Business Leaders Offer "5 Percent Solution" to Drive Better Value from Federal Spending

October 21, 2003

The federal government should legislate an overall cap on spending growth and introduce a rigorous and continuous spending review process to ensure that Canadians receive good value for the taxes they pay, says the Canadian Council of Chief Executives (CCCE).

In its annual submission to the House of Commons Finance Committee, the CCCE proposes a “5 percent solution” to the problem of spiralling federal spending. Direct spending by federal departments is projected to jump 34 percent in just four years (see accompanying fact sheet).

Under the CCCE’s plan, each senior executive in the public service and each minister would be required annually to identify the least effective 5 percent of the spending within his or her area of responsibility. This would generate a pool of more than $3 billion a year that could be reallocated to meet new or growing needs in areas such as health care and defence.

“The 5 percent solution is about making public servants and ministers accountable,” CCCE Executive Vice President David Stewart-Patterson said. “This goes beyond poring over their expense accounts. It pushes them to create value, not just eliminate waste. Executives who can’t tell ministers where to find better value don’t deserve bonuses. And ministers who aren’t willing to pull the plug on programs that aren’t working should not expect taxpayers to give them any more money for their new projects.”

The CCCE, Canada’s senior business organization, also recommends that Ottawa limit growth in federal program spending to one percent less than nominal growth in Gross Domestic Product (GDP-1).

“Like every Canadian family, governments have to make choices. If your child needs braces, that new car may have to wait. Governments cannot simply tell taxpayers to give them a raise just because they want to spend more money,” Mr. Stewart-Patterson said.

He pointed out that despite federal government tax cuts, tax revenue continues to rise. Both personal tax and corporate income tax revenues are forecast to be 10 percent higher in the current fiscal year than they were four years ago. Revenue from the GST will be 30 percent higher. Yet spending has been rising more than twice as fast as total taxes.

“It is clearly nonsense to suggest that tax cuts have stripped the federal treasury bare and bled essential programs. Federal spending is at a record level – and despite the cuts in personal and corporate tax rates, so is tax revenue.”

The CCCE is composed of the chief executives of 150 leading Canadian corporations, and its members believe strongly that smart fiscal and tax policy provides the essential foundation for efforts to improve the quality of life of Canadians. The CCCE has been the leading private sector voice in the long struggle first to eliminate deficits and then to reduce tax rates as part of a broader strategy to make Canada the best place in the world in which to live, to work, to invest and to grow.

The members of the Executive Committee are: Chairman Richard L. George, President and Chief Executive Officer of Suncor Energy Inc.; Council President and Chief Executive Thomas d’Aquino; Honorary Chairman A. Charles Baillie; and Vice-Chairmen Derek H. Burney, Dominic D’Alessandro, David L. Emerson, Gwyn Morgan, Gordon Nixon and Paul M. Tellier, the chief executives respectively of CAE, Manulife Financial, Canfor Corporation, EnCana Corporation, Royal Bank of Canada and Bombardier Inc.

———-

FAST FACTS:
GROWTH IN FEDERAL SPENDING AND TAX REVENUE

In four years, from fiscal 1999/2000 to fiscal 2003/4:

• Federal direct program spending is projected to rise by 34 percent
• Spending through the Employment Insurance system is up 39 percent
• Personal and corporate income tax revenues are forecast to rise 10 percent, even though tax rates have declined
• Revenue from the GST is projected to increase by 30 percent
• In total, federal tax revenues are projected to increase 12.2 percent
• Total federal program spending is projected to grow more than twice as fast, by 30.7 percent

($ billions)

Source: Federal budget, February 2003