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Finance Minister Jim Flaherty with the Peace Tower in the background. Mr. Flaherty's plan for a national securities regulator was shot down in December by the Supreme Court. (Adrian Wyld/The Canadian Press/Adrian Wyld/The Canadian Press)
Finance Minister Jim Flaherty with the Peace Tower in the background. Mr. Flaherty's plan for a national securities regulator was shot down in December by the Supreme Court. (Adrian Wyld/The Canadian Press/Adrian Wyld/The Canadian Press)

Federal budget expected to slash $7-billion from discretionary spending Add to ...

The Harper government will chop $7-billion from discretionary spending when the finance minister hands down his budget Thursday, The Canadian Press has learned.

That high number will surprise many, including some economists, who had expected that Ottawa’s improving fiscal position would allow the government to keep cutbacks at the low end of the $4-billion to $8-billion range it had previously set.

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Finance Minister Jim Flaherty has spent weeks insisting that it would be wrong to view his document as an “austerity budget.”

But Conservative sources say months of poring through the $80-billion discretionary spending envelope with a fine-tooth comb has led to about 8.5 per cent in savings worth around $7-billion. Discretionary spending is all of the money the government spends apart from transfers to the provinces and individuals for programs such as health care.

Mr. Flaherty will not detail how the cuts will be implemented in the budget, but the sources say most of the reductions will be front-loaded to realize the biggest savings.

Some have estimated the cuts could result in upwards of 60,000 public service jobs being eliminated, although government ministers say most of the losses will be through attrition.

Royal Bank chief economist Craig Wright predicted earlier this week that the federal deficit this year would shrink to $20-billion to $25-billion, well down from Ottawa’s $31-billion estimate in November.

That will enable Mr. Flaherty to balance the books one year – and perhaps two – ahead of the 2016-17 projection, he said.

Given the improved circumstance and brightening economic horizon, Mr. Craig said he expected the budget would only seek to find $4-billion on total savings and re-allocate some funds to high-priority areas.

But the Conservatives want to lock in a balanced budget scenario by the time they head back to the polls in 2015. That would allow them to keep expensive promises made in last year’s campaign to allow income-splitting for families with children under the age of 18 as well as a doubling of the limit individuals can put in Tax Free Savings Plans to $10,000. Both of those promises were contingent on a balanced budget.

Former Liberal finance minister John Manley, who is now head of the country’s most influential business lobby group, said it makes political sense for the government to tackle the hard issues early on in the majority mandate.

“Any of the hard things you believe you are going to have to do, you got to get them out of the way early,” said Mr. Manley, head of the Canadian Council of Chief Executives.

“First of all it shows a direction, and secondly it enables you to have time to deal with any political fallout.”

Government messaging in the past few weeks has attempted to steer the media away from the issue of cuts, particularly as they relate to Old Age Security benefits, which also appear in line for a trimming in the future.

The Prime Minister’s Office told reporters in recent days that the budget would be focused on creating jobs, growth and long-term prosperity. Four themes – innovation, responsible resource development, investments in training and infrastructure, and supporting families and communities – have been highlighted in recent messaging that directs reporters to a quote from Mr. Flaherty: “If you concentrate on the savings, you’re going to miss most of what the budget is about.”

The government’s point man for the innovation agenda, Gary Goodyear, confirmed the budget will tackle the labyrinthine system for handing out about $12-billion in research and development grants to businesses and universities.

A key target will be the century-old National Research Council, which the minister said has lost focus.

But despite the government’s efforts, it will be difficult to overlook that a major goal of the budget is to save money, at the expense of the public service now and seniors later. Ottawa is also expected to trim public service pensions.

When Mr. Flaherty met with economists earlier this month, some advised him to keep cuts at the minimum given the fragile state of the economy.

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