OTTAWA – Canada’s ballooning public service has been bracing for spending and job cuts, and now unions are sounding the alarm that they are coming. With the federal deficit larger than anticipated, budget cuts and layoffs increasingly appear to be unavoidable.

Departments are scrambling to meet their latest spending targets set by Treasury Board, with a deadline later this month. Projections suggest the government could miss its fiscal target for this year and is facing financial pressures on all fronts.

With the fall economic statement just around the corner, the big question is are there more and bigger cuts to come?

“If you lay out the puzzle pieces as we head into the fiscal update, it becomes clear that there is no path forward for this government, or the next one, that doesn’t go through the public service,” said Sahir Khan, executive vice-president of the Institute of Fiscal Studies and Democracy at University of Ottawa.

“Whether in the fiscal update or in the next budget, I think there is a real risk of significant measures like public-service cuts bigger than the rate of attrition.”

So, how did they get here?

Last week, Treasury Board summoned the 17 public-service unions for a briefing on departmental targets to meet the government’s promised spending reductions. The board sent departments their marching orders Oct. 31 with specific savings goals they’re required to hit.

For the first time, layoffs are on the table

At the meeting, Treasury Board informed the unions for the first time that staffing cuts, including layoffs, are on the table, said Sharon DeSousa, president of the Public Service Alliance of Canada. PSAC immediately issued a press release raising the alarm.

Unions leaders left the meeting incensed they weren’t consulted earlier. They had previously been told the effort to restrain spending announced in the last two budgets was supposed to be managed by attrition.

“We heard a very different story,” said DeSousa. “The government is now widening the net, looking to cut term and casual employees, and opening the door for departments to slash permanent employees through workforce adjustment.”

The workforce adjustment directive, enshrined in collective agreements, lays out the options for managing layoffs. It was the cornerstone of how the Chrétien and Harper governments managed downsizing.

Since departments got their reduction targets, Canada Revenue Agency and Immigration, Refugee and Citizenship Canada, two of the departments that saw the biggest growth since 2015, sent letters informing staff they are cracking down on spending.

CRA is freezing external hiring, promotions, new term and student positions, non-critical overtime, and year-end vacation payouts. IRCC is freezing term-employee rollovers, which automatically convert them to permanent status after working three years. This will affect 3,345 term workers at IRCC.

These measures, along with reducing contractors, are routine steps departments take before considering layoffs for permanent employees.

“Anyone who didn’t think cuts were coming is living in a fantasy,” said one senior bureaucrat.

A history of missing targets

Treasury Board officials argue these cuts should come as no surprise. They were announced in the 2023 budget and fall economic update and the 2024 budget. The annual departmental plans also show substantial job cuts projected over the next several years, from a peak of 439,000 last year to 399,000 in 2026-27.

But parliamentary budget officer Yves Giroux said departments have forecasted job cuts for years but ended up increasing the number of employees anyway.

“That’s probably why unions, if they looked at the plans, didn’t take them seriously. History has shown that even though departments anticipated reductions for the following year, regardless of the year, they never materialized,” he said.

Bulking up the Privy Council Office isn’t the solution to what ails the public service

Critical considerations for the future of the public service

Cutting $15 billion from the public service won’t be that hard. But what’s next?

The 2023 budget and fall economic statement pledged $15.8 billion in savings over five years, with $4.8 billion reinvested into services and programs. In the next phase, budget 2024 asked departments to find $4.2 billion in savings over four years and $1.3 billion ongoing. Attrition was expected to shrink the public service by 5,000 jobs.

But insiders say the government has struggled to achieve those savings. Some say departments didn’t co-operate or take them seriously enough, while others point to the lack of a clear plan.

While departments were instructed to avoid cuts to programs and services, the government kept announcing new initiatives. Instead of reallocating staff, some departments just kept hiring. Managers are often reluctant to reallocate staff from one program to another if they don’t have the skills to fit.

Some argue part of the problem is today’s bureaucrats aren’t used to austerity and have only known growth for the past decade.

Today’s leaders may have been in the public service during the Harper government’s downsizing, but few were in senior positions directly responsible for managing those cuts. Back then, the government did regular strategic reviews, which were key to identifying budget cuts and the thousands of jobs that were eliminated. The Liberals had pledged a similar strategic review in their election platform, but it has yet to materialize, leaving some to question how prepared departments are to tackle current fiscal pressures.

It’s unclear what progress the government had made on these reductions. In fact, a PBO report that tracked the Liberals various spending reviews flagged the difficulty tracking the “overall plans, progress, and results” because there is no central document publicly available.

In her latest letter to departments, Treasury Board President Anita Anand made clear that “savings are expected to be drawn from operating budgets and through natural attrition” to “the greatest extent possible.”

“This must be done without impacting programs and services,” said Anand.

The government is facing the squeeze on several fronts. With programs and services off-limits, that leaves operations where payroll – the single largest operational expense – accounts for about $65 billion a year.

The government is on track to overshoot its $40-billion 2023-2024 deficit target by $6.8 billion, the PBO estimates. The tally for last year’s deficit will be confirmed when the government publishes its yearly public accounts report later this fall.

The next government faces the same challenge

This shortfall highlights an immediate challenge: the Canadian economy is slowing and reduced immigration is expected to slow it further.

Giroux said last year’s books are closed, leaving little room to address the $6.8-billion shortfall. The government could announce further savings for this fiscal year, which ends in March, but it’s unlikely to find large enough cuts in time.

He noted the government might still propose deeper cuts to the public service to address the deficit gap going forward, but substantial savings this fiscal year seem out of reach.

But there’s a bigger, longer-term challenge, too. The Liberals have committed to big-ticket spending on health care, housing, and defence that will need steady funding for years to come and will make it difficult to balance the books into the future.

And that’s before the economic impact of a new Trump administration kicks in.

“There’s a coming squeeze here…and something has to give,” said Khan. A Liberal or a Conservative government in the future is “going to face the same stark choice. Before you cut programs that people want or need, the outsized growth of the public service has to be on the table. The unions will face this no matter who’s in power. It’s not going to go away.”