Skip to main content

Finance Minister Jim Flaherty arrives to testify before a Commons committee on in Ottawa on Aug. 19, 2011.

The Conservative government's 2012 budget will mean deep cuts for some departments while others will get off more lightly as Finance Minister Jim Flaherty says he wants to protect the direct delivery of services to Canadians.

For the first time, Mr. Flaherty said some departments could shrink more than 10 per cent as ministers work their way through a mountain of proposed spending cuts prepared by officials.

The flurry of proposals inside government – none of which have received final approval – is fuelling the Ottawa rumour mill ahead of the as-yet-unscheduled budget.

Mr. Flaherty is also hinting that the next budget, his seventh as finance minister, could include reforms to public sector pensions.

Speaking to reporters in Vancouver on Tuesday after a prebudget event, Mr. Flaherty was vague as to what he has in mind regarding pension sustainability. "We have made some progress in the discussions with the public sector, and we hope to make more progress."

The government and labour unions have already agreed to increase the employee share of pension contributions to 40 per cent, from a low of 28 per cent about six years ago. Closing the contribution ratio more would require federal legislation.

"If one is going to make any sort of intelligent assessment of government spending in Canada, one has to look at the costs of remuneration, including benefits and pensions," Mr. Flaherty said. He added that private and publically traded companies are also "struggling" with pension obligations.

Some believe the government will move to reduce the generous pension plan for members of Parliament as a way to sell public sector pension cuts, but it is not clear how seriously this is being contemplated.

Mr. Flaherty said the cost of the MP pension plan is a matter for the MP-led Board of Internal Economy and is not a government decision. New Democrat MP Joe Comartin, a member of the board, said the issue has never come up.

Mr. Comartin said he does not understand how public sector pension reforms would lead to short-term savings, given that changes could only apply to new government employees or new MPs.

"If there's any savings, it would be way down the road," said Mr. Comartin, the MP for Windsor-Tecumseh. "Our pension laws are quite clear. You can't strip them retroactively."

John Gordon, president of the Public Service Alliance of Canada, said he was assured privately by Mr. Flaherty last year that no further pension changes were planned after unions agreed to boost their contribution rates. "But I'm always nervous," he added.

The government is in the final stages of a year-long process that aims to find at least $4-billion a year in permanent savings from the $80-billion a year Ottawa spends on direct programs. Each department was asked to submit proposed cuts of 5 per cent and 10 per cent, phased in over three years. Government sources say departments are being pushed to find cuts sooner than planned. Mr. Flaherty said the final cuts will not be across-the-board at one rate.

"This is hard work. And of course, there can be numbers between 5 per cent and 10 per cent and some departments can do more than 10 per cent," he said.

He also suggested some departments may get off lightly if they are seen to provide direct services to Canadians, pointing to Human Resources and Skills Development Canada as an example. Mr. Gordon said that HRSDC, through Service Canada, is already scaling back service because of earlier spending cuts.