar spending items in loving detail, while offering only vague mentions of billion-dollar spending cuts. The newspapers and the dinner-time news shows will play right along, listing the spending items without noting the modest allocations that go along with them. The tiny cadre of Ottawa reporters who try to learn details of the cuts will find it’s pretty near impossible. On the same day Flaherty delivers the budget, Parliamentary Budget Officer Kevin Page will be in court trying to get details of cuts from two budgets ago.

But the broad outline of the government’s action is not a secret, it’s simply been buried in the annexes at the back of each year’s budget document instead of basking in the limelight near the front. Federal transfers to individuals—things like elderly benefits, Employment Insurance and child benefits—are frozen at the rate of growth of GDP. So are Ottawa’s cash payments to provinces.

That leaves everything Ottawa funds directly, whether it’s environmental survey stations, the CBC, tourism promotion, food inspection, roads and bridges, what have you. Spending on that vital envelope is to be held constant in dollar terms. Which means while transfers to individuals and provinces increases slightly as the economy grows, direct federal spending declines as a fraction of GDP. “This will inevitably lead to program cuts,” the economist and Maclean’s contributor Stephen Gordon has written, “since the costs of providing a fixed level of services increases over time.”

But there’s another dynamic going on. Each year’s budget brings a new round of cuts, offices shut down, services terminated. In 2011 there was “Strategic Review,” with $2.4 billion in cuts over three years. In 2012 it was “Strategic Operating Review,” worth about $5 billion a year. Last autumn Treasury Board Secretary Tony Clement was put in charge of a new cabinet subcommittee on spending restraint. A news report at the time called the new effort “strategic review on steroids.”

So each year’s modest cuts are followed, a year later, by further modest cuts. It’s like sharpening a pencil. You shave off a curlicue of wood every few weeks and one day the pencil’s gone. The annex nobody read at the end of the 2010 budget projected direct federal spending for 2014-2015 at about 6.1 per cent of GDP. That target was cut a hair in the 2011 budget, and another in 2012, until direct federal spending for 2014-2015 was now projected at 5.7 per cent of GDP. The difference between the earlier figure and the latter is about $7 billion. One presumes this year’s target for direct federal spending in 2014-2015 will be another few billion lower.

With transfers to individuals and provinces growing, the total amount of all federal spending will continue to grow, and Andrew Coyne will be able to sign his annual National Post column complaining that we are governed by drunken sailors on shore leave. But the numbers tell another story.

The Liberal era, especially after the federal deficit was eliminated in 1997, was one of steadily increasing ambition for the federal government’s role in Canadian life. Paul Martin did not announce in 1997 all the fun things he would wind up doing with your tax dollar in 2005; he simply thought of new programs, foundations, grants and accords with every passing year.

The Conservative era has been one of progressively circumscribed ambition for the federal government’s role in Canadian life. Harper did not shut down everything he considered useless in his first budget, two months after he was elected in 2006. He kept nearly all of it and found new things to fund on top of them. And when the opposition coalition nearly ended his career in 2008 he opened the purse strings still further. But since 2010 he has installed a new dynamic.

The NDP advocates a return to the pre-2006 mindset in which there is always some new frontier of collective action. Peggy Nash, the Opposition finance critic, wants Flaherty to postpone his balanced budget target. This happens to be precisely the choice the PMO wants to put before Canadians: do we want a government that keeps finding ways to spend less, or one that keeps finding ways to spend more?

It is hardly a coincidence that the date Flaherty has set for the elimination of budget deficits, 2015, coincides with the year we will probably vote in the next federal election. Harper believes he has succeeded in changing the group psychology of Canadian budget politics. He believes he can win a confrontation between “more government” and “limited government,” as he did in 2008 and 2011.

Don’t ask me to predict a winner in that confrontation. In Thomas Mulcair and Justin Trudeau, Harper will face different and in many ways more formidable opponents than he did in those earlier confrontations. But he will also have had four more years to make his case, one cut at a time.

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