Considering Consultations

In the coming weeks, the Harper government will table Budget 2012 - a budget which is expected to lay out those areas where the government will look to reduce spending in order to eventually eliminate the deficit. For politics watchers in Canada, this budget could be a big deal.

Ongoing discussions in the U.S. and the EU regarding austerity and the affordability of public services have once again put the topic of deficits near the top of the political agenda. That, coupled with the sense that a long-term objective of the Harper government is to re-shape the role (and size) of the federal government, is resulting in growing speculation about what we can expect.

With so much speculation out there, it is worth taking a moment to consider how budgets are "built", and in particular the role of consultations.

Governments, regardless of their stripe, do not build budgets in a vacuum. They consult - internally across departments, and externally through discussions with leading economists and key stakeholder groups. One element of this dialogue are the on-line pre-budget consultations initiated by the Department of Finance, found here.

A parallel set of consultations are conducted by the House of Commons Standing Committee on Finance; consultations which draw heavily on input from an extremely diverse range of stakeholders. You can view the briefs submitted over 2011 here, and the final report here.

These consultations can be interesting for two reasons. First, for the wide range of views that are expressed. Stakeholders representing a range of interests provide their views on how government should tax, spend, regulate and more generally provide stewardship over the economy.

Second, because majority governments have often used the Committee report as something of a trial balloon, floating ideas in order to gauge reaction. In some cases, a report may be more radical, thereby allowing the government to position itself as the reasonable compromise.

I have no issue with any of this, and in fact feel that the process does allow one to get greater perspective of the multiple views that exist in relation to the challenges and opportunities we face. However, I do think the process could be improved in one major way.

Right now, we have a one-way street. Government (through the Finance department) or Parliament (through the Committee) asks for views, and stakeholders oblige. However, at no point in the process does the government table any meaningful information about what it is considering.

Imagine a process whereby the government tabled a white paper, or series of broad options or policy objectives under consideration. In other words, showed us what at a high-level they were thinking and solicited our reaction and input to that thought process.

That would be a true consultation. And it would be a consultation which would promote more of a dialogue about the choices we are facing, and the difficult job a government has in balancing between competing interests.

Perhaps most importantly, it would provide a degree of transparency which would open up the policy process and hopefully lead to greater engagement by a broader cross-section of the voting public.

Thoughts?

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?

So Mr. Flaherty, where do we go from here?

On Tuesday the Minister of Finance, Jim Flaherty, will release the government's fall economic and fiscal update. We're being told to expect something straightforward and containing no mini-policy announcements, say like the one that nearly lost the government the confidence of the House in 2008. So far, so good.

What we can expect to hear is that the government's finances are poor and that the deficit has grown. However, the Minister will reaffirm the government's commitment to balancing the books by around 2015. The question to ask Mr. Flaherty is "how?"

The government's strategy has rested on three things: the rollback of stimulus; stronger tax revenue through growth in the economy; and cuts in government spending. Let's consider this a moment.

Stimulus spending will end, likely before the next budget - though the Minister has a left a small window open that this timetable may change depending on how soft the global recovery turns out to be. However, the end of stimulus will not restore the nation's financial health, it will mainly stem the bleeding from the state coffers.

Ok, so how about the projected growth in government revenue as the economy begins to expand? The challenge here is that the government's projections assume a recovery and pace of economic growth similar to that which occurred after previous recessions. Unfortunately, this does not seem likely.

Our major trading partner is continuing to falter and in fact could fall back into recession. Other OECD countries (Germany is an exception) are faring poorly, and the spectre of sovereign defaults in the European Union continues to loom. While their growth and resilience is impressive, emerging markets like China and India cannot compensate for this loss of economic output in the West (never mind the fact that the West has been the biggest consumer of emerging market exports).

So, if the end of stimulus is akin to us no longer digging a hole, and the prospects for "normal" growth must be tempered, where does that leave us? Spending, that's where.

The government will need to look at spending if it is serious about balancing the books. Let's not forget that the Conservatives spent heavily before the recession (defence, Quebec) and they have cut taxes - corporate, personal and consumption in the form of the GST. These steps have seriously limited their maneuverability - and that of any other party aspiring to power.

We will not hear much tomorrow about "the plan." However, we can now count on entering a period of trial balloons and ground softening to prepare us for an austerity budget.

Thoughts?

Back by popular demand...

Finally, at long last...the return. After what seemed an interminable period of time, a re-emergence sure to delight the faithful. Yes, back by popular demand...!

No, not the return of me and this blog. That would be a tad arrogant and presumptuous. Plus, I am still struggling to determine if there are faithful followers.

I am referring, of course, to the return of the Conservatives. The recent Speech from the Throne and Budget mark the government's return to its roots. Kind of like the Beatles "Get Back" sessions, but with less bickering and caught on-tape sniping.

You see, the past few years have seen the governing Tories focus their attention on growing the size of government. Federal spending grew, Quebec was wooed and the result was...another minority government.

In fact, save for those months in the not-so-distant past when Mr. Ignatieff tried to prompt an election and Liberal support plummeted, the government has never really been that close to its sought after majority.

Cue the financial crisis and the opening of the government taps. The purse strings were loosened and the government got into the business of, well, business. The measures themselves appear to have worked well, but then the bill came in.

Now, 12 months on from that "free for all-cash for all" budget, and the government has just delivered a new budget that starts to take them back to where they once belonged.

The stimulus will end, which was to be expected. And Canadians are being advised to prepare for some real belt-tightening. Again, to be expected.

But what I find interesting is the fact that the crisis and ensuing tab may actually position the government to do the things it has long favoured doing.

You see, if the government is not going to raise taxes (and don't for a minute underestimate the impact the GST cut has had on the federal purse) then something has to give. Most economists agree that Canada cannot grow out of this hole. So, if you don't raise more revenue or receive it through a growing economy, then the only option is to cut spending.

And by cutting spending, this does not mean freezing MP salaries or cutting down on government appointments. These are symbolic areas which may resonate with some quarters of the public, but which account for little in terms of overall government spending.

What will therefore be needed in order to reach the government's deficit reduction objectives are real cuts to spending. The kind of cuts favoured by many members of the government while in opposition or working for groups like the Taxpayer's Federation or the National Citizen's Coalition.

Maybe, just maybe, the crisis presented the government with an opportunity. An opportunity to get back to its core values and roots. A real chance to enact a change in the role of government.

If so, then shouldn't this be the area on which the Opposition focuses their questions? With all due respect, I think it's a far more important topic than the trials and tribulations of Mr. Jaffer and Ms. Guergis.

Thoughts?