The Conservative government is leaning heavily on the defence budget to dig its way out of deficit.
A closer look at spending plans released Monday shows Chief of Defence Staff Tom Lawson wasn’t just blowing smoke last week when he told a defence conference that the military must do its part to erase the $26-billion federal deficit by 2015.
The main estimates released Monday show spending at National Defence will be $17.99-billion in 2013-14, down from $19.8-billion in the main estimates for 2012-13. Departmental budgets can be topped up throughout the year via “supplemental” estimates, and spending at national defence for 2012-13 is coming in at $20.7-billion.
That means national defence faces a budget cut of between $1.81-billion and $2.71-billion (in the unlikely event there are no top ups), or between 9 per cent and 13 per cent.
Calling it a “harbinger” of the 2013 budget to come, Treasury Board Tony Clement released the main estimates for all federal government spending in the fiscal year that begins April 1.
“Obviously, the budget is the main economic document of the government. Having said that, the estimates is a signal of the direction of the government on some basic files and some basic portfolios so it is, I would call it a harbinger, perhaps, a signal of the kind of budget that we will have,” Mr. Clement told reporters on Parliament Hill.
In the category of “budgetary expenditures,” which includes operating and capital spending as well as transfers to other levels of government and debt costs, the 2013-14 main estimates project spending of $252.5-billion, up slightly from last year’s main estimates of $251.9-billion.
However, approved spending for the current year is higher than actual spending in 2011-12. Including top ups through supplemental estimates, approved budgetary spending in 2012-13 sits at $259-billion. It is possible that not all of that will be spent. In 2011-12, the final spending numbers came in at $247.8-billion, which was about $11-billion lower than the $259-billion in approved estimates that year.
Mr. Clement noted that the direct spending that Parliament votes on - a category that excludes items like the Canada Health Transfer - faces a planned decrease of $4.9-billion.
Most of the 2013-14 spending cuts in departments are the result of targets Finance Minister Jim Flaherty set in the March 2012 budget. In that document, he outlined a three year plan to find over $5-billion a year in savings.
Though economic growth is coming in slower than he expected a year ago, Mr. Flaherty recently said he can still meet his 2015 target to balance the books without having to “slash and burn” his way through government spending.
The big picture spending trend appears to support that view. A chart in the main estimates showing spending over the last 10 years shows a peak in 2010-11, then a slight reduction that has generally held steady for the past three years.
Spending in 2013-14 will remain above where government spending levels were at heading into the recession in 2008-09.
In addition to the estimates, the government also released its annual report on the cost of so-called “tax expenditures.” These are the billions in tax breaks and credits that include everything from GST rebates for low-income Canadians to more recently-announced tax breaks such as the Children’s Fitness Tax Credit and Children’s Arts Tax Credit.
The latest report includes the first-ever release of information around the cost of the “Travellers exemption.”
Duty free tax breaks for cross-border shoppers is costing Ottawa $200-million a year in lost revenue, according to the report.
The report shows the exemption used to cost Ottawa $105-million in revenue in 2007, but as the value of the Canadian dollar rose and the tax break was expanded, it is now a credit that is projected to cost $200-million in 2012.
The 2012 budget increased the duty free limit from $50 to $200 for lengths of absence between 24 and 48 hours and from $400 to $800 for lengths of absence between 48 hours and seven days. The report does not suggest this has led to a dramatic change in lost revenue. The $200-million figure for 2012 was up from $190-million in 2011.
Tax expenditure estimates do not take into account the consequences of not offering the tax credit. For instance, the border exemption is meant to streamline the processing of Canadians at the border. Removing the credit would likely lead to higher border security costs.
With a few weeks left before Mr. Flaherty releases the 2013 budget, the estimates and the tax expenditure reports give Canadians plenty of detail to work with in deciding whether they think government spending is on the right track.