The Mixed Message Budget

Without a doubt, the most successful deficit-reduction exercise in recent Canadian history was the Chretien Government’s Program Review of 1994-97. As discussed in David Good’s magisterial study of Canadian fiscal policy, The Politics of Public Money, the program review had several important features that contributed to its success.

After the Mexican currency crisis of December 1994, the unequivocal message from the capital markets was that if Canada did not get its fiscal house in order overseas investors would no longer be willing to hold Canadian bonds. This provided a necessary sense of urgency. The government made clear its intention to reduce a $42 billion deficit to $25 billion in the first year (still a substantial 3 percent of GDP) and then to move to a balanced budget as quickly as possible.

The government acted in a thoughtful and comprehensive way, evaluating all federal government programs on the basis of five tests: asking whether a program was still in the public interest; whether there was a legitimate role for government in the program; whether it should be devolved to the provinces or private or non-profit sectors; and finally, if a program is still in the federal government’s hands, asking whether it could be performed more efficiently.

This analysis was conducted by an elite group of public servants based in the Privy Council Office and reporting to a special committee of cabinet. During the budget formulation process, Prime Minister Chretien made it clear that he fully supported Finance Minister Paul Martin’s draconian approach, and that he would not approve any new programs. Thus, there was no daylight between PM and Finance Minister. Prior to the presentation of the 1995 budget, the first under the Program Review, there was extensive public consultation so that the harsh results were no surprise. The government made the cuts public, showing both the total cut for each department (some of which lost 50 percent of their budgetary base) and listing specific programs that were cut.

Let’s compare this to the Ford Government’s April 2019 budget. The budget referred to the large and increasing cost of servicing the debt and repeated the puzzling factoid that Ontario is the world’s most indebted subnational jurisdiction, but neither data point communicated as much urgency as the prospect of being cut off from capital markets. The budget didn’t have too much to say about Moody’s downgrading Ontario’s credit rating the previous December, as the precipitating event was the Ford Government’s substantial reduction of revenue by terminating the Wynne Government’s cap-and-trade greenhouse gas emissions program.

In the run-up to the budget, the Ford Government increased the size of the deficit from the Wynne Government’s $6 billion to $15 billion by changing the accounting treatment of electricity subsidies and government contributions to public servants’ pension plans. This appears to have been done primarily to demonize the Wynne Government. When former Premier Wynne testified to a legislature committee about the electricity subsidies, Premier Ford tweeted, “Looking forward to getting some answers from Kathleen Wynne today about how the Liberal government misled Ontarians by using accounting tricks to hide their $15 billion deficit. The people deserve to know the truth.”

By taking such a partisan approach, Ford lost credibility. His government would have been more believable if it said that, while there are debates among accountants about how to treat electricity subsidies and contributions to public service pensions, given the seriousness of the financial situation, the government has chosen to be cautious and prudent by including both of them in the deficit.

Starting in the election campaign, Doug Ford’s main message about the deficit was that it could readily be handled by finding “efficiencies” within government to the tune of roughly 4 percent of the budget base. Implementing these efficiencies would not be painful, and would not cost people their jobs. “Finding efficiencies” is a polite Canadian version of eliminating the trio of “waste, fraud, and abuse,” routinely cited by American conservatives as the answer to balancing government budgets. Obviously, there is something discordant between the severity of the problem manufactured by the Ford government and the ease of the solution it put forward.

The budget process and the budget itself were anything but transparent. As for the process, we don’t even know the names of the ministers who sit on Treasury Board. No criteria were spelled out for cuts and, as the cuts were revealed, they involved programs the government didn’t like for ideological reasons. The budget went into considerable detail about new initiatives, but only included spending totals for departments or groups of departments, rather than any program cuts necessary to make the totals add up. The government’s communications strategy was to call attention to its new initiatives on budget day.

But if the province is living the “financial nightmare” that Doug Ford describes then, like the federal government’s 1995 budget, there wouldn’t have been any new initiatives.

Word of the cuts began to leak out when they were announced within the departments. As a result, the program cuts that came out day by day ultimately became the story, and the budget itself became a one-day wonder. This, of course, is the opposite of what the government wanted.

Some of the more painful cuts stimulated widespread opposition and have damaged the government’s popularity. As a consequence, they have been delayed or reversed. Reversals have included restoring funding for autism programs, providing transitional funding to prevent firing of teachers, and delaying retroactive cuts to municipal budgets. It is doubtful that delaying or reversing cuts will restore the government’s popularity. Voters remember the proposed cuts as evidence of the government’s intentions and are concerned that these cuts might be made in the future. The reversals make the government appear unprepared, for not thinking through the implications of the original budget cuts, and weak, in reversing course.

As a professor, grading is in my job description. The Chretien Government’s Program Review earned an A+, the Ford Government’s first budget gets a C-.

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