Wednesday, June 8, 2011

Checking your winter coat and looking between the cushions

Finance Minister Flaherty tabled his budget this week. As expected, it was essentially the same budget that had been tabled in March, with a few additions and tweaks including the end of the per vote subsidy, and HST compensation for Quebec.

While there were no surprises, the one issue which is sure to generate a great deal of discussion over the next year is the government's objective to cut $4 billion from public sector spending. Note, I did not say the government's plan.

Why? There isn't one. What we have instead is a process that is supposed to identify these cuts, with the plan being presented in the 2012 budget.

Heads-up, you do not find $4 billion between the cushions and in your winter coat. Yet, this is in many respects the tone used by the Finance Minister in response to questions about whether such cuts were possible.

As discussed in this blog many times, the government has taken the following things off of the table when it comes to fighting the deficit:

- no increase to taxes, including the GST
- no cuts in transfers to provinces
- no cuts in transfers to individuals

Add to this the certainty that the government will not be abandoning its crime agenda and the expenditures it will require, and you have the focus squarely turned on a broad basket of government spending. Areas such as the environment, defence, culture and the CBC, foreign affairs, trade, and federally funded social programs are now on the table.

Mr. Flaherty thinks that the $4 billion objective is not ambitious, and in fact is less challenging than what the private sector might set as an objective. I am not sure I agree.

The private sector has as its goal profit maximization. The government does not. What we should expect from government is better efficiency in its operations; in its spending of our money. This does not necessarily mean cuts or the elimination of programs.

Further, the responsibilities of government are broad and varied, and in some cases the weight of those responsibilities trumps questions of cost. This does not mean waste is ok, but it does mean that the cost-benefit model of government is by definition different than that of the private sector.

So what would I like to see? To start, a terms of reference of sorts. I would like to know with more definition what structure and parameters the government has set for this exercise. For example:

- We know the dollar objective in terms of an overall reduction in spending, but what are the criteria against which a program or initiative will be assessed?

- On what basis will decisions be made to reduce or eliminate spending in one area or another?

- Is the sale of government assets on the table? If so, which ones and why does government believe these should no longer be in public hands?

I think we also need to discuss the more long-term "what next?". Say we are successful and through economic growth and targeted cuts we balance the budget. What next? Ask yourself the following:

- Are we well-positioned to deal with the demographic time bomb in front of us (e.g. fewer workers, higher social costs)?

- Are we fiscally equipped to deal with the economic fallout from climate change (e.g. erratic/catastrophic weather)?

- Are we prepared for the shifts already well-underway in global trade, and the growing dominance of countries like China, India and Brazil?

Addressing these issues will require thought, dialogue and money. We are discussing climbing out of a hole, but when we are out there is a mountain in front of us. This should be part of our national dialogue.

By taking options off the table and downplaying the challenges in front of us, we have taken the wholly reasonable question of fiscal responsibility and turned into a discussion on government waste. That won't do.

What do you think?

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