A freeze on government department operating budgets, reducing the costs of civil service benefits and suspension of Defence Department future capital spending accruals is keeping Ottawa’s overall program spending to an increase of just 0.9% in the coming fiscal year (ending March 31 2015), and producing a decline of 0.4% in the following year.
But a couple of points should be noted:
1. Suspending Defence accruals is not a reduction in actual spending. The dollars were being accrued for expenditures that the department will have to make in the future. And it makes sense to save these funds gradually rather than have to come up with large sums when they are needed. In this case, it has been determined that Defence would not be spending the $3.1 billion that would have been accrued in this period until after the budget’s horizon of fiscal 2019.
2. The 7.3 billion in compensation costs in fiscal years 2014-2019 also involves a reduction in accruals — specifically the accruals that the government has to make to cover future health-care benefit liabilities. The government wants to move to paying 50% of the cost of retiree benefits for retired federal employees from the present 75% under the Public Service Health Care Plan (PSHCP) and to increase eligibility for these benefits to six years of service from two years. The PSHCP agreement is government-wide and is negotiated by a group of representatives from the various unions. The carrot in this process is enhancement of sick days for civil servants, which will be negotiated as each collective agreement comes up for renewal.
These were the main spending-related measures. There were also many new spending initiatives but they were very small individually and didn’t amount to much more than $1 billion per year in total.
For instance, the budget made a lot of hoopla about “creating jobs,” and there was a separate paper with the budget on the state of the Canadian labour market. However, the net fiscal cost of the measures being introduced is $427 million in fiscal 2015 and $469 million in 2016 — tiny amounts given the projected $251.2 billion in program expenses in 2015.