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Canadian CEOs are calling for finely whittled federal funding cuts with a scalpel, not an axe. (Thinkstock/Thinkstock)
Canadian CEOs are calling for finely whittled federal funding cuts with a scalpel, not an axe. (Thinkstock/Thinkstock)

C-suite analysis

Federal spending cuts with a scalpel, not an axe, executives argue Add to ...

Canada’s leading executives want a federal budget that begins the process of reining in deficits and invests in future growth at the same time. The executives are deficit-concerned but not deficit-obsessed.

There is a consensus that now is the time to start restraining federal spending. More than at any point in the past four years, executives think the economy is strong enough to absorb some federal spending cuts.

However, growth is expected to be modest. Most business leaders think the economy will grow by less than 2 per cent in the coming year. In addition, optimism about the U.S. economy is embryonic and major concerns about Europe remain.

As a consequence, executives want Finance Minister Jim Flaherty to use a scalpel rather than an axe. The recent news that the deficit is shrinking more quickly than projected is good news in the C-suite because most executives would be more comfortable with spending reductions in the 5-per-cent range than they would with the more aggressive 10-per-cent target the government has been recently talking about.

Perhaps influenced by the spirit of the Drummond report in Ontario, the business community is as interested in better allocation of federal spending as it is in reducing the absolute level. Executives sent two messages in this regard. First, do not cut spending across the board. They would prefer a more judicious set of cuts based on a detailed examination of what spending is important, like the program review of 1994-1995.

The second message is that there are areas that require greater federal investment than currently exists. Those areas are related to economic growth.

For years, Western and resource-based executives have been bringing our attention to a growing shortage of skilled labour. This is becoming a clamour, because the need for highly trained employees is expected to increase sharply in future years. Executives see an important role for the federal government in creating a work force that can meet the needs of the economy. Failure to address this issue will have a negative impact on future economic growth.

Similarly, executives see the need for Canadian companies to innovate for success. The Bank of Canada has called for Canadian business to open up its wallet and invest in capital and research and development. Business leaders respond by saying that there is also a need for government to invest in R&D and to create incentives for innovation.

Ultimately, Canadian business wants the federal government to remain focused on growth rather than austerity. Because deficit spending is an impediment to Canada’s future prospects, it needs to be addressed, but not in an urgent, scorched-earth approach.

Business wants a framework for growth that includes the beginning of restraint in some areas of spending, combined with major investments in the kinds of things that will spur growth, most prominently education and training.

David Herle is principal and Alex Swann is vice-president of Gandalf Group

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