February 3, 2011 – The C.D. Howe Institute today released its 2011 federal Shadow Budget with a five-step plan to end the flow of red ink in Ottawa ahead of the government’s five-year timeline. In A Faster Track to Fiscal Balance: the 2011 Shadow Budget authors William Robson, CEO of the Institute, and Alexandre Laurin, Associate Director of Research, show how Ottawa can return to budget surpluses in four years through more ambitious spending restraint and accelerate growthfriendly fiscal reforms.
This faster track to budget surplus, say the authors, will position the federal government to launch new tax and spending initiatives around mid-decade, while protecting Canadians from possible debt-market disruptions arising from sovereign-debt concerns, and putting federal debt back on a downward track before the pressure of population aging on government finances intensifies.
The Shadow Budget presents a five-point plan for return to fiscal balance.
Seeing Budget 2010 Measures Through: The 2010 federal budget outlined a series of measures projected to save $17.6 billion over five years. The government must deliver on these commitments, and conclusively halt stimulus transfers on their already extended deadline of October 31, 2011.
Restraining Federal Public Service Compensation Costs: The number of federal public servants, excluding military and RCMP uniformed personnel, jumped 35 percent from 1999 to 2009, 24 percentage points faster than growth in Canada’s population. Cutting employment 2 percent per year for the next four years combined with better control of compensation costs can deliver the bulk of the improvement needed to achieve a surplus by 2014/15.
Tackling the Cost of Ottawa’s Employee Pension Plans: In the longer term, the solution to the federal government’s pension challenge must include reductions in benefits, particularly those that encourage early retirement. Nearer term, contributions should rise to fund the plans better, and the employee share of those contributions should rise.
Trimming Transfers 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, their aggregate subsidies should fall 10 percent from their currently planned level.
Review of Tax Preferences The federal tax system contains a myriad of exemptions, deductions, rebates, deferrals or credits to achieve various economic and social objectives. The fast-track plan proposes 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.
Besides protecting Canadians from adverse consequences of chronic federal borrowing, say the authors, this accelerated track to surplus sets the stage for further economic and fiscal gains, such as prolonging eligibility for tax-deferred saving, a phase-out of trade barriers and cartels in agricultural goods, tax relief for travelers and international investors, and better tax treatment of related businesses.
For more information contact: William Robson, President and CEO, or Alexandre Laurin, Associate Director of Research, C.D. Howe Institute, 416-865-1904; Email: cdhowe@cdhowe.org.