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Finance Minister Jim Flaherty answers questions on Thursday in the budget lockup. The Conservatives have doubtlessly concluded that limiting the rate of growth of transfer payments to that of the economy – which is the same as keeping them at a constant share of GDP – is probably the most restraint they can impose without incurring lasting political damage.

Adiran Wyld/The Canadian Press

The main features of the expenditure side of next year's 2013-14 federal budget should be fairly easy to predict:

  • Transfers to persons will be about 4 per cent of GDP, and future projections will be consistent with this share.
  • Transfers to other levels of government will be about 3.2 per cent of GDP, and future projections will also be consistent with this share.
  • Direct program spending will be at or just above 6 per cent of GDP, and this share will be projected to decline throughout the forecast horizon.

The reason we can make these predictions with a certain amount of confidence is that these paths were set out by the Conservative government several years ago, and they have shown little sign of wanting to deviate from them.

Even if they wanted to – and it can be fairly imagined that they do – cutting transfer programs would generate a certain amount of political blowback from the people and provinces that are on the receiving end. The Conservatives have doubtlessly concluded that limiting the rate of growth of transfer payments to that of the economy – which is the same as keeping them at a constant share of GDP – is probably the most restraint they can impose without incurring lasting political damage. It can hardly be a coincidence that the last three budgets project GDP shares converging to the essentially the same levels over the course of their forecast horizons.

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Direct program spending – the part of the budget that requires the federal government to hire people to do things – is another matter entirely. To the extent that it can continue to plausibly argue that cuts will affect only 'back office' operations and not the delivery of services to the general population, the main opposition will be public sector workers. This seems to be a battle that the Conservatives are prepared to fight: the last three budgets show share-of-GDP profiles that continue to decline throughout forecast horizon.

By 2015, if things go according to plan, program spending will be much smaller than it is now, and the government may even be running a surplus. It will also be an election year. The cycle of promising tax cuts followed by another round of spending restraint may repeat itself.



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