Flaherty's deficit plan: Take an axe and cut deep
OTTAWA–Faced with the largest federal deficit in history, Finance Minister Jim Flaherty says he will start looking for programs to axe and government assets to sell off as soon as the economy recovers.
"It's necessary for restraint to happen" to rein in Ottawa's spending, Flaherty told the Toronto Star in a year-end interview.
"We get hundreds and hundreds of programs that just trundle along, growing at 3 or 4 per cent a year or more – ahead of the rate of inflation – and it takes some resolve to restrain that spending growth."
With a chuckle, he admitted that slashing government programs can prompt public outrage. "Every program has a group of people who believe strongly in that program," he said.
But "some programs should end," Flaherty insisted. "This assumption in government – that every time a program is created, the program should go on indefinitely – is mistaken. So some programs should just end because their usefulness has ended."
Flaherty, who carried the provincial finance portfolio with the Mike Harris government in 2001-2002, said clamping down on spending "doesn't make one popular as a finance minister.
"I've done it before. I did it in Ontario."
Flaherty was a key figure all through the Harris years, when under the banner of the Common Sense Revolution Ontario's Progressive Conservatives elevated chopping government programs and reducing taxes to articles of faith.
In his 2001 Ontario budget, Flaherty handed $2.4 billion in tax cuts to the province's corporations, promised personal tax breaks and paid down $3 billion in provincial debt – all while balancing the books by holding down badly needed expenditures for universities, hospitals and infrastructure projects.
Praising the tax reductions of the Harris era, Flaherty told MPPs at the time: "Ontario paved the way for tax cuts in this country. I am proud that every province in Canada is following our lead."
Five years later, Prime Minister Stephen Harper's Conservatives came to power in Ottawa preaching tax cuts and smaller government in the same vein as Harris's Ontario Tories.
In one of his earliest acts as federal finance minister, Flaherty on Sept. 25, 2006, trimmed $1 billion from programs for human rights, women's issues, museums, youth employment and other initiatives. At the same time, he announced that a $13.2 billion budget surplus would be used to pay down the country's $481 billion debt.
Today, hamstrung by $33.9 billion a year in federal tax cuts and a $28 billion economic stimulus program, Flaherty is contending with the most bloated budget deficits ever recorded in Ottawa. The cumulative total of budget shortfalls will hit $164 billion by 2014.
The finance minister says he will continue with stimulative spending in 2010 to ensure the fragile economy makes a full recovery. But after that, the government will usher in a period of frugality intended to balance Ottawa's books again.
Because higher taxes have been ruled out, Flaherty will have to find the savings by getting tough on government spending. Some antiquated programs could be axed, he said, "but the more important thing is to just watch the rate of growth" of spending.
Most economists say this will be a daunting task. About half of the $241 billion in Ottawa's annual program expenses are for major social programs and cash transfers to the provinces – all of which grow automatically each year.
So in September, when the finance department laid out a rough program for bringing the deficit near zero by 2014, officials said doing so would require keeping the annual growth in the other $120 billion in annual federal program spending to 3.3 per cent.
While that might sound easy, analysts point out that doing so would mean significant reductions in the programs and services many Canadians count on.
The Harper Conservatives have so far shown little stomach for unpopular belt-tightening measures. Despite talking about government restraint, the government has allowed its spending since 2006 to climb by a hefty 7 per cent a year.
Flaherty also said he hopes to realize savings in operational costs by letting the federal public service shrink as employees retire over several years.
"We will have some natural attrition, too, in the federal public service over the next while because of demographics and we can look at that, too, as: Do we need to replace each person who retires?" he said.
Over the next four or five years, the government also hopes to drum up large chunks of cash by selling off billions of dollars in federal lands, buildings and Crown corporations, including possibly the Royal Canadian Mint, Via Rail and Atomic Energy Canada Ltd.
Governments have generally been lax when it comes to examining the need to own assets, Flaherty said.