Rolling Back Spending, Spurring Growth: A Shadow Budget for 2012

By C.D. Howe Institute —— Bio and Archives March 21, 2012

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March 21, 2012 - Canada is in the happy position of being able to address its fiscal challenges not just through eliminating deficits, but also by promoting growth in the economy and the tax base, according to a report released today by the C.D. Howe Institute. In "Achieving Balance, Spurring Growth: A Shadow Federal Budget for 2012," authors Alexandre Laurin and William B.P. Robson present, first, an accelerated plan to achieve budgetary surplus in three years; and second, a series of low-cost initiatives designed to foster economic growth.

To roll back spending faster, the authors urge several initiatives on top of cut-backs in the strategic review of program spending Ottawa announced in last year's federal budget. Measures in this Shadow Budget include:

Restraining Federal Employee Compensation:

Excluding military and RCMP personnel, Ottawa's payroll expenditures and other employee benefits rose 130 percent from 1999/00 to 2010/11, about twice the increase in total Canadian labour income over the same period. Over the next three years, the authors propose to:

• eliminate some 15,000 positions through attrition;
• constrain growth of current compensation per employee to 1 percent annually;
• reform federal employee pensions, including those of MPs, by capping the taxpayer-paid portion of the cost at 9 percent of pensionable pay; and
• better fund other federal post-retirement employee benefits.

The Shadow Budget anticipates these initiatives will reduce Ottawa's net compensation costs by $4.3 billion in 2014/15, on top of other savings embodied in the existing program review and temporary departmental freezes.

Rationalizing Canada's Tax Base:

The authors note the federal tax system contains a myriad of exemptions, deductions, rebates, deferrals or credits to achieve various economic and social objectives. They propose reducing or eliminating preferences for activities, such as home buying, purchasing health insurance through employers, traveling by public transit, or fitness, that people would largely do anyway and that transfer wealth more than influencing behaviour.

Trimming Financial Assistance to Crown Corporations:

As a spur to greater efficiencies in consolidated Crown corporations, along the lines of what private-sector enterprises have achieved in recent years, the Shadow Budget proposes their aggregate subsidies should fall by about half over five years. These measures will accelerate Ottawa's return to budget balance without raising taxes, say the authors. Other initiatives in the Shadow Budget will boost Canada's economic dynamism without compromising the return to fiscal health, including: allowing and rewarding later take-up of seniors' benefits, raising reference ages for seniors' programs and taxes; adopting uniform employment insurance (EI) rules; liberalizing trade and investment; and modernizing Canada's corporate income tax. The Shadow Budget builds on Canada's fiscal and economic advantages, simultaneously steering quickly back to fiscal balance and spurring growth and higher living standards. Shadow Budget For more information contact: Alexandre Laurin, Associate Director of Research; William Robson, President and CEO, C.D. Howe Institute 416-865-1904 email:cdhowe@cdhowe.org