Wednesday, February 2, 2011

Harper Government Cost Control - Fact or Fiction?

The Office of Canada’s Parliamentary Budget Officer (PBO) is keeping a watch on the Harper Government’s plans to reduce the country’s budget deficit as outlined in Budget 2010.  This is critical right now because the Harper government is now formulating its plans for Budget 2011.  As part of planned cuts to expenditures, the Conservative government announced in Budget 2010 that three measures that would be undertaken to reduce operating expenditures in a rather desperate attempt to balance record budget deficits by 2015 as noted here:

1.)   A freeze on increases in departmental spending on travel, hospitality and conferences, maintaining the spending level at 2008 – 2009 levels.

2.)   Departments would be required to reallocate internally to fund planned wage increases of 1.5 percent across the public service in 2010 – 2011

3.)   In 2011 – 2012 and 2012 – 2013, the operating budgets of all departments would be frozen at 2010 – 2011 levels.

These operating budget reductions were predicted to save $6.8 billion over the five years starting with $300 million in 2010 – 2011.  This would rise to $900 million in 2011 – 2012 and $1.8 billion in 2012 – 2013.   The government hopes that this freeze will keep operating spending growth at 1.4 percent per annum as opposed to its five year average of 6.4 percent in the years from 2004 to 2009. 

When the PBO under the watchful eye of Kevin Page started to dig into the nitty-gritty of what cuts were planned, the Harper Cabinet stonewalled by invoking the “Cabinet confidence” mantra.  I guess someone has forgotten that getting this information is part of the mandate of the PBO (that was set up by the Harper government as part of their accountability platform) and that, in reality, this is taxpayers dollars that the government is dealing with.   Secrecy should not be the order of the day.  

Here is an exchange from the December 2nd meeting of the Standing Committee on Government Operations and Estimates between Mr. Alister Smith, Associate Secretary of the Treasury Board Secretariat and NDP MP Pat Martin about the planned departmental freezes and government secrecy:

 “Mr. Pat Martin:  We're at your mercy. I didn't even bring the supplementary estimates with me because they're too heavy for my staff to carry, much less plow through them all.

    It's just ridiculous. You come to us saying you're seeking Parliament's authority to spend $4.4 billion. It's really that you're seeking Parliament's “permission”. We're supposed to grant you “permission” to spend that money, to put it in the right context. It's my goal to dumb down the estimates process, and fortunately I'm very qualified to do that, at least.

    Let me start with what almost seems like a contradiction in what your testimony is today.

     In one paragraph of your report you're seeking Parliament's permission to spend $4.4 billion, but you're also saying that this pile of supplementary estimates is announcing a decrease of statutory spending in the amount of $2 billion. I guess this is why we put in place the Parliamentary Budget Officer, to help ordinary mortals like us wade through an incomprehensible system of estimates.

    In that context, let me ask my first question. We ask the Parliamentary Budget Officer to help us at least understand the budgetary freezes, the impact of the departmental freezes. He will testify later, I suppose. But from what I understand, they ask the government how they intend to achieve their planned operating budget freeze over the projected period. But the government indicated that this information is a cabinet confidence and will not be released to the public. We should put it into context first. The Parliamentary Budget Officer is not the public; he is our agent. He's the guy we commissioned for a specific task to help us understand what the hell is going on. It disappoints me that the door is slammed in his face when he asks the very question that we put to him. (my bold)

     In fact, the standing committee has put the very same question to the government, and it's currently being assessed as to whether the government will tell Parliament how they intend to achieve its planned operating budget freeze. Is what you bring us today the manifestation of that request? Or are we still waiting for that request?

Mr. Alister Smith:  There are two things we need to distinguish. One is the operating budget freeze and how it works, and we're happy to engage on that, as we have been. But there is also the data request that the Parliamentary Budget Officer has made last year and this year, and that the committee has made, and we have just responded to the committee on that.

    The issue for us on the Treasury Board side is in not being able to release documents or data, which our lawyers tell us are a cabinet confidence, because ministers have not made a decision on or approved a particular item.

Mr. Pat Martin:  How can we have lawyers standing in-between Parliament and the government that we give permission to spend our money? If the public hasn't got a right to know, surely Parliament has a right to know what government is doing with the money that we give them permission to spend, through the estimates process. (my bold)

Mr. Alister Smith:  It's really the matter of cabinet confidences, and that's information we cannot share. If an item is before Treasury Board or cabinet, and it's subject to a confidence, it cannot be shared. That's also the law. So that is the reason that some information that has been requested by a PBO cannot be provided. We have provided everything we could provide.

Mr. Pat MartinThe very same question was put to government by this parliamentary committee. First of all, the Parliamentary Budget Officer is an extension of Parliament; he is an agent of Parliament, so he's asking on behalf of Parliament. He's not going to have a press conference and release this information necessarily.

    I think we've identified a very serious problem again in the estimates process, because government seems to have the right to rack up $58 billion deficits, but we don't have a right to know how we plan to dig ourselves out of this hole, except for some very sketchy information. It's my concern that they will try to balance the books on ideological grounds, that the choices they make.... I mean, it's like 007 for that Minister of Finance. It's like a licence to kill, because he now has a deficit to slay, and he can cut and hack and slash at every program that he disagrees with ideologically. The sketchy information we have now is that the biggest cut, the largest single cut, in this effort to reduce their growth in government spending is the Canadian Broadcasting Corporation, by a percentage at least. They're getting 1.3% of their budget cut. It's not frozen for three years; it's reduced.

    Then the National Parole Board is the third highest. Statistics Canada, who we know they have no respect for, is feeling the brunt in the top ten reductions.

    We're not getting enough information to accurately access the veracity of the plan, the business plan, and what little information does trickle out gives us cause for concern that they're going to be balancing the books again along ideological grounds, Mr. Smith.

    I know that's not your fault, and I appreciate all the work that you do, but we're really.... I know I'm supposed to be asking you questions and not going on talking here, but let me understand this. When you say—or when the government says—they're seeking a 5% reduction, that's not really a reduction, is it? That's a reduction in the growth. The growth rate for the five years before the economic action plan was about 6.4% per year. Does that figure sound right, now?”

Don’t get me wrong.  I’m not saying that the Liberals or NDP would act any differently if it were up to them to invoke the “Cabinet confidentiality cloak of secrecy”.  They’d both take whatever means necessary to keep the public in the dark about their own money.  That's how politics works.  It's the mushroom theory in action; keep us in the dark and feed us sh$t.  That still doesn’t make it right.  I think that our elected officials have forgotten that the public is simply is not a bottomless source of money.  As far as Cabinet confidence goes, perhaps the law needs to be changed at least in matters of this type.

Back to the PBO report.  The Treasury Board states that roughly 11,000 public servants retire or resign every year.  That relatively pain-free attrition is the primary way that Stockwell Day, President of the Treasury Board, hopes to cut spending on staff according to this article in the Globe and Mail from November 2010.  See, no pain, big gain!

Most of the government’s budgeted operating expenses come from personnel costs which have risen by an average of 8.3 percent per year over the past five years.  It’s a good thing that the government isn’t in the business of making a profit, isn’t it?  Here’s a chart from the report showing where your money goes when you generously fund government operations:

The PBO requested copies of the Human Resource Plans from 10 major federal organizations that were responsible for over half of operational spending in 2009 – 2010.  These organizations employ nearly 160,000 public servants.  This was done to see if plans were in place to achieve the cost saving measures proposed in the 2010 – 2011 Budget.  Interestingly enough, the RCMP and Correctional Services Canada declined to participate by the time of publication of the Monitoring Update, 2 months after the PBO requested the information.  As shown in this table, between this fiscal year and next, the 10 federal organizations plan to cut a net total of 1133 public servants out of the 159,251 they currently employ:

Apparently it's no pain and no gain.

The reduction of 1133 employees (0.7 percent of the total) is well short of Stockwell Day’s annual attrition number of 11,000, in part because of the hiring of 4119 staff by Corrections Canada as part of Stephen Harper’s tough love approach to crime.  It looks like the world of government employees could be in for a world of hurt if the Harper government has to lay off staff to cut costs…unless you happen to want a job as a prison guard!

From April to October of 2010, the Harper government has taken in revenue of $127.7 billion with expenditures of $149.2 billion for a “financial requirement” of $40.2 billion.  This "net loss" was comprised of a budget deficit of $21.5 billion and an additional requirement of $19.3 billion for “non-budgetary transactions”.  Here’s a bar graph showing the numbers:

The 2010 – 2011 total requirement is down from a financial requirement of $58.3 billion in the same period of 2009 – 2010.  What is interesting to note is that interest charges on the public debt for the seven month period totaled $17.9 billion, up $400 million on a year-over-year basis despite interest rates that are at generational lows.  God help us when interest rates return to historical norms or if the economy stalls between now and 2015 when the government projects a return to near balance.  This time out, the government covered the $40.8 billion by increasing market debt by $21 billion and using $19.8 billion of cash-on-hand.  With those numbers in mind, you can see how insignificant the savings of $300 million this year and $6.8 billion over five years really is.

It looks like the Harper government (if they win the next election) are going to have some very difficult decisions to make when it comes to the issues of staffing levels and cuts to the non-personnel items in federal operational budgets if they sincerely want to act like fiscal conservatives and reign in spending.  Either that, or a decision will have to be made to raise taxes to bring deficits and debt accrual under control the REALLY hard way….and we all know how popular that decision will be.  Let's hope that there is some meaningful action on controlling expenses in Jim Flaherty's Budget 2011.


  1. A little Balance...

  2. Ha, Flaherty could barely pass grade 13 math, let alone college level accounting 101 !! In Ontario he demonstrated that he was a complete and utter failure in the Finance Ministry !!

  3. How dare this bunch of cowboys/girls play with the daily livelihoods of Canadian citizens!!!! We're a society of liars whereby when a Conservative majority surfaces, NOBODY YOU TALK TO...will admit voting Conservative! 300 million dollars later, and the pigeon chested politicians strut their stuff; spend our money and at the end of the's either a majority Conservative or minority Conservative. And these birds have the gaul to suggest one party is MORE UNETHICAL THAN ANOTHER PARTY!! Ya. OK. Right!!!!!