Bloomberg News

Shrinking Canada Deficit Won’t Change Need to Cut, Clement Says

October 13, 2011

Oct. 13 (Bloomberg) -- Canada will push ahead with its plan to cut spending by at least C$4 billion ($3.9 billion) annually and look for ways to “transform” public services even though the government’s deficit-reduction efforts are running ahead of schedule, Treasury Board President Tony Clement said.

The Finance department reported yesterday Canada’s budget deficit was $C33.4 billion in the year ended March 31, C$2.8 billion below the forecast in the fiscal plan released in June. The lower-than-expected deficit won’t change the government’s commitment to look for savings in about C$80 billion in program spending, said Clement, who is leading the review.

“The motive behind all of this is we want an economy that creates jobs,” he said in an interview today at Bloomberg headquarters in New York. Without spending restraint, “you start to bleed away the things that will assist in job growth, whether it’s because we have to hike taxes down the line, which we don’t want to do, or whether it’s simply because you drain money from markets to pay for servicing the debt.”

Canada has urged other Group of 20 countries to honor spending-reduction commitments. In an editorial published today, Prime Minister Stephen Harper called on Europe to take “decisive action” to resolve its sovereign debt and banking troubles, and encouraged G-20 nations to stick to pledges made last year to reduce budget deficits.

Clement, 50, said the Canadian government is working with the U.K. and other allies to remind the G-20 of the threat to growth posed by rising sovereign debt.

Eliminate Deficit

Canada has promised to eliminate its deficit by the fiscal year beginning April 2014. To reach that goal, the Conservative government has put Clement in charge of reviewing spending, and senior bureaucrats have been asked to come up with scenarios for cutting five to 10 percent from their department budgets.

Canadian voters endorsed the government’s plan to restrain spending in the May 2 election, when they gave them a majority of seats in the House of Commons after five years of minority government, he said.

“I personally believed that was one of the biggest promises we made during the election campaign, the most important promise, to concentrate on finding savings within the federal budget,” said Clement, adding that the results of the review will be revealed during next year’s budget.

Clement said last week the government will link the performance pay of over 8,600 public-service executives to the success of the spending review. Senior bureaucrats are being instructed to assess whether programs are necessary and whether they can be delivered more efficiently, he said today.

‘Kick-Starting’ Transformation

“This isn’t just about finding savings, it’s about really kick-starting the transformation in the public service on how we deliver services,” the minister said.

While job cuts may be a “necessary consequence” of the exercise, the government will try to shrink the bureaucracy through attrition, and it will honor existing collective agreements with public-sector unions.

“When the collective agreements expire, obviously we’ll have some ideas on how to make things better and so forth, but that process is not part of this process,” Clement said.

The Public Service Alliance of Canada, the nation’s biggest public-sector union, has started a campaign to unseat the Conservatives in the next election.

Clement said union leaders who are explicit supporters of the New Democratic Party, the biggest opposition party, are out of touch with the views of rank-and-file public servants and the general public.

“I draw the distinction between some of the union leadership and some of the rank and file,” he said. “We couldn’t win power without the support of unionized employees across the country.”

--Editors: Paul Badertscher, David Scanlan

To contact the reporter on this story: Andrew Mayeda in New York at amayeda@bloomberg.net.

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; David Scanlan at dscanlan@bloomberg.net.


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