Fun with federal finance

Notes on the budget, the cuts and the surplus

Scott Clark and Peter DeVries consider the nature of the projected surplus for 2015-2016.

… little detail has been provided to date on the restraint measures introduced in previous budgets. Many of the announced savings were to come through “efficiency” savings. The Parliamentary Budget Officer requested details on the impact of these measures with little success to date. How often can one go to the “efficiency well” before they find out it is completely dry? How confident is the government that these new savings can be realized? The estimate of the savings from “freezing the operating budget” is very uncertain.

Finally, Minister Flaherty is counting on asset sales, generating $1.5 billion in 2015-16. From our experience, such sales should only be booked when they are realized and not before. Previous governments have included asset sales in their fiscal plans only to find out that they were not achieved.

And Stephen Tapp looks closer at the government’s cuts.

Viewed in isolation, these recent spending cuts are modest. But the cumulative impacts of all restraint taken thus far will undoubtedly be felt over time. Some worry that even though the cuts may barely get noticed by the public today, they must eventually. At some point, they fear, after you cut away all the fat, you eventually hit muscle. And then bone. Death by a thousand cuts. Slowly boiling a frog. It’s happening one budget announcement at a time…

… digging into the numbers confirms that the vast majority of fiscal consolidation comes from the spending side, representing more than three-quarters of the total. While this isn’t surprising, the incremental nature of the spending restraint likely is (see attached graph, Federal Spending Restraint Measures Since Budget 2010, billions of dollars). Notice how this second restraint phase of the government’s Action Plan wasn’t announced in one shot; rather, it was done gradually, in a budget document here, an update there. As a result, spending was tightened, slowly, but significantly over time.

In other news, Global tallies the amount of money the federal government managed to not spend in the last fiscal year, an issue that the Parliamentary Budget Officer suggests MPs might investigate.

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