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OTTAWA — On paper, Canada’s public service can handily find billions of dollars in spending cuts. The big question is when the real work will begin for a Liberal government that has no stomach for slashing programs or reforming how government works.
Departments are racing to meet Treasury Board President Anita Anand’s Oct. 2 deadline for $15.4 billion in spending cuts over the next five years – about $3 billion per year from total annual spending of close to $500 billion. By all accounts, they should have little trouble meeting those targets.
“This isn’t turning over the cushions to look for every last nickel” said one senior financial analyst. He said departments will turn to the “usual suspects,” along with some financial sleight of hand, “to squeeze the orange for some juice.”
Finding the money on paper may be relatively easy, but it won’t be without consequences. The minority government will face resistance from labour unions and the NDP, the Liberal’s governing partner in Parliament.
Most of all, the government has made a priority of improving service delivery, eight years into an ambitious policy agenda. And it claims cuts won’t affect service. The government should have thought about service delivery and execution earlier, not in its third term, according to Sahir Khan of the Institute of Fiscal Studies and Democracy at the University of Ottawa. “That’s like turning the Queen Mary around,” he said.
So where will the money come from?
Those usual suspects include using millions of dollars in lapsed or unspent funds toward the required cutbacks, ‘reprofiling’ or rescheduling spending stalled by delays or unforeseen circumstances, and deferring capital expenditures. Then there’s the attrition that can leave vacant the positions of thousands of public servants who quit or retire every year.
A government that spends half a trillion dollars a year – fuelled by pandemic spending and an unprecedented hiring spree – has lots of room for trimming, says Parliamentary Budget Officer (PBO) Yves Giroux.
“I honestly think that this shouldn’t be that difficult to do,” said Giroux. “And I think they can do it without resorting to involuntary layoffs.”
So far, the government claims it can, too. Departments can slow or stop hiring, let go of term and casual employees, and not replace people as they leave or re-deploy them to new jobs.
Personnel is the government’s largest operating cost at about $60 billion a year. Last year 10,500 people left or retired from the core public service alone, which means about 50,000 could walk out the door over the next five years.
The end of easy money
Michael Wernick, a former clerk of the Privy Council Office and now Jarislowsky Chair in Public Sector Management at the University of Ottawa, said the cuts aren’t as fast and deep as the Harper era’s signature Deficit Reduction Action Plan (DRAP). The base of spending was smaller then, and so was the public service.
But it’s a big shift for federal managers. They’ve seen nothing but unbridled growth and money for new programs for eight years. Now they must manage cuts and “flatlined” operating budgets, he said.
“Whatever this is, it’s not serious reform. It’s not serious fiscal policy, like DRAP or (the Chrétien government’s) program review.”
Departments have known about the $15.4-billion target since Finance Minister Chrystia Freeland’s 2023 budget and are putting together proposals that must be approved by their ministers before being sent to Anand for review.
The reductions include a 15-per-cent cut in consulting, professional services and travel, totalling $7.1 billion over five years.
The next is a three-per-cent cut across departments, saving $7 billion over four years. The savings will come from departments’ operating and grants and contributions spending. The remaining $1.3 billion comes from Crown corporations over four years starting in 2024-25.
Cuts to direct benefits, service delivery, transfers to provinces and Indigenous communities are off the table.
The savings serve a political purpose. The Liberals have a lot of unfinished business that may require more money. The $15 billion in cutbacks can help pay for dental and child care and make room for pharmacare. It’s also a show of restraint to rebuild confidence with Canadians who worry about affordability, housing and the economy and fear the government doesn’t share these priorities.
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Senior bureaucrats say they are also under pressure to execute and deliver Liberal promises. The public service has been under fire for dropping the ball on service and not implementing programs as quickly as the government wants.
“The message is implement, implement, implement. Gotta deliver results,” said one senior bureaucrat. “The government has an ambitious set of programs. Climate, affordability, housing… I’m not saying the cuts don’t matter, but I worry a lot more about implementation than finding cuts.”
Are deeper cuts around the corner?
For many, the spending review is a test drive for the real cuts they believe are coming. The current process could be a stock-taking exercise for future cuts to find out what works and what doesn’t.
The public service has grown like gangbusters over the last eight years, along with program spending and debt levels. Managing the budget will get tougher as borrowing costs creep upwards with interest rate hikes.
Some are already questioning whether the cuts proposed to Anand will be sustainable.
Others argue that so many inefficiencies are rooted in a risk-averse culture that’s bogged down by rules, structures and processes built for another era and incompatible with the digital age. Tackling some of those could increase productivity and generate sustainable savings, but it’s unclear the current process will do that.
“There will be cuts, but will they result in any efficiencies?” said Ram Mathilakath, a retired senior bureaucrat who also worked at the PBO.
“They will offer up lapsed spending, cut some consultants, travel, hospitality. If this is a numbers game, they will hit the number. But the question is will they effectuate any real efficiencies by changing processes and the way they do things?”
Mathilakath, who led DRAP cuts in a major department, said the Liberals’s five-year runway for cuts leave them in an ideal position to start cutting back on “non-value-added processes and positions.”
He said internal services from pay to HR and accounts payables could be streamlined and outsourced. Processes could be revamped so departments can buy off-the-shelf software, and stop costly IT projects like the malfunctioning Phoenix pay system, which was customized around the government’s mountain of pay rules.
Mathilakath said the shift to hybrid work with new digital tools made obsolete many tasks performed by administrative and support staff.
The 8,000 executives can now book their own meetings and manage their schedules and records. He said the number of staff working for executives —which increases as they climb the ranks — can be trimmed and these employees can be shared among executives, as the private sector does.
“Why do you need five people in the office of a deputy minister or assistant deputy minister in a digital world? They need to consolidate administrative positions that can be shared like in the market. Even the IBMs and McKinseys of the world can’t afford five people in the vice-president’s office.”
So far, the spending review doesn’t seem to be rattling public servants like a decade ago when the Harper government slashed a similar amount of savings and wiped out nearly 37,000 jobs. (It also took taking aim at collective bargaining, public servants’ sick leave, severance pay, pensions and retirees benefits.)
Unions, which have faced four spending reviews since the Mulroney era, warn cuts lead to job losses and poorer services.
But the circumstances were very different. The Conservatives, caught in the 2008 global financial crisis, focused on fiscal discipline and eliminating the deficit. They campaigned on shrinking government and spending.
The Liberals came to office with an ambitious activist agenda to increase spending and expand the state. It has no fiscal anchor other than keeping the debt to GDP ratio on a downward path. They also need to keep the support of the NDP in Parliament so it can’t dig too deep with cuts to jobs and services.