Budget 2011: Don’t look behind the curtain

Definitely nothing new to see here.  The boutique tax cuts are still there, so are the small programs from the failed March 22nd budget.  The government was even good enough to put on track changes to prove beyond a shadow of a doubt that this is the same budget and little has changed.  The only real change is the elimination of 1/3rd of the public service…wooow wait a minute, that’s a huge change!!!

The proposed cuts to the public service worth 11 billion over 4 years starting next year are not just musings anymore, as they were in the March 22nd budget, they are now part of the fiscal framework.  They will be implemented starting next year.

It marks the complete reversal of the stimulus package that was initially about creating jobs through deficit spending.  It has been transformed into a program that needlessly destroys both jobs and services in order to produce a surplus.  The story is that we need to reduce the deficit one year early.  Why one year, well that doesn’t really matter… this is a tweaking budget remember so questions aren’t necessary.

Here’s what is amazing, the actual deficit in 2014-15 was supposed to be only $300 million. That may seem big but for the federal government it is a rounding error.   A slight uptick in growth for a quarter or two over the next 4 years would easily make the deficit zero if not delivering a surplus.  Remember, this rounding error deficit in 2014-15 is why massive public service cuts are necessary.

There is a high probability that four years from now there will be no deficit irrespective of major public service cuts.  In fact, with a small accounting change, the Tories could actually have a deficit free 2014-15 and claim victory.  In the 2009 budget the Conservatives introduced a downside “Adjustment for risk” of $1.5 billion in revenues.  It isn’t based on anything in particular, but represents only a nice round number to represent downside risk.  They could just adjust that from $1.5 billion to $1.2 billion and Bob’s Your Uncle the books are balanced.

So in order to combat a rounding error, 80,000 positions will be eliminated from the public service.  That represents about a 1/3 of all core public sector workers. Contrary to popular belief there is no way that retirements are going to get us there.  We might get to 40,000 through retirements but to get to 80,000 you’ll need to make up the difference in layoffs. There will be 40,000 fewer jobs and 40,000 public sector workers will be simply laid off by 2014-15 to balance a rounding error.

So which positions will be cut?  Which programs will be eliminated?  Well the government surely has plans, but they aren’t telling Canadians.  There is no transparency, so no one will know if the service they depend on is going to have its staffing levels dramatically reduced.

Now, here is where we pull back the curtain: just one year after these massive cuts are fully realized we are going to have an $8 billion a year surplus.

The economic action plan that was meant to create jobs through deficit spending has been transformed into its opposite. It now destroys jobs to create surpluses.  The 80,000 eliminated positions weren’t cut due to deficits as the books were essentially already balanced in 2014-15.  Instead they have been put in place to create fiscal room for new conservative priorities.

What did diminished public services really pay for? Likely more corporate tax cuts for the banks and oil companies, more military hardware and tax breaks for wealthy Canadians which are all a year or two over the horizon.  Don’t pull back the curtain too far, you may not like what you see.

 

12 comments

  1. One question, one comment.
    When you pull back the curtain, are you saying we will have an $8 billion dollar a year surplus, or that the Conservatives are predicting one?
    And isn’t this eliminating the deficit in 4 years rather than 5 a bit of a shell game that has us asking why 4 instead of 5 rather than why 5. Why at all?

  2. Thanks for the comment Murray. With the public service cuts, the conservatives are predicting a surplus in 2015-16.

    As for your question on why 4 years or 5 or ever, that is definitely a good point. There is no economic reason to balance the budget. It is more important to keep a constant debt to GDP ratio, which would allow you to run probably a 2% of GDP deficit indefinitely.

  3. For goodness sakes stop using the term “layoffs” for something that is not. That’s “the man’s” euphemism, and using it let’s the man off the hook.

    “Layoff” is a term used to denote an employee who is told to TEMPORARILY stop coming to work because there is less demand for the product they produce. Traditionally this would be a reduction in factory orders. But when someone is “layed off”, they have the full expectation that when orders pick up again, they’ll be back to work.

    These will be CUTS. Not LAY OFFS.

    Thanks.
    – Former Nortel Worker who was CUT, not “Layed Off”.

  4. In your opinion Michael, will this turn out to be a long term disaster? I’m no economic expert, but sending people out of work to create surpluses has historically created catastrophe down the road. With skyrocketing economic inequality and a shrinking interest in employment, will we see businesses cash in on massive problems down the road?

  5. the manpower cuts would surely be a good source of recruitment for the expeditionary forces that Canada is thinking of forming. they’d be nicely housed in foreign bases which is currently being negotiated.

  6. Bushidoka,
    Fair enough, these people will not be laid off to return some time in the indefinite future, they will be cut plain and simple

  7. Shelby,
    Surpluses are often seen as positives as you point out but certainly during the late 1990s people felt the cutbacks in health care. This time around it isn’t certain where those cuts will come, but there will be an impact.

  8. This may be a silly question but when the budget was read, why wasn’t everything they are going to do put on the table? Is there a rule about full disclosure or is that another rule that Harper thinks doesn’t apply to him? Are they not required to or are they afraid of what would happen if it is true that 80,000 jobs will be cut from the public service. That’s a hell of a lot of people out of work. How will that help our economy?!!! I don’t understand why they don’t have to tell us yet what this 5% cut will entail? Clarify please.

  9. Sherry,
    That is certainly a good question and one that I’ve been pushing. There is essentially no transparency about who will be affected by this. I don’t think we’ll ever see a fully fleshed out plan. I think it is more likely to simply happen behind closed doors and we’ll read about it in bits and pieces in the paper.

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