Treasury Board president Stockwell Day is preparing the country for years of spending restraint to bring the deficit to heel, and says the March 4 federal budget will begin mapping the return to balanced books.
The Conservative government will use the budget to launch a spending review process that will identify expenditures to be cut back in future years.
Mr. Day, appointed this week to be the champion of restraint in the Harper government, said it will take years of spending scrutiny to make all the reductions necessary to balance the budget.
“This is not a one-year road. This is going to be a journey of a few years along this roadway and we will map it out each step of the way,” he said in an interview.
“It's a challenging process. It's not going to be easy.”
The Tories have promised to balance the books without raising taxes. This will mean spending cuts that could eventually include everything from shrinking the Canadian public service to chopping grants to businesses or non-profit groups. Ottawa's deficit-financed stimulus spending won't end until 2011, which is when the Tories are expected to start expenditure cuts.
John Manley, a former Liberal finance minister and the new head of a group representing 150 leading CEOs, warned on Wednesday that Ottawa's deficit-reduction plan doesn't add up. Mr. Manley, president of the Canadian Council of Chief Executives, said spending cuts alone are unlikely to do the job. He predicted the government will have to consider new user fees or even a GST hike if economic growth remains low.
Ottawa is projected to head $170-billion deeper into debt by 2014-15, and some observers say it's mired in a structural, or permanent, deficit that will require $19-billion in annual spending cuts to eliminate.
Mr. Day said the Tories are consulting existing internal spending reviews as Ottawa embarks on a wider expenditure scrutiny in the days ahead. These include the now-annual strategic review process that forces departments to redirect their least important 5 per cent of spending to higher-priority areas.
“Those are going to give us some indicators as far as smart spending and efficient spending and that will eventually go into a broader process of [determining] year to year, how we get, effectively, to a balanced budget.”
The Tories are expected to use the budget to commit to balancing the books within five years.
Mr. Day said the budget – Finance Minister Jim Flaherty's responsibility – may also suggest where savings can be found. Mr. Day called these “reflections on future efficiencies,” but added it's not certain yet “how clear those can be.”
The Treasury Board president insists a strong commitment to fiscal restraint will boost economic growth. That's because, he said, a commitment to lean spending will persuade corporate Canada to invest more here in the belief that Ottawa will be less likely to raise their taxes to balance the books.
“That's what starts to bring in increased revenues [to the government],” he said.
“I mean, the economic history books are full of cases like that. We proved that in Alberta before oil started going through the roof,” Mr. Day said, referring to Alberta's 1990s budget balancing feat.
“The Harper government disputes the conclusions of Parliamentary Budget Officer Kevin Page, who says cutting spending alone will not erase what he calls a $19-billion a year structural deficit.
Mr. Manley is among several former senior finance officials to agree with Mr. Page.
“It's going to require some combination of spending reductions and revenue increases to get back to balance,” said Mr. Manley, who has advised Prime Minister Stephen Harper on Afghanistan and said he does not speak as a Liberal partisan in his new position.
Raising more revenue will require difficult choices, Mr. Manley said.
“You don't want to increase business taxes because that's counterproductive when you're trying to attract investment,” he said. “If you have to increase taxes, your best tax to look at is a consumption tax. So that's tough politics, but if you really need the revenue, that's probably where you've got to go.”
Mr. Manley said it's too early to say whether hiking the GST is necessary. The former deputy prime minister said Mr. Page has shown he can get the numbers right and that his warnings about a structural deficit should be taken seriously.
He said the budget should outline clear and realistic action for balancing the books.
“I think what [Mr. Flaherty] is going to have to do is have a credible plan,” he said. “If they made their case that this is not a structural deficit by assuming really strong growth, I think a lot of us are going to put our hands up and say, ‘That's pretty optimistic. I wouldn't want to take that to the bank.'”
