Federal program spending is up a sizable 11.5% in the fiscal year ending March 31, 2003, on top of a 4.9% rise in fiscal 2002 and 8.3% in 2001, according to Tuesday’s budget. While expenditures are expected to be lower in 2004 and 2005 — growing at the rate of 3.2% and 4.6%, respectively — they are still high, given a drop in health spending from the artificially high levels of 2003 and inflation of around 2%.

The federal government is projecting that spending will be 37% higher by 2005 than in 2000, while revenues are up only 16% in the same period. This more than offsets the restraint practiced in 1997-2000, when spending rose 7% while revenues were up 17%. For the full 1997-2005 period, expenditures are projected to be up 46% with revenues rising 37%.

Ottawa continues to play games with the spending numbers, booking future expenditures in years when there is a large surplus. In fiscal 2003, $4 billion in health funding for the provinces — $2.5 billion in general transfers and $1.5 billion for diagnostic and medical equipment — is being booked and put in trusts for the provinces to draw down during the next three years. As a result, transfers to the provinces rise by 23% in 2003, fall by 5% in 2004 and rise by 7% in 2005.
Transfers to individuals rise by 6%, 4% and 3%, in the corresponding years, while direct program spending increases by 10%, 7% and 4%.

It is the direct program spending numbers that economists and policy analysts find particularly alarming. As the population ages, transfers to individuals will rise. As well, more money is urgently needed for health and amounts in this budget fall short of what the recent Romanow Commission recommended.

The one area of direct program spending in which there is general agreement that additional funding is needed is defence and it is receiving significant additional funding — $800 million a year from 2004 onward, plus an automatic annual base funding increase of 1.5% a year or about $150 million. The department’s total budget is almost $13 billion.

The Department of National Defence says this, combined with $200 million in annual internal departmental cost savings, will provide it with sufficient funds to deliver on the national defence policy spelled out in a 1994 white paper. Last fall’s Throne Speech indicated there will be a review of national defence policy which, when completed, may result in different spending levels.

Defence is not, however, the only area in which there are significant increases: direct program spending excluding defence is expected to rise by at least 5% in both 2004 and 2005. Unfortunately details of budgets for the various departments won’t be available for another week or so, when the 2003-04 estimates are released.

The budget describes a variety of non-health, non-defence measures, amounting to $1.3 billion this year, $1.7 billion in 2004 and $2.1 billion in 2005. These include a long list of initiatives aimed at producing a more sustainable and productive society, and a shorter list of “investments in Canadian families and their communities.”