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Minister of Finance Jim Flaherty responds to a question during question period in the House of Commons on Parliament Hill in Ottawa on Tuesday, April 23, 2013. (Sean Kilpatrick/THE CANADIAN PRESS)
Minister of Finance Jim Flaherty responds to a question during question period in the House of Commons on Parliament Hill in Ottawa on Tuesday, April 23, 2013. (Sean Kilpatrick/THE CANADIAN PRESS)

Ottawa’s spending cuts will slow economy, cost 67,000 jobs: budget watchdog Add to ...

The Conservative government’s last two budgets promised a focus on jobs and growth, but a new report by the Parliamentary Budget Officer says spending cuts from those two documents will slow the economy and cost 67,000 jobs.

Still, the report by PBO staff largely gives the government a passing grade for its fiscal forecasting, agreeing that the federal deficit will likely be erased by 2015-16, in time for the next federal election.

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The PBO released its Economic and Fiscal Outlook on Monday, a report that compares the government’s estimates for economic growth and revenue with it’s own and provides the PBO’s general overview of economic trends.

The PBO is projecting growth of only 1.9 per cent in 2014, which is significantly less than the 2.5 per cent average of numbers from private sector forecasters that Finance is using to support Ottawa’s budget numbers. The PBO said this difference is largely offset by the “adjustment for risk” that the government inserts into its annual budget projections.

The report also looks at the impact of federal spending cuts on the broader economy. The PBO estimates that real GDP will be 0.57 per cent lower than it would be without spending cuts. It then uses a Finance Canada formula to translate that GDP number into an estimated impact on employment.

“PBO’s estimate of the overall employment impact amounting to a reduction of 67,000 jobs in 2017 does not mean that PBO expects that, going forward, there will be a decline of 67,000 jobs from the current level of employment (17.6-million jobs as of March, 2013),” the report explains. “Rather, it means that, in the absence of these measures and revisions to spending levels, projected employment would be higher by 67,000 jobs, all else being equal.”

Kathleen Perchaluk, a spokesperson for Finance Minister Jim Flaherty, defended the Conservatives’ economic record.

“We haven’t followed the path of certain countries – spending endlessly and creating a bloated government bureaucracy,” she said in a statement. “That would lead to the troubling consequences we’re seeing in many European countries, including growing government debt for generations to come.”

NDP finance critic Peggy Nash said the PBO report supports her party’s argument that the economy would be better served with measures that boost growth.

“These austerity measures are not needed,” she said.

The PBO calculations on jobs will likely fuel the debate over whether Ottawa is leaning too heavily on restraint during lean economic times. Mr. Flaherty has repeatedly stated that his government has struck the right balance between investments and spending cuts. But the minister has also set a hard deadline of 2015-16 for a return to balanced books, which is a target that appears to be driven more by the timing of the next election – expected in 2015 – than the urging of private sector economists.

The PBO does not comment on whether the finance minister’s approach is appropriately balanced. Governments and citizens around the world are debating whether an economy is better served by boosting market confidence with a quick return to balanced books or a stronger focus on spending and employment will pay off in terms of stronger government revenue.

The PBO report notes that the combined spending cuts in the 2012 and 2013 budgets, coupled with other savings measures, mean Ottawa is cutting more than $7-billion a year by 2014-15, a figure that will rise to $11.5-billion in 2017-18.

In terms of the impact on Ottawa’s bottom line, the PBO is slightly more optimistic in its projections than the government. The PBO is projecting a $17.4-billion deficit this fiscal year in contrast to the government’s projection of $18.7-billion. For 2014-15, the PBO forecasts a $3.7-billion deficit compared to the federal forecast of $6.6-billion.

Then for 2015-16, the year the Conservatives are promising a return to balanced books, the government says there will be a surplus of $0.8-billion. The PBO largely agrees, forecasting a $3.7-billion surplus for that year.

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