Reality Check: Restraining the Cost of the Federal Government

Prime Minister Harper was in Mississauga, Ont. today and released the Conservative Party Platform.  From a fiscal/public finance perspective, what was interesting was  the statement that there was a need to reduce spending to balance the books and that it could be done by 2014.  Harper said there were no plans to cut major programs and said the billions in cost savings required to balance the books would come from slashing government's operating cost -- something he said "everyone" agrees needs to be reined in.  

While there is a need to balance the budget because of the deficit, the question is just how out of control is government spending even if you factor in the recession induced deficit?  On the one hand, federal spending over the last 50 years has risen faster than revenues which implies a sustainability problem and a need to reduce spending.  Using the Federal Fiscal Reference Tables, for the overall period from 1961 to 2009, revenues grew at an average annual rate of 7.8 per cent compared to 8.3 per cent for program spending and 8.3 per cent for debt charges.  On the other hand, one of the reasons that revenues have not risen as fast as expenditures is also because of tax cuts during the course of the last fifteen years.  Another view of the size of federal spending is taking it as a percent share of GDP and when that is done it becomes apparent that the size of the federal government today is approximately where it was in the early 1960s as the accompanying figure shows below.  Even with the recession induced bump up in the share in 2009/10, it is still nowhere near where it was during its peak in the early 1980s.  Given that the Federal government has largely become a transfer agency with transfers to other governments, persons and bondholders taking up the lion's share of spending, it will be interesting to see what additional details are provided on operating cost reductions as the campaign progresses.  

 

Comments

[Determinant]

CBC Ottawa has a series on the Public Service.

A high-profile corporate executive was brought in to reform procurement, some people felt threatened by the reorganization, and he was fired by the minister in a minor scandal. The exec has since won millions in wrongful dismissal claims.

On the other hand beating up on Public Servants isn't the way to go. Some of us do want to devote our lives to the Public Service but judging from the reception you get, it's a wonder anybody applies.

[Jacques René Giguère]

Determinant
"On the other hand beating up on Public Servants isn't the way to go. Some of us do want to devote our lives to the Public Service but judging from the reception you get, it's a wonder anybody applies."

32 years ago, when I got my first college teaching post, one of my parents neighbor. a deputy minister, congratulated them on this magnificent professional success of their 22-year old first-born son. In the current climate, I guess he would report them to Child Care Services for child mistreatment...

[Determinant]

You lost me there, Jacques.

[Jane Griscti]

Harper has his own reality

[Patrick]

Show me the money! The onus is on the advocates of the "waste and fraud" meme to demonstrate that it's even remotely plausible to fill the - what? $10 to $12 billion dollar hole - with efficiencies.

Personally I think it's improbable (to put it mildly). So how about we raise the GST already and get on with life!

[Frances Woolley]

Finance has a nice little multimedia presentation here http://www.fin.gc.ca/taxdollar/index-eng.asp that shows where your tax dollar goes. The overwhelming bulk goes to transfers to people or other levels of government - it's not possible for the government to write a $100 dollar cheque at a cost any lower than $100, so no scope for efficiencies there

Basically, in order to get rid of "inefficiency" without cutting back defence, public safety or Canada Revenue Agency, everything else would have to be scaled back by 1/3. If Conservative friendly departments such as veterans affairs are spared the axe, more cuts would be required to fill a $10 billion hole.

Here's a long quote from that Finance Department presentation:

Government operating expenses such as salaries and benefits, facilities and equipment, and supplies and travel made up 29 cents of each tax dollar spent ($79.3 billion). Close to half of this spending— roughly 14 cents of each tax dollar spent—went to just three organizations.

DEFENCE

First, spending last year by National Defence on Canada’s military forces made up 8 cents of each tax dollar spent ($20.9 billion)

PUBLIC SAFETY

Next, operating costs of Public Safety and Emergency Preparedness represented over 3 cents of each tax dollar spent ($9.7 billion).

This includes funding for the Royal Canadian Mounted Police, the federal prison system, and border traffic and security operations.

CANADA REVENUE AGENCY

And third, expenses of the Canada Revenue Agency, which administers the federal tax system (and also collects personal income taxes for all provinces except Quebec) totaled $7.0 billion, or close to 3 cents of each tax dollar spent.

OTHER OPERATIONS

A further $31.2 billion—roughly 11 cents of each tax dollar—was spent on the operations of the other federal departments and agencies.

These included major departments such as:

Environment
Fisheries and Oceans
Health
Human Resources and Skills Development
Industry
Justice
Natural Resources
Public Works
Transport
Veterans Affairs
Funding also went to federal agencies such as the Canadian Food Inspection Agency, Parks Canada and the Canadian International Development Agency.

[Determinant]

Program Review in the 1990's did clear out a lot of dead wood and the more I read about the Public Service the more I am convinced of this.

OK, who's up first? Indian and Northern Affairs? There's a scandalous photo-op waiting to happen. Human Resources? Their main job is to write cheques They administer EI, pensions and Service Canada.

[Stephen Gordon]

Someone sent me a link to a truly excellent rant on the theme of 'cutting waste'. The context is the UK, but some things are universal.

[Jacques René Giguère]

We want to devote our lives to public service and we are proud of it. Citizens were proud of us 30 years ago. Today, there is a constant barrage of criticisms and demeaning comments. According to editorial writers,you never know if you are a lazy imbecile or a clever exploiter. "Mama don't let your son grow up to be a cow-boy" ( or a public servant). I hope I am clearer.

At least, yesterday's judicial election results in Wisconsin may be the beginning of a turning tide.

And Indian Affairs should go. Not because of the people working there but because, having seen the Dept.'s oeuvre in my neck of woods, they clearly do more harm than good, by the design of the institution.

[Patrick]

I'm sure we can all agree that in any organization the size of the Canadian federal gov't ($175 billion per annum in revenue!), there must be inefficiency somewhere. But the issue at hand is not "is there inefficiency?" but rather "is there $10-12 billion of annual waste?".

[Andrew F]

A better way to think about waste is not people buying too much office supplies or double dipping on their per diems or whatever people think is happening. I think it's better to think in terms of getting rid of stupid policies and replacing them with more sensible policies aimed at the same goals. I'm really rather tired of string-pushing exercises like the ecoENERGY retrofit program, much less the transit pass tax credit. That, to me, is waste.

[Jacques René Giguère]

Waste is buying $ 35 billion stealth fighter to battle the Talibans when you need a Skyraider

http://en.wikipedia.org/wiki/Douglas_A-1_Skyraider. Waste is waging that war against the Taliban...
Checking low-level civil servants expenses accounts is petty bureaucratic harassment to show how worthless your boss think you are...

[Determinant]

Speaking of cutbacks and equality, might I take the opportunity to request a post on the topic of pension and benefit coverage between the public and private sectors? Particularly the Defined Benefit/Defined Contribution divide and the adequacy of employer-based retirement plans generally?

I have a theory that what Canada really set out to do starting in the 1950's was to implement a Ghent System ("voluntary", employer or union based plans but with universal coverage) in pensions and health benefits. We did this by making pension contributions tax deductible to the employer and tax-free to the employee. It was a case of tax funding or put another way, we recruited the private sector to deliver a public good. But as tax rates have steadily fallen the value of this tax funding has eroded and more of the cost of pensions and benefits has fallen directly on the employer where they didn't before. This is a major problem but we haven't focused on it yet.

[Declan]

"it will be interesting to see what additional details are provided on operating cost reductions as the campaign progresses."

I believe the details will be as follows:
Tax cuts

Ponies

Seriously, how often do politicians spell out planned cuts during an election campaign?

The David Mitchell rant linked by Stephen above (thanks) captures the whole thing perfectly, except the part where he says that nobody is fooled (see: gravy train, stop the)

[Determinant]

Yes, this election has been all about ponies. Seeing Mr. Harper make all kinds of grand promises contingent on "when the deficit is eliminated" is laughable. Mulroney used to make those promises but the numbers never backed him up.

[Mickey]

Want to cut government waste?

Kill the unions. Promote and compensate good people. Fire underachiveing people. And kill the unions. The funny thing is that if you did this, I would bet the "cache" of government service would, in time, return.

[Patrick]

Mickey - All other considerations aside (like you'd need to invoke the notwithstanding clause to achieve what you suggest), the onus is on yo to show us some evidence. Presumably your are arguing that federal workers can be made more productive and can be paid less. Fine. What's the evidence that federal workers are unproductive and overpaid - presumably relative to the private sector? And if they are (which is an open question), is it to the tune of $10-$12 billion annually?

[Andrew F]

Patrick: I wonder if there have been any studies on morale in unionized vs. non-unionized workplaces. I hear that one of the critical problems with the public service today is the crushingly low morale, and I bet that alone discourages many from joining and even more from sticking around.

[Patrick]

Andrew F: I think you might be right. Not surprising when the prevailing wisdom is all "gov't workers are lazy parasites". Who'd sign-up for that?

[Mickey]

Patrick, Andrew - I was certainly glib with my comments and I did not mean to suggest that all public service employees are lazy parasites. And, while I don't have real data to support the suggestion that the unions kill morale (I agree with Patrick that this would be a useful study), I think there is a pile of anectodal evidence to support the view.

Here is a simple train of thought...I am a "client" of the various levels of government in Canada. I am issued a drivers license, health card, passport, social insurance number, student number at my university, property tax ID number for my home, etc.... All are different numbers and each branch/division of these levels of government, for all intents and purposes, have no idea I exist in the eyes of the other. What private (non-unionized) enterprise, run by intelligent, ambitious people would put up with this clear and costly inefficiency? This does not only exist between governments (i.e. federal vs. provincial), but within each level of government.

This is one very simple example (I could go on...) that would be easy to change if the will existed (at the top and the through the civil service). And, if the civil service did run itself like a proper business (a NPO business), I do believe that the people there would feel much, much better about their careers. Nothing kills morale more than colleagues who don't pull their weight and can't be terminated - the main obstacle I see here are the unions.

[Patrick]

Mickey - your example is a good one, but it's a structural issue not a labour issue. And I think the inefficiency you site has been done on purpose. Would you really want the gov't issuing a sort of super identity card and maintaining a file for every citizen? They do that sort of thing in Scandinavia; when you move you must report it to the local police station. And tax returns are public information. Careful what you wish for.

And while we are on anecdotes: I have worked for some of the largest firms in the world and I assure you that inefficiency and incompetence abounds. I've also worked for some very small firms (e.g. myself) - and there was much less inefficiency. As for competence... ;)

[Mickey]

If your argument is that all big organizations will have inefficient cost structures, I think that is a different discussion. Regardless, to some extent you are correct - but only some. There are relatively more cost efficient large organizations (necessarily) and no level of government that I am aware of is one of them.

Also, if my argument is a structural and not a labour one, then fine. Change the structure. What will prevent you? Several things, but chief among them the leadership of the unionized labour force.

I don't know how this can be controversial - anyone who visits a hospital, for example (yes, I know, provincially run), can see that it is a brutally run business. Staffed, generally, by good and competent people, but brutally run.

The question you then ask is why can't it be better run - it is more complicated, I admit, than having a unionized labour force (e.g. the economic incentives are all misplaced), but the first place I would start would be in getting rid of the unions.

[Patrick]

I don't necessarily agree, but for the sake of argument let's say you're right. You still have to show that it's plausible to get $10-$12 billion out of efficiencies.

[Determinant]

Especially in light of the following statistic on the Public Service of Canada.

The Public Service has actually followed bubble or up-and-down pattern in terms of size over the last forty years. It started in the early 1960's employed 0.6% of Canada's population, expanded to 1.2% in the late 1970's and is now back down to 0.6%.

Cut what? At this point cutting will meant cutting programs. The question then becomes "who loses?"