What to expect from the federal budget

Slower-rising transfers and lower program spending. Basically, more of the same, writes Stephen Gordon

Minister of Finance Jim Flaherty gestures as he delivers a speech to the Economic Club of Canada Wednesday February 6, 2013 in Ottawa. (Adrian Wyld/CP)

Finance Minister Jim Flaherty told us yesterday not to expect much in the way of important changes in the direction of fiscal policy, and I think we can take him at his word. In budget after budget, the government has been very clear about where it wants to go.

Firstly, they will want to limit growth in transfer payments to persons — things like elderly benefits, Employment Insurance and child benefits — to the rate of growth of GDP. The last three budgets projected that these transfers would converge to around 4 per cent of GDP and then stay there:

The same story applies to transfer payments to provincial governments. The days of transfer payments growing faster than the economy are over; transfers to the provinces will continue to grow, but not faster than the federal government’s ability to pay for them:

The trend in direct program spending is different, but it too has been telegraphed for years. The basic strategy as per the projections in the 2012 budget (and in the 2011 budget and in the 2010 budget) is to hold program spending constant in dollar terms. This will inevitably lead to program cuts, since the costs of providing a fixed level of services increases over time. Expressed as a percentage of GDP, the trend in direct program spending is steadily down:

These projections are not set in stone: there will always be minor adjustments as forecasts are replaced by data. But there’s no mystery about the fiscal path the Conservative government wants to take: every post-recession budget has set out the same set of projections. So will the next one.

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