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Headshot of Jeffrey Simpson. (Brigitte Bouvier/Brigitte Bouvier/For The Globe and Mail)
Headshot of Jeffrey Simpson. (Brigitte Bouvier/Brigitte Bouvier/For The Globe and Mail)

Jeffrey Simpson

Health costs, elderly loom large over this budget Add to ...

Far removed from the headlines about training and infrastructure and closing tax “loopholes” is the real story of the budget. It’s an old story. It hasn’t changed. So it receives no attention. But it drives the shape of the budget more than all of Thursday’s glittering announcements.

Over the next decade, federal spending on the elderly will rise by $10-billion and on health care by $7.4-billion. Together, that spending represents about half of all new federal spending anticipated between 2013-2014 and 2017-2018.

Spending on the elderly will take up almost a fifth of every dollar spent by Ottawa, without any enriching of existing programs. The number of those over 65 years of age will jump by a million during that five-year period, so that the growth in spending on the elderly will rise yearly by 5.3 per cent.

Given the long-term demographic trends, whereby the share of the population above 65 years of age will rise from 14 per cent today to 30 per cent by 2030, every successive federal budget will be increasingly distended by this demographic bulge. It would take a very brave federal government to tackle this challenge.

On health care, Ottawa continues to transfer about $18-billion to the provinces – indexed at 6 per cent. This index will fall to something like 4 per cent in 2017-2018 – but at either 6 per cent or 4 per cent, federal transfers will be growing faster than the increase in the health-care budgets of the provinces.

These transfers for the elderly and health loom even larger in a budget that essentially freezes federal government spending for its own programs. Spending keeps going up fast for transfers to people – notably the elderly and unemployed – and rises inexorably for transfers to the provinces. But for programs it runs, Ottawa’s spending will not grow in real terms.

This is a fundamental choice the Harper Conservatives made when they arrived in office – to shrink Ottawa’s role vis-à-vis that of the provinces. Seven years later, they have not changed their approach.

Except perhaps in one area – skills training, a major rhetorical theme in the budget. The Conservatives obviously feel the gap between jobs and skills is so wide that it should spend more money and renegotiate federal-provincial labour market programs when they are up for renewal next year.

The centrepiece of the Conservatives’ effort is something called a Canada Job Grant that will offer $5,000 from Ottawa and matching funds from the provinces and business for an amount up to $15,000 for training.

The ambition is laudable; the realization will be difficult and quite likely inadequate. Some provinces will be stretched to find the money and many businesses, especially small ones, will not be interested. Ottawa’s ability to influence provincial behaviour is limited, and in the case of Quebec, non-existent.

The Canada Job Grant and a new Apprentice Incentive Grant are nods to the German apprentice experience. But the German success is based on deep co-operation between labour and enterprises that extend back to medieval guilds. Canadian business, compared to German enterprises, has always had a poor record in training. These new programs will change that record only at the margin. By way of contrast, the Canada Job Grant will cost $300-million a year and all labour market transfers by Ottawa to the provinces will cost $2.7-billion; programs for the elderly will take $42-billion.

The Conservatives insist they will balance the budget in 2015-2016 from economic growth and cuts to Ottawa’s own programs. They might have added that the deficits of today are in part the result of tax cuts of which the Conservatives are very proud and from which they benefit politically.

Put another way, they have been forced to cut spending by their own tax cuts, and by the many tax expenditures they have inserted into the tax system. Indeed, it was ironic Thursday to see the big deal the government was making about closing “loopholes,” some of which are tax “expenditures,” having injected so many others into the system.

The government, fiscally speaking, doesn’t have to balance the budget in that year. Politically, however, it does. In the last campaign, the Conservatives promised some big spending items once the budget is balanced.

Balance the budget, and fire up those promises for the next campaign.

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