An empty, almost flippant budget

Conservatism is not just dead but, it appears, forgotten

The government delivers an empty, almost flippant budgetLet’s get the good news out of the way first. The unilateral elimination of all remaining tariffs on production inputs in today’s budget is terrific public policy, a shot in the arm for Canada’s manufacturers, and a timely example to the rest of the world. It will lower costs, save on paperwork, and improve productivity. It will make Canada the G20’s first tariff-free zone, and as such is likely to prove an attractive incentive to locate a plant here.

End of good news.

The rest is simply bewildering. It was to be expected the budget would be inadequate; nothing suggested it would be quite so trivial as this. A merely inadequate budget would have made no cuts in spending in the coming year, notwithstanding a deficit projected at $54-billion, but would have pencilled in cuts in succeeding years. If it were really inadequate, it would have left these mostly unspecified, leaving skinflint critics like me to splutter at the vagueness of it all. We’ll believe it when we see it, we’d say, in the pleasant anticipation of the scathing articles we would write about next year’s budget, when the government would once again fail to deliver on cuts — the economy is still just a little too fragile, it would claim, again — pushing off the day of reckoning yet another year into the future.

As I say, that’s what an inadequate budget would have included, together with handsome bar charts showing the deficit declining majestically to zero. But that’s not what’s in this budget. This budget has no spending cuts this year — in fact, it projects an increase of $4.5-billion from what was forecast as recently as last September. But it also has no cuts, or next to none, in future years. The September fiscal update projected spending over the next five years (fiscal 2011 through 2015)  at $1.247 trillion. The budget now puts that figure at $1.245 trillion. Total spending cuts: $2-billion. Over five years. $400-million a year, from a budget of roughly $250-billion.

Of course, that’s the net: the budget claims gross spending cuts, before offsetting spending increases, of $17.5-billion — again, over five years. How do they make those not-so-draconian cuts? They take about $2.5-billion — a billion a year, at the peak — out of Defence. Easy enough: Defence is hardly the opposition’s pet, and the cuts merely slow the projected growth in defence spending, from the torrid to the slightly less torrid.

Another $4.5-billion, or $1.8-billion a year at peak, comes out of foreign aid. Even easier: foreigners don’t vote in Canadian elections.

About $2.5-billion in “expected savings”, or $625-million a year at peak, is accounted for by closing a few corporate tax loopholes. Fair enough: if the loopholes themselves should really be regarded as a form of tax expenditure, then I suppose closing them counts as cutting spending.

The largest single saving, $6.5-billion in all or $2-billion a year at peak, comes from a two-year freeze on departmental operating budgets. That sounds tough, until you realize they’re freezing spending at 2010-11 levels: that is, at the very height of the stimulus-enhanced, shovels-in-the-ground, money-out-the-door frenzy. In 2011, according to the budget’s breakdown of federal expenses (p. 180), “operating expenses subject to freeze” totalled $54.9-billion, fully $10-billion  more than they were just two years before. That’s where they’re freezing it. The peak has become the base.

Oh, but I’ve forgotten program review. You know, where the government asks every department to assess their lowest-priority and lowest-performing programs, with an aim to “reducing costs while improving efficiency.” Must be difficult: the budget pencils in a maximum of just $288-million a year in efficiency savings from the 2009 program review: one-tenth of one per cent of program spending. The federal government is, apparently, 99.9 per cent efficient. Corporate welfare, transfers to money-losing Crown corporations, “regional development” pork: all are sacrosanct. Transfers to provinces must continue to rise at 6 per cent per annum, eternally. Even the wealthiest old folks must continue to receive their federal cheques.

So this is where we’re at. The previous Liberal government having increased spending 47 per cent in its last six years in office; the Conservatives having increased spending another 19 per cent in its first three years (“good times”), and a further 20 per cent over the next two (“bad times”); after doubling spending, in short, in the space of a decade, the government’s notion of restraint is more or less to leave it there. Oh, some spending drops out when they’ve run out of hockey rinks to build and roads to repave. But in 2015, spending will still be higher, as a per cent of GDP, than it was in 2006. Measured in real dollars per capita — the more meaningful gauge — it will be 12 per cent higher.

And after all that, they still leave us in deficit. The budget boasts of a plan to “return to budget balance,” but it doesn’t even deliver what it claims. Though it forecasts five straight years of growth averaging 5 per cent per year — no double-dip recession, no aftershock of the financial crisis, no flareup of inflation or spike in interest rates, just rosy scenarios as far as the eye can see — and though it counts on revenue growth of nearly 7 per cent a year, it still shows a small deficit in 2015, six years after the recession that was the supposed cause of it all.

It wasn’t, of course. Only a fraction of the current deficit was brought on by a recession-induced decline in revenues, and even that would not have been the case had the government not spent us to the edge of deficit during good times. The rest had nothing to do with stimulating the economy — the recovery began months before any shovels hit the ground, on the strength of unprecedented central bank action: monetary stimulus, not fiscal, was the necessary and sufficient remedy for our ills.

The government ran us into deficit for purely internal reasons: in the first place to avoid defeat in Parliament — the deficit that the Finance minister now trumpets as part of his plan all along was nowhere evident, you’ll recall, in his November 2008 statement. And having first taken the plunge, it found it rather enjoyed it. All those projects to announce, all those ribbons to cut, all those lovely oversized novelty cheques to hand out, with a grinning Conservative MP in every picture. It corrupted itself, and hoped desperately to corrupt the country.

And bearing down on us, remorselessly, is that fiscal freight train of which we’re all uneasily aware, but which the budget, incredibly, never mentions: the coming retirement of the baby boom generation. This is the point: if it were just about today’s deficits, that would be one thing. But the deficits we are running now are as nothing compared to what is to come; the discretionary spending we are merrily running up on our credit cards today is a small fraction of the costs that will engulf us as those aging baby-boomers start crowding the hospital wards. We should be running surpluses in these years, not deficits. And yet the government delivers this empty, almost flippant budget.

Even a year ago, it was still possible to be shocked by this. But now? One is surprised, it is true, by how unconcerned the Conservatives are about the state of the country’s finances, how little they are prepared to do about it — surprised, but not shocked. Those Conservative faithfuls who have been hanging on all these years, in the hopes that, eventually, someday, with one of these budgets, this government would start to act like conservatives, must now understand that that is not going to happen. Conservatism is not just dead but, it appears, forgotten.