Well the Ontario budget is out and despite all the talk of 30 percent across-the-board budget cutting in the wake of the Drummond Report, it forecasts more a deceleration of spending growth rather than steep cuts.
The hope is that revenues will be able to catch up to spending once it has been slowed down as Figure 1 illustrates. However, much of the spending deceleration depends on the success of the provincial government in getting wage freezes accepted in the public sector. According to the budget, spending will continue to grow from 124.6 billion in 2011 to reach 134.4 billion by 2017 – an increase of 7.9 percent. Meanwhile, revenues are projected to grow from 109.3 billion in 2011 to reach 135.9 billion by 2017 – an increase of 24.3 percent. This is not as rapid an increase in revenue that occurred over the period 2004 to 2011, which saw total revenues grow by 40 percent.
Figure 2 converts everything into real per capita expenditures and revenues assuming 2 percent annual inflation and 1.4 percent annual population growth (based on the averages for the 2000-2011 period). As the graph shows, once inflation and population growth are factored in, real per capita spending is set to come down dramatically while real per capita revenues remain virtually flat. Indeed, real per capita spending between 2011 and 2017 will drop by about $1,000 – almost 12 percent – if these numbers are to be believed. The 3rd order polynomial fit certainly shows a change in the trend over the next few years towards a more sustainable outcome. This budget actually presents a set of sustainable public finances with per capita spending in balance with per capita revenue after decades of divergence. If the goal of this budget is to present a credible fiscal plan to eliminate the deficit by 2017 to calm creditors and financial markets, then it may indeed be successful. Much hinges on whether the provincial government will actually be able to restrain its expenditure growth. Bending the spending curve is easier said than done. Even if this budget plan is actually adhered to, until the budget is balanced another 30 billion dollars will easily be added to the provincial debt and the net debt to GDP ratio is projected to rise from the curent 37.2 percent to a peak of 41.6 percent by 2014 before declining to 39.4 by 2017.
Worthwhile Canadian Initiative 
“Much hinges on whether the provincial government will actually be able to restrain its expenditure growth.”
I don’t know, they might be able to nibble at the edges, but I don’t think they have the cajones to be really aggressive on spending – they’ve been in power too long for that. When I was reading the details last night, it reminded me of nothing so much as some of the budgets from the dying days of the Mulroney government – i.e., full of sounds and fury, signifying nothing. The Mulroney Tories (not, ahem, unlike the current Tories, at least heretofore) talked a good game about deficit reduction, but never actually managed to do it. Actually, I like that comparison, since both Mulroney and McGuinty should get credit for introducing the GST/HST in their respective jurisdiction, which made/will make a difference in the long-run.
That is an interesting comparison. One difference is that the Liberals did manage to get re-elected after introducing the HST (albeit with a minority) whereas the Mulroney Tories had a catastrophic defeat in the next election.
“One difference is that the Liberals did manage to get re-elected after introducing the HST (albeit with a minority) whereas the Mulroney Tories had a catastrophic defeat in the next election.”
True, although that difference is probably a function of the fact that Mcguinty didn’t have to worry about his supporters splitting off into three different parties (as Mulroney/Campbell did with the PCs, Reform and Bloc). It’s an interesting game of counter-factual history to wonder what might have happened in 1993 had the PC coalition held together, whether Campbell might have been able to squeak out with a minority government. It’s probably just as well for all concerned that she didn’t.
@Bob:
Don’t expect much cutting tomorrow in the Federal budget. I believe Flaherty is up to much sound and fury, signifying nothing.
If the Government truly wished to slash its expenditures, it would have cut the Main Estimates. Those were tabled three weeks ago and the Estimates document did not feature cuts. Those were reserved to the Budget. Still, Departments are drawing against the tabled Estimates. You cannot take back money you have already spent and you can’t just stop work and withdraw services for two months to make up a shortfall.
If the Government truly wished to make cuts, they would have slashed the Estimates. But the Estimates aren’t sexy. I only read them because want to know the fortunes of Departments I am interested in. The Budget is a much more sexy speech, it gets live coverage and much press. Its great political theatre but it doesn’t have so much to do with Departments actually spending.
Flaherty wants a political show over fluff. If he was serious he would have slashed the Estimates, a document that has been tabled like clockwork since Confederation.
Determinant,
I wouldn’t be so certain about that. There was a story in one of the papers this morning citing “conservative sources” to the effect that they would be cutting closer to the higher end of the $4-$8 billion range that they’d previously announced – on the theory that if they can balance the budget sooner, they can implement some of their tax promises from the last election (income splitting, increases TFSA room) BEFORE the next election.
You’re right about the budget being a political document, but in my mind that’s why you’d announce the cuts in the budget – both to emphasize your “small government” bona fides for the conservative base (not an unimportant purpose given that some of them are getting restless after 6 years of decidedly non-“small government” rule), and to be able to spin them to the non-base (i.e., by packaging them with other reforms – i.e., sure we’re laying of 10,000 people, but we’re also cutting our pensions). Doing it in the estimates doesn’t achieve those goals. Plus, a number of the proposed reforms that have been floated (OAS, SR&ED, pensions) are the sort of long-term changes that won’t make much of a difference in the here and now.
But as soon as the Estimates are tabled Departments draw against them. There is plumbing here and it matters. The Estimates are the ticket that lets money go out the door and those weren’t cut. Budgets are about raising money and imposing taxes; Estimates are about spending.
The government can spin all its wants, and it will, but its actions are the act of bolting the door after the horse has gone.
Cutting MP’s pensions will probably be in there, but the CD Howe’s chairman has said untrue statements repeatedly about MP’s Pensions. MP’s don’t get a full pension after five years, they vest after five years at a benefit 3.5% of pay/year rate. They still aren’t drawable until Age 65 either. The CD How chairman has said MP’s get full pensions after five years. Wrong. The chairman could not tell the difference between a vested pension and a full pension.
Federal public servant pensions, the Public Service Pension Plan, isn’t really an issue. It accumulates at a benefit of 2%/year of the last five years of service, vesting after two years. The employee portion may increase, but that’s it. Federal public servants work 35 years for a maximum pension of 70% of their last five years of pay; good, but not extreme and without a “30 years and out” problem.
Most public pensions are under provincial jurisdiction such as health care, municipal workers, teachers and provincial governments themselves. Nothing to do with Ottawa.
Regardless of what Cablepulse 24 is reporting, CBC is reporting leaks, given CBC’s thoroughness before publishing documents like this, I believe them.
http://www.cbc.ca/news/business/story/2012/03/27/federal-budget-anxiety.html
I am relieved that they are small cuts, mainly directed to the backoffice. You see, I really do want to work for the Public Service of Canada; the private sector for engineers in Ontario is very bleak. Among other reasons.
“Estimates are the ticket that lets money go out the door and those weren’t cut.”
Yeah, but it’s the government who decides whether or not to spend the money, the estimates merely set out the maximum they can spend – and what it’s spent on (i.e., a department that lays off 10% of its staff may not see a significant cut its expenses for the year, once you factor in transitional costs, severence, etc. and yet that’s a real long term cut). And of course, the departments don’t draw against their estimates all at once (civil servants don’t get a big lump sum pay check in April), nor have they drawn on them yet (since the 2012-13 fiscal year doesn’t start until Sunday. In any event, the estimates are invariably passed before the budget, since by tradition they have to be passed before the beggining of March.
We all agree that teachers and health care workers aren’t affected by what the feds do, but the feds do employ, either directly or indirectly (through crown corps and so on), a quarter million plus civil servants (although those are supposed be reduced by 10% over the next 3-years – at least according to John Ivison in the Post), and depending on who you believe, their pension schemes have a a $150-250 billion deficit – reforming those pensions is hardly immaterial.
No, Bob, that’s not the way it works. The Government is different from the private sector for a couple of reasons and you’re applying private-sector thinking.
1) Departments draw against Estimates. They are not just a limit, they are a goal. It is the policy of the Government through the Estimates to spend X amount of dollars on a particular area of policy. Departments cannot intentionally impound funds or not spend them on their policy mandates like you suggest, that is thwarting the will of the Government and Parliament. The Public Service cannot generate revenue from additional activity and does not have control of its own budget or capital, unlike a company. It also doesn’t have a profit goal, it has a policy goal.
2) If there is no budget, Departments can and do still draw against Estimates. When the previous Parliament was dissolved before the budget was passed, Departments used Governor General’s Warrants to draw against the tabled Estimates. That’s why I say Estimates are more important than a Budget for spending.
3) Estimates are an aggregate list of government spending. The Budget is actually a policy speech which is implemented in Appropriation Acts. Appropriation Acts match supply (revenues) to spending. Government first looks at spending and then looks at revenues, not the other way around.
Interestingly enough, the PS cuts are 5% over three years. A few people will go but program spending has still risen by $12 Billion. The cuts are to be focused on the “back office”. That area has a large number of contract workers and temps, people without job security, the “shadow Public Service”. These people will take it on the chin, full-time employees, especially those who work in actual program delivery, will largely be spared.
The hard fiscal right was was some appeasement this time but not any meat.