Severely Conservative: Simulating the Deficit Reduction Action Plan

Shortly after the 2011 election, the Harper Government established a subcommittee of the Treasury Board, tasked with making, to use Mitt Romney’s neologism, severely conservative budget cuts (up to $8 billion) in departmental base budgets. The result of their work would be called the Deficit Reduction Action Plan, thus emulating the high profile Economic Action Plan.

My late co-author Allan Blakeney took the view that the start of a mandate is the optimal time to “put the government through the wringer” to identify major budget cuts. Building on Blakeney’s lived experience as well as the Harper Government’s intentions, I decided to have the students in my University of Toronto-Scarborough public management class simulate the Deficit Reduction Action Plan. The eleven spending departments we simulated were asked to find $5 billion in savings from their operating budgets (exclusive of transfer programs) that totaled $80 billion. These cuts would be implemented in the 2012-13 fiscal year.

The last time we did this type of simulation exercise, we had the Ontario Government cutting $ 3 billion (see “Simulating the Ontario Budget Process,” my post of March 10, 2010). But in this case, we permitted revenue increases as a way of meeting budget cuts, and roughly $ 2 billion was derived this way, through partial privatization of the LCBO and an increase in hydro rates. This year’s simulation was tougher, because the ground rules assumed that a severly conservative government would not resort to “tax and spend,” but would prefer only to cut.

What, then, emerged from the simulation?

The first part of the simulation involved written submissions from the operating departments. They initially proposed a total of $2.4 billion in cuts, approximately half of total required. Some departments in the simulation (DIAND and DND) offered major cuts at the outset while others (HRSDC and Industry Canada) offered up very little. The second part of the simulation was a 2 hour Treasury Board meeting with the spending departments, chaired by the Treasury Board team (which included the Minister of Finance, President of the Treasury Board, and Secretary to the Treasury Board), to consider the proposed cuts and find additional ones. Given the two stage process, the spending departments had a variety of strategies: offer substantial cuts in the written proposal but then firmly resist additional cuts at the meeting; offer some cuts in writing (say 2-3 %) and keep others in reserve; or argue, both in the written proposal and at the meeting, that the department had taken large cuts the previous year or its work was too important to offer up anything more than token cuts.

The Treasury Board team did an excellent job running the meeting, so much so that they seemed to be channeling the spirit of the Chretien Government’s program review. They emailed the spending departments to announce that they had the firm backing of the prime minister for the $5 billion target. (As there was no role of prime minister in the simulation, this claim was incontrovertible.) They encouraged the departments that had offered up big cuts at the meeting to put the heat on the departments that were resisting and they told the departments that were resisting that they had better come to the meeting with some proposals. They managed the meeting so as to achieve their objective. They started with the departments that had offered the big cuts, thus highlighting their exemplary behaviour. There was no daylight between the Finance Minister and the President of the Treasury Board. They ran a tight meeting, giving ministers no more than a minute for interventions. The Secretary of the Treasury Board announced the running total frequently enough to create a sense of urgency. By the end of the two hour meeting, the departments had agreed to cuts totally $4.2 billion. The sense of momentum in the meeting was palpable and had the meeting gone on beyond the two hours of our class time, they would undoubtedly have reached the $ 5 billion total. In this case, the Treasury Board team made the last $ 800 million in cuts unilaterally.

The simulation, as an exercise in group dynamics, was a great success. It was also a success as a learning exercise, because it forced all the students to drill down into the federal estimates for the last two years. Some students made arguments against cuts in 2012-13 because departments had already taken major cuts in 2011-12. Other students used the information about strategic outcomes provided in part 3 as the basis of their decisions.

Nonetheless, there was some ambiguity about what was meant by cuts. For example, should a department be permitted to argue that it had experienced major cuts last year because of the scheduled expiry of Economic Action Plan programs? Does a reduction in last year’s planned spending increase qualify as a cut this year? In the real world, these issues would have to be adjudicated by the Treasury Board subcommittee at the outset, something our abbreviated process did not encompass.

At the end of the exercise, cuts of between 4 and 8 per cent of the departmental budgets were made. Substantial cuts fell on areas that are generally not considered to be priorities of the Harper Government: environment, arts and culture, and support for the universities. But what seems appropriate and feasible when discussed in a cabinet board room has a way of leading to raucous protest when it hits the “Canadian street.” (Personal disclosure: I was Scholar-in-Residence in the Ontario Cabinet Office in summer 2003, the last days of Harris-Eves Common Sense Revolution, and I remember watching from the Whitney Block almost daily protests on Queen’s Park Crescent below, a process I began to refer to as “the citizenry coming to express their gratitude.”)

We now await the Harper Government’s budget to be delivered on March 29. We’ve been informed that the projected deficit of $31 billion will shrink to a more manageable $25 billion. Finance Minister Flaherty has told us not to expect “intricate details” of budget cuts and we’ve heard hints of an early retirement program intended to thin the ranks of the Public Service of Canada by 30,000, in effect spreading the pain around without cutting particular programs. So perhaps the students of my public management course are, contrary to the usual expectations of the political preferences of twenty-somethings, the real “severe conservatives.”

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