The federal budget unveiled by federal Finance minister Jim Flaherty on Thursday calls for plenty of belt tightening in the public sector as the government tries to remain on track to eliminate the deficit in 2015-16.
Federal employees are facing job cuts, reduced travel, less generous compensation and pension reform; thus is expected to generate annual savings of $5.2 billion from the $75 billion of direct program spending by federal departments and agencies.
Nevertheless, total program spending remains on an upward trajectory. While direct program spending will start to decline in 2012-13, transfer payments (both to individuals and other levels of government) are forecast to keep growing, keeping overall government spending on the rise, too. In fact, once the planned reductions in departmental spending have been fully implemented in 2014–15, federal program spending is projected to be 6% higher than in 2010–11.
In addition, the cuts will actually swell the deficit a bit in the current year, as the upfront costs of cutting jobs takes hold. Before the measures announced in Thursday’s budget, the deficit for 2011-12 was projected at $24.4 billion. Afterward, the deficit is expected to rise to $24.9 billion —thanks in large part to the $900 million in upfront costs. By 2012-13, the cuts should yield almost $1.8 billion in savings, which is forecast to rise to $3.5 billion the following year and $5.3 billion the year after that.
Ultimately, the government projects that the deficit will be halved in 2013-14 to $10.2 billion, down from $21.1 billion the previous year; and that it will fall just short of breaking even in 2014-15 before producing surpluses of $3.4-billion in 2015-16 and $7.8 billion in the following year.
By department, national defence is taking the biggest hit in today’s spending measures, accounting for an expected $1.1 billion of the ongoing savings. Of course, it has the biggest budget from which to bite. Departmental streamlining, cost reductions and the elimination of low-priority initiatives are also expected to wring significant savings out of such key portfolios as agriculture, public safety and transportation.
The budget indicates that the government’s spending review identified several opportunities to save money — one of the biggest being public sector employment. The budget plan calls for a total reduction in federal employment of about 19,200 workers, or 4.8% of the workforce, including the elimination of about 600 executive positions.
In addition to those cuts, the government is also planning action to bring federal public service compensation more in line with other public sector employers as well as the private sector. Specifically, it plans to eliminate the accumulation of severance benefits for voluntary resignations and retirements.
Ottawa will also be reforming public sector pensions so that employee and employer contributions are evenly split — and the normal age of retirement will be raised to 65from 60 starting in 2013. And, in sympathy with the new focus on reducing gold-plated government perks, the governor general’s salary will no longer be tax exempt.
The feds will also be selling off some official residences abroad and moving into smaller spaces, getting rid of some vehicles and cutting some programs that they deem to be excessively expensive.