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Jeffrey Simpson (Bill Grimshaw)
Jeffrey Simpson (Bill Grimshaw)

Jeffrey Simpson

Spending now, restraint later - after the next election Add to ...

Suppose you flip a coin 10 times and believe it will come up heads nine times. If you accept those odds, you'll consider Finance Minister Jim Flaherty's budget forecast to be credible.

The numbers are credible - a deficit of almost $50-billion in 2010-2011, added to a deficit of slightly more than $50-billion in 2009-2010. But after that, it's a wing and a prayer to suggest, as Mr. Flaherty did, that the budget will be almost balanced in 2014-2015.

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Five-year forecasts are a mug's game, anyway. Too many things are unknown to carve in stone any prediction. It's a wonder that finance ministers even present them, so shaky are their assumptions. So Mr. Flaherty's assumption that the federal government will have eliminated the deficit by 2014-2015 should be treated with nothing but skepticism.

This is a government, after all, that let spending rip before the recession. It's one that has ruled out reductions to transfers to people and provinces (pension and health-care transfers will rise by $20-billion in the next five years) and, of course, ruled out tax increases.

It's one that increased spending in this budget on a range of programs, and created new ones, that will extend for a number of years, such as another $250-million for Atomic Energy of Canada Ltd. and $200-million more for residential school atonement. Adding money today for more programs tomorrow will make future spending cuts even more difficult. Could this government, given its track record, actually get tough on spending? You have to believe that, yes, it can get tough in order to infuse credibility in this budget. (In fairness, Prime Minister Stephen Harper and Mr. Flaherty apparently beat back many spending proposals in the 10 days before the budget.)

It's a government that wants to get re-elected with a majority - and that means having an election if possible before the 2011 budget when spending restraint is supposed to become the order of the day. Therefore, the budget's double political message is lots more spending now but restraint much later, since polls show this is what most Canadians want.

For the rest of the calendar year, $17-billion in additional spending to combat the effects of the recession will course through the economy, giving Conservative incumbents a chance every week to advertise, announce and otherwise make Canadians aware of, and be grateful for, all that spending.

Predictably, Mr. Flaherty took aim at the three easiest targets for future spending reductions: foreign aid and defence (five years from now!), and pay to public servants. After that, he says, the deficit can be eliminated with lower "administrative costs" within government, a riff on the tired line of campaigning politicians that budgets can be balanced by eliminating "waste and duplication" in government.

It never happens, and it won't this time, even with the headline-grabbing Red Tape Reduction Commission. Red tape, of course, has grown considerably as a consequence of the Conservatives' own overwrought Accountability Act that has made it nightmarishly complicated to do business with Ottawa.

Freezing departmental budgets, by the way, means program cuts and service reductions. These haven't been announced, because they will cause political controversy, but freezing a department's budget over three years effectively means a real reduction of as much as 10 per cent.

Many economists, including those in the Parliamentary Budget Office, don't believe Mr. Flaherty's assumption, repeated in the budget, that Canada doesn't face a structural deficit. These economists estimate the structural deficit to be $20-billion, although they might revise that figure down to something like $15-billion after this budget.

Mr. Flaherty rejects their analysis (another flip of the coin). They don't think the government can find the spending savings to balance the books. The budget contains no contingency fund or margin of prudence such as were built into Liberal government budgets. (Mr. Flaherty had recklessly eliminated these provisions in previous budgets.) It assumes continued low interest rates, and solid economic growth.

Good luck to him. If these optimistic assumptions are wrong, these faulty predictions will become clear only after the next election.

Mr. Flaherty insists the government will not raise taxes, but what is a $10-billion provision for higher unemployment insurance premiums but a new form of raising revenue? Taxes, therefore, are going up, even if the government denies it.

 

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