Stockwell Day’s “road map to a balanced budget” is in the National Post today, and in it he lauds the 2010 spend-the-course budget and the “3-point plan” to return to a balanced budget.

The first point of the plan is to wind down the stimulus spending of the famous Economic Action Plan that built skating rinks in community centres and bathrooms in National Parks. So that means that this year’s $53.8-billion fiscal deficit is all part of slowing down the second half of the two-year $47-billion stimulus package.

The second point is to ensure government lives within its means. To honour this plan, the government announced a wage freeze for the civil service saving as much as $6.8 billion. If you scan through the forest that died to produce the 424-page monstrosity of a budget, however, you’ll soon realize that this is a spending freeze at 2010-11 levels. As Andrew Coyne noted:

That sounds tough, until you realize they’re freezing spending at 2010-11 levels: that is, at the very height of the stimulus-enhanced, shovels-in-the-ground, money-out-the-door frenzy. In 2011, according to the budget’s breakdown of federal expenses (p. 180), “operating expenses subject to freeze” totalled $54.9-billion, fully $10-billion more than they were just two years before. That’s where they’re freezing it. The peak has become the base.

And third, Stockwell Day and the Conservatives will conduct that neverending “comprehensive review of government administrative and overhead costs” they’ve been working on for over four years now. Without much apparent success, since government spending under the Conservative Party has increased 32.7% in the five budgets delivered since May of 2006.

In the first Conservative budget, the government estimated program spending at $179.2 billion in 2005-06. This year’s 2009-10 budget estimated the figure at $237.8 billion a mere four years later. In their 2006 budget, the Conservatives began with the following promise:

The Government will restrain the rate of spending growth.
The Government will introduce a new approach to managing overall spending to ensure that government programs focus on results and value for money, and are consistent with government priorities and responsibilities.

Stockwell Day had better hurry up and finish that spending review. Meanwhile, Canadians appear to be giving tacit approval to go ahead and make public-sector cuts as a deficit-fighting tool, just as the Liberals did in the late nineties.

A new Nanos-Policy Options poll shows that 36% of respondents feel that freezing government wages is the best approach to fighting the deficit. 20.5% say government and program spending should be cut. We’d better start soon. The current Conservative road map leads us to record levels of spending and debt.

This is reminiscent of the excellent video from April 24, 2009, in which a YouTuber explained in pennies just how bankrupt the United States is. The above video also does a pretty good job, since people tend to visualize a lot better than they conceptualize. Even without the visual aid, it’s easy to demonstrate just how meaningless $807 million in savings is with this government. They’re spending $179.4 million just to plan and prepare security for this summer’s G8 and G20 summits in Toronto in which they will discuss things such as reducing the public debt.

h/t SDA

Photograph: Darryl Dyck, Canadian Press

The Gordon Campbell budget was released yesterday, but I needed a day to think about the impact of the announcements. Nothing really comes as much of a surprise, and the Liberals put the money into the two areas that they would have been crucified had they ignored: health care and education. But even in those areas there could be some improvement.

In some respects the budget is a restrained stimulus-free version that the federal government doesn’t have the political capital, or the political courage, to release on Thursday. Finance Minister Colin Hansen presented a budget with significant cuts to government workers, and tightened the belt toward a balanced budget, but not until 2013.

Although the targets are for 4,142 fewer government workers by that date, a 13% shrinking of the civil service, this budget is still one with record spending. With the September budget update that put the government in a deficit position of $1.6 billion, the province has been slowly letting go of people in the bureaucracy.

The Liberals had made numerous cuts to spending on the road to the Olympics, but that was to ensure that nothing got in the way of their Games glory. In August the government said it was forced to close 13.5 operating rooms in the Vancouver Coastal Health Authority from September of 2009 until the end of the Olympic Games in order to meet the challenges of their massive budget shortfalls. They postponed 5,800 surgeries in areas such as neurosurgery, vascular surgery, ortho trauma, ophthalmology and general surgery. They also reduced operating-room and hospital-ward staff by an estimated 112 full-time-equivalent jobs. And they cut 13 anesthesiology positions.

The perception of a struggling health care sector and strained education system left the government with no choice but to add spending to those areas. Expenses grew by $460 million since the last budget, including a further $105 million for school districts, $31 million for post-secondary institutions and $34 million for health authorities and hospital societies.

For all of the BC Liberals’ tough talk on no deficits, in which the Campbell government breached their own legislation last February, multiple deficit projections will accrue public debt by 2013 that will reach levels seen under the NDP in the late nineties.

Unfortunately, much of the increased spending in education doesn’t address the root problems that have caused record numbers of school closures in British Columbia and teacher layoffs during the past decade. Instead it’s going to a back-door universal daycare program for full-day kindergarten, and salary increases for teachers to keep the teacher’s unions happy. That means that school administrations will still be struggling with basic needs like transportation costs, increased Medical Services Premiums, and the expected hit from the July 1 HST.

According to Mr.Hansen’s latest forecast, B.C. will sustain deficits of $1.7 billion, $945 million and $145 million in the next three fiscal years, from 2010-11 to 2012-13, before returning to expected surpluses thereafter. That would bring B.C.’s public debt from $36.1 billion in 2001 to $55.9 billion by the end of the budget forecast, an increase of 35.4%. Moreover, that debt burden puts $14,300 per capita on B.C. residents, only $1,300 less than our per capita federal debt.

The other problem with the budget forecast is in repeating the mistakes of the federal government’s own optimistic revenue and growth forecasts. Mr.Hansen expects an annual revenue growth of 4.9%, but there’s little indication that British Columbia will continue to recover from the recession quickly enough to make that growth, or that the HST won’t throw a wrench into those plans. Not only will all HST revenue go into health care [no "stimulus" there], but the increased taxes on medical services premiums will also increase the tax burden on the base. The carbon tax is also slated to go up once again on July 1, the same day the HST will kick in.

And now that the Olympic party’s over, and the Liberal government became the photo-op beneficiaries of a record 14-gold medals performance by our athletes, they’ll be rewarding them by disowning the podium altogether.

The Canadian Centre for Policy Alternatives, an organization that has never heard of a spending program it didn’t like [unless it's a military program], has suggested that Ottawa one-up last years spending orgy increase of 14.1% over 2008. The $56 billion deficit forecast for this year is pretty bad, but the CCPA proposes an even larger one for next year, up to $65 billion deficit, in order to sustain “stimulus” and jobs creation.

Just to put things in perspective for you, the CCPA is calling for a 12.6% increase to the total public debt for a single year in order to ensure everybody has stimulus money for 2010. Currently, every man, woman, and small child who crawls along the carpet owes $15,606 because of our public debt. The CCPA believes that spending $65 billion, and increasing that per capita burden by $1,970, would be better than cutting taxes, or simply tightening the belt.

Let’s think about that for a moment, shall we?

For the sake of argument, let’s assume I have $1,500 of credit card debt. Under the circumstances of a bad economy, the best I can do is make the minimum payment, which is barely more than the interest amount. Over the span of a year, I could make the minimum payment on my $1,500 debt without ever really denting the principle amount. I’ve done nothing to stave off my liability, and everything to maintain a cyclic debt payment that becomes a part of my overall expenditures.

Adding a per capita burden of $1,970 is even worse, since the tax base isn’t made up of the population of 33 million people. It’s a much smaller amount, and when you consider the progressive tax system, that amount is even smaller, since the middle and upper classes pay the most money. But wait, it gets even worse.

The population that is over 65 years of age, the boomer generation, will continue to rise for the next 50 years as the tax base shrinks. The only means of sustaining the current government spending and programs is by incurring more debt, or by importing more workers. And even immigration won’t be able to solve all of the problems created by debt.

There’s no reason to believe that borrowing $65 billion in order to distribute stimulus money into the economy will provide a per capita benefit approaching anything close to $1,970. Beyond that, just as it does with your credit card, Canada increases its overall interest payments exponentially. In 1995-96 before the Paul Martin cuts that brought the deficit under control, interest payments peaked at $49.4 billion when the debt bottomed out at around $560 billion. That’s practically the amount of debt accrued just in “stimulus” spending this year.

The CCPA budget calls for things like $10 billion in Employment Insurance giveaways, environmental stimulus, and a federal carbon tax [if you can believe it]. To offset those costs, it advises cutting the military for $6 billion over five years, which would probably restore Defence back to the levels of 1.1% of GDP from the Liberal era.

There’s nothing to be gained by accruing more debt and gouging the military just after the federal government has restored levels to the point where we can actually sustain comprehensive long-term missions and emergency foreign aid for natural disasters like the Haitian Earthquake.

The first rule of holes is stop digging. We need to tighten the belt, weather the last of the economic storm, and then restore the budget to balance. If we don’t do that, we’re only setting ourselves up for a much worse crash in the future.

The National Post just completed a four-week feature of proposals to cut federal spending with the goal being to find $20-billion in cuts to balance the budget by 2013 or sooner. Incredibly, even with these extremely bold cuts, it would still take until fiscal 2013-14 to do it.

As David Akin writes in the Ottawa Citizen, cutting spending isn’t as easy as it sounds. Every new MP, Finance Minister, and Treasury President thinks they can come in and cut the fat, but almost none of them ever succeed.

The last time a government managed to cut a significant portion of the budget, was the 1996 Paul Martin Liberal budget that contained $11.7 billion worth of cuts. Some were good, some were bad, but they did manage to get the budget under control again. Of course, we mustn’t ignore the $54 billion surplus of Employment Insurance that the government used to pay down the debt.

Although it’s become more clear than ever that Canada’s deficit will spiral out of control unless spending is reigned in or taxes are raised, the Harper government is “spending the course”. We’ll get to see on Thursday what this “road map” back to a balanced budget will look like [some time in the year 2020].

Spending under Finance Minister Jim Flaherty, writes David Akin, has been almost uniformly unrestrained. He increased spending in the first budget of 2006 by 6.3%, in 2007 by 4.8%, and in 2008 by just 2.6%. But when the recession hit he threw caution into the wind and splurged for a 14.1% increase over 2008 with an unprecedented “stimulus” package.

So what would I cut? Looking at Terence Corcorans graph, I would definitely agree that cutting the Southern Ontario Regional Development Agency for $900-million would be a great start. This was a program owned solely by the Harper government. Unfortunately, this whole “stimulus” has been deeply integrated with the creation of new regional programs and agencies.

Killing the carbon capture program at a $1 billion savings is also a good idea. The various other regional development agencies and tax credits in Atlantic Canada could be axed for $3.4 billion. There’s no question the eHealth fiasco is a waste of money at $1.5 billion. The $9.4 billion cuts to the civil service is an inevitable and integral part of balancing the budget as well, and precisely what Paul Martin did. The elephant in the room is, of course, the equalization program and federal transfers, shaving over $25 billion over four years.

But $4.33 billion in cuts to the military over four years? Surely we don’t want to go back to a time where our military is underfunded and stretched to the breaking point again, after just coming out of decades of darkness? Even at current military spending, we’re due to fall behind on inflation alone.

Military spending in Canada is an embarrassing 1.38% of GDP from 2008, good for 120th place in the world ranking. We’re only doing 0.2% better than we were in 2005 under the Liberals, when we were in 130th place.

What other country in the G8 would spend such an abysmal level on their military? Only Canada can get away with it due to their proximity of the United States.

Of the G8 nations, the allied powers from the second world war all spend the recommended 2% minimum of GDP on defence: France [2.6%]; Russia [3.9%]; United Kingdom [2.4%]; United States [4.06%]; while Germany [1.5%] and Italy [1.8%] still exceed Canadian spending despite post-war restrictions to their military. And while Japan only spends 0.8% of GDP, it’s still twice that of Canada’s budget.

I wrote a piece last year identifying $4.98 billion in program spending cuts, including a suggestion to axe the following:

1. CRTC $55.6 million. What service does it provide other than ensure cell phone rates are prohibitively high?
2. Citizenship and immigration $667 million on an “integration” program that clearly doesn’t work.
3. Refugee Board $15.2 million. Eliminate appeals program.
4. Status of Women $25.3 million for affirmative action programs.
5. Human Rights Commission $22 million by eliminating this Stalinist legal authority.

Then of course there’s the $1.1 billion CBC subsidy and the $80 million long gun registry that nabbed the dangerous desperado Toronto Star columnist Joe Fiorito.

Source: Canadian Taxpayers Federation

Well, Andrew Coyne started it all yesterday with an article which said we could balance the $19-billion structural deficit “without really trying.” And while I’m certain about Andrew’s sincerity, I’m a little more doubtful about how simple it would really be.

As he points out in his first paragraph, John Geddes already explained that the notion of cutting the fat from the government is “only a comforting delusion”, engaged in the way that one might speculate about an all-star hockey team, or beating the house at a roulette table.

But it isn’t, as John Geddes explains, a problem of having government fat “finely integrated into essential programs”. It’s a matter of political courage and will, something that not only the Conservatives lack, but every other political party offering alternatives. Simply speaking, any attempt to make widespread cuts to what can only be described as absolutely useless, superfluous spending, would result in a complete revolt by the opposition parties.

I think everybody has identified the elephant in the room as being federal transfers. One of the essential strategies of the Martin Finance department in the mid-nineties was to starve the provinces. As Coyne points out, these have risen fastest of all federal spending, from $29-billion in 2004 to $46.5-billion in 2009. But to cut transfers would only result in the collective whining of every province and every opposition MP who reside within them. So allowing them to grow in line with projected GDP, you could slow down the projected increase in debt, which of course leaves you with savings.

Coyne’s next idea is also a good one, by capping internal spending to inflation-plus-population 2% per year increases. There’s simply no way to beat the unions by cutting off the milk and honey entirely, but again, by slowing the growth of spending increase you actually cut the fiscal debt projections, and hence the structural deficit.

Where his plan runs into trouble, however, is in the first real fiscally conservative premise that would result in a revolt from other parties. Cutting the CBC and making it pay for it’s own upkeep would be seen as an attack on our “heritage”. The CBC currently runs a $1.7 billion budget, but only generates revenue of around $600-700 million, which leaves the taxpayers on the hook for $1-billion more. The problem with the logic of turning the CBC into pay-per-view is whether anyone would actually subscribe to the thing once it actually required voluntary user fees instead of backdoor taxation.

Then there are the regional development “slush funds”, as Coyne calls them [which is what they are], that could all be shut down to generate $700-million. This would, incidentally, include the Conservatives’ own southern Ontario regional development agency, a legacy to add to their big-L Liberal economic policy.

Cutting grants, subsidies, and transfers all sounds like a great idea, too, but again the problem is that all of these organizations being cut off have strong lobbies and connections within the Conservative party itself. Just look at what happened when we touched KAIROS and their puny $7-million over four year grant to see what an absolute political IED that can be.

As Terence Corcoran points out in the National Post, none of these ideas are new. Fiscal conservatives have been calling to cut these unwieldy regional development agencies, foreign aid funds, and behavioural modification marketing campaigns for years now.

The most aggressive, and politically impossible, plans have been forwarded by the absolute authority on fiscal conservatism, the Canadian Taxpayers Federation. But even in their aggressive three-year plan to a balanced budget, there are numerous flaws that wouldn’t survive a moment on Parliament Hill.

They add some good ideas, such as wage freezes for politicians, reduction of MP expenses, and utter transparency of spending to the PBO. But in their very first page of recommendations, they call for political subsidies to be cut, the poison pill that led to the attempted coalition government by the Liberals and NDP in support by the Bloc Quebecois. Without removing campaign contribution limits enacted by Stephen Harper so that corporations and unions and other private organizations could contribute to political parties, there isn’t a single politician not wearing a blue suit who would sign on to this idea.

The ideas expressed in the CTF document show just how the balancing of the budget isn’t just an economic challenge, but largely a political one. Most of the biggest recommendations, such as reform and phasing out of the multi-billion dollar equalization program [which would almost single-handedly balance the budget], would require not just a majority government of some kind, but one with the political will and courage to act.

I took a little bit of heat in the comments of the National Post over my recent claim that Michael Ignatieff hasn’t forwarded a vision for Canada since he came back to live here, and no amount of consulting with students and so-called “experts” is likely to make that happen any time soon. The reason I’m speculating in that way is because when he was asked what his own solution to the financial problems in Canada would be, he responded:

“It’s not my problem. It’s Stephen Harper’s problem.”

Well, he’s half right. It isn’t his problem right now. But if he wants it to be his problem, he might want to let everybody else in on the magic bullet that is going to get him there. His current non-committal answers are coming off as phony as Stephane Dion suddenly pretending not to understand the English language in order to dodge the same exact question posed to him when he was busy not articulating his economic platform.

But quite a few readers at the Post mistook my reading of Michael Ignatieff’s emptiness as a sign I was defending the Conservative’s own equally empty plans to reduce the debt. Without raising taxes, even.

Those who have read my writing for longer than a few days know that I don’t give any quarter to the Conservatives on their fiscal record. They have failed miserably in this regard, and Michael Ignatieff was absolutely correct about one thing he said on his little “comfort zone” tour. The Conservative Party did spend their way into deficit before the recession hit or could have been responsible for their own revenue shortfalls. I know. I was there to see it happen.

It’s also pretty clear by this point that the GST cut of 2% was an unmitigated disaster. And yes, Peter Donolo is behind Strategic Counsel but I don’t think you need a poll to read the tea leaves in the consumption tax affect on the federal treasury. The 2% cut to the GST gouged $15-billion from the coffers, and I’ll be damned if you can find a single Canadian who will swear up and down about how much that tax cut has changed their lives. It certainly can’t be worth the current figures coming out of the PBO this month, a spine-chilling tale of $19-billion a year structural deficits.

So, sure, Stephen Harper can shuffle the cabinet, and make big promises about the Canada Action Plan, and the stimulus, and dispatch Stockwell Day do yet another spending review in Ottawa which, by the way, should have been done the moment Paul Martin vacated 24 Sussex Drive. But until we actually see some spending restraint, cuts to programs, cuts to the civil service, and a cutoff of federal transfers to the welfare provinces, as a basic start, there is no point speculating that this government has a plan that’s even remotely likely to succeed.

And speaking of Paul Martin, let’s hope that this time the cuts don’t come at the expense of our military. If you think it can’t happen on the Conservative watch, just wait and see how loud and petulant the opposition becomes when entitlement programs are even hinted of being cut back.