Defence and international assistance are the only program areas being cut in Thursday’s federal budget, with the rest of the program spending restraint expected to come from efficiencies and the elimination of low priority/low performing programs across all departments.

Defence is being asked to reduce spending by $525 billion in fiscal 2013 (ending Mar. 31) and $1 billion in each of 2014 and 2015. This doesn’t mean less spending, just slower growth in spending – and given a budget of about $19 billion fiscal 2011, this isn’t big restraint. Indeed the department expects that the money can be found through efficiencies rather than personnel or capital expenditure cuts. The target of 70,000 in regular military personnel and 30,000 in reserves remains. Capital projects are under continuous reserve so it’s possible there could be reductions in previously planned purchases.

International assistance is another matter. Spending in this area is being frozen at the fiscal 2011 level for the foreseeable future. That translates into savings of $438 million in 2012, $869 million in 2013, $1.2 billion in 2014 and $1.8 billion in 2015 from what the government had previously planned to spend in the area. The budget says international assistance remains a priority and notes that it will reassess spending in this area every year, as it does for all government priorities.

The Economic Action Plan, as Canada’s fiscal stimulus program is called, remains basically unchanged but there has been an increase in the total amount of spending because of support for the auto industry, which received $7 billion more than originally expected in the past year. Total stimulus from the program for the past year is estimated at $36.5 billion ($28.1 billion from Ottawa and $8.4 billion from provincial and territorial actions). Further stimulus of $25.1 billion, with $9.2 billion from Ottawa, is planned for this year.

The total $9.7 billion in assistance to General Motors Corp. and Chrysler LLC, consists of loans. In the process, the Canadian government has acquired an equity interest of around 10% for GM and 2.5% for Chrysler. Finance is assuming that at least some of the loans will be repaid and has included these repayments in their fiscal projections. If more are repaid than is assumed, reducing the deficit will be easier; if less is paid, further spending restraint or tax increases will be needed to reach the target $1.8 billion deficit in 2015.

IE