John Ivison: Latest spending estimates offer biting reality check to Liberals’ promise of ‘warmer days ahead’

OTTAWA – There is no substitute for following the money when it comes to uncovering the true character of a government. In the case of the Trudeau Liberals, a close look at their spending suggests a government that is profligate, undisciplined, and indulgent.

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While budgets speak of good intentions, the parliamentary budget process shows where the money is actually being spent.

The Parliamentary Budget Office has just released its analysis of the final supplemental estimates for the fiscal year, under which the government is seeking permission from Parliament for money to meet its spending needs.

The estimates reveal a taxless ministry living beyond its means.

The first thing that catches your eye is that the government has requested an additional $800 million for professional services outsourcing, bringing the total for the year to a staggering $21.4 billion.

With the McKinsey & Co. contracts in the news, the focus has been on management consultants – and this sub-sector has seen the value of its contracts grow even faster than the rest of the private sector to around $1 billion a year.

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But ‘professional and special services’ encompasses all sorts of things one could reasonably expect public services to do in-house, from IT to engineering. Outsourcing spending has grown by a third since 2017-18. The government now pays more to IT service providers than it pays its own IT staff, according to the Professional Institute of the Public Services of Canada.

That would make sense if the government was spending less on public sector salaries, but the PBO says spending increases in the public and private sectors are progressing in lockstep. The cost of federal government salaries and benefits this year reached $55 billion, or about $130,000 per full-time worker. This debunks the NDP’s theory that contractors are “pushing out” public servants and creating shadow bureaucracy.

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Yves Giroux, Parliament’s Budget Officer, said the logical conclusion is that with so much staff spending, citizens should see an improvement in the level of service they receive. “Actually, the opposite seems to be the case. From veteran affairs to people applying for employment insurance to passports, the services don’t get any better despite the number of advisors. Something is wrong,” he said.

The second thing that stands out from the latest supplementary estimates is the government’s failure to spend the money approved by Parliament. Far too much money has been “frozen” or “expired” — jargon meaning liberal eyes were bigger than their stomachs.

According to the latest estimates, $7.7 billion was “frozen” by the Treasury Board for one reason or another — a $2.2 billion increase from a year earlier, which makes little sense given the uncertainty created by the pandemic . That includes around $1.6 billion for nationwide broadband rollout and spending on “strategic innovation,” which is currently a priority. A chart in the PBO report shows accumulated forfeited funds of around $40 billion.

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Giroux said there are two possible explanations for the lapsed funding: either the government is exercising restraint and feels it doesn’t need to spend the money allocated, or there is a mismatch between Ottawa’s ambitions and what it can deliver. “I suspect it’s more the latter than the former. And that speaks for suboptimal planning,” he said.

The third major area of ​​concern is defense spending, which is estimated to reach $28.4 billion this year, the highest amount in real dollars since the 1990s.

That is welcome, but a long way from the 2 percent of GDP target to which Canada has committed itself.

Along with other costs that NATO sees as largely military — Coast Guard, veterans’ benefits, etc. — defense spending this year will reach $36.3 billion, or 1.33 percent of GDP, $18.2 billion less than the two percent Goal.

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According to these estimates, the government is targeting an additional $933 million, half of which will go to help Ukraine. (The estimates say that total aid to Ukraine has reached $4.3 billion, of which $2 billion will come in the form of financial loans.)

It is troubling that the PBO does not believe that even at this level the government has planned to set aside enough money to fund the previously announced purchases of the F-35 fighter jets and new surface combatants. In 2018, as part of its Strong, Safe and Committed strategic plan, the government announced a 20-year spending plan that totaled $108 billion on an accrual basis (spreading costs over the life of the asset) or on a cash basis was US$164 billion (if booked immediately if paid in cash).

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No one believes the envelope is big enough to pay for all the planes and ships on order, many of which have experienced cost overruns.

The Department of Defense was supposed to issue a public update on its outdated budget last fall, but it didn’t.

The likely explanation is that increasing the cost of the program by tens of billions of dollars would have an immediate impact on Treasury Secretary Chrystia Freeland’s budget process. The dark art of budgeting means that expenses can be deferred into future years, but costs cannot be hidden indefinitely.

Federal and state governments have been the recipients of strong inflationary revenue numbers lately. But an economic slowdown is likely to undo such pleasant surprises.

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Given spending pressures on healthcare, defense and corporate tax stimulus, Giroux said he wouldn’t be surprised if the next budget showed an increase in the federal debt-to-GDP ratio, the government’s only fiscal anchor it has pledged will be in the future decrease years.

“It’s going to be very difficult to sustain this decline,” he said. “Something has to give. Either they give up some of the commitments they have made, or they increase taxes.”

It’s a picture at odds with what Freeland painted in its fall fiscal update, which talked about “warmer days ahead” and being part of 21st-century Canada.

The latest estimates offer a reality check to these sunny trails.

As one expert on good-intentioned government once observed, “Don’t tell me what’s important to you, show me your budget and I’ll tell you what’s important to you.”

Who said that? A Joseph Robinette Biden Jr.