OTTAWA — Experts say the government’s plan to cut and grow our way out of deficit in the next five years is realistic, so long as Canadians are braced for the pain ahead.
“We’ve been in a situation for over a decade where virtually every program has been growing at 6% a year,” said Don Drummond, chief economist for TD Bank Financial Group. “That leads me to believe almost everything could be cut.”
Of course everything won’t be cut.
The feds say that rather than raising taxes they’ll make cuts to balance the budget, but employment, elderly and children’s benefits as well as federal health and social transfers — almost half the $270-billion federal budget — won’t be touched.
Back in January of 2009 the feds said we’d run $85 billion in annual deficits before returning to balance in 2013-14. But only eight months later they revised that saying Canada would run $170 billion in deficits by 2014-15.
The C.D. Howe Institute, a right-leaning think-tank, says $20 billion of 2009-10’s $56-billion deficit can be blamed on falling tax revenues, the rest is stimulus. It may make the hole in the budget look more manageable when the stimulus program ends, but it’s still a massive challenge.
To fix the problem, C.D. Howe says public servants, the RCMP and Canadian Forces personnel should pay more into pensions. Right now, the feds pay 68% of pension contributions and employees pay the rest. If that were a 50/50 split we’d save $2.7 billion by 2015-16, C.D. Howe says.
“It wouldn’t surprise me if they made conditions tighter for future employees, but I’m not sure they’ll change it retroactively,” Drummond said.
Another way of saving money would be to cut the public service. The C.D. Howe Institute estimates we’d save $5.5 billion by 2015-16 by cutting the public service by 0.7% a year for the next six years.
“They need to tell the civil service for every two that retire they can only hire one back,” said Peter Coleman, president of the National Citizens Coalition.
We could also follow an NDP suggestion and cancel, or put off, the two 1.5% cuts to the corporate tax rate scheduled for January 2011 and 2012.
“We’ve already got to the point where we’re underneath our major trading partner by enough to change corporate behaviour,” said Andrew Dunn, managing partner for tax at Deloitte & Touche LLP. “Making the tax rate difference 9% or 10% instead of 8% won’t really change corporate behaviour.”
Individually, none of these measures will close the deficit hole so experts are warning cuts to some programs are coming, including the military, while others may be dropped entirely.
peter.zimonjic@sunmedia.ca
