Disappearing Surplus Reinforces Need for Rigorous Spending Review

November 3, 2003

The rapidly shrinking surplus and continuing risks highlighted by Finance Minister John Manley in today’s fiscal update reinforce the need for rigorous review and reallocation of federal spending, says the Canadian Council of Chief Executives (CCCE).

Mr. Manley referred repeatedly to the importance of reassessing programs to reflect changing needs. Regrettably, the government has yet to show that it is willing to make reallocation a permanent feature of the way the government manages taxpayers’ money, noted CCCE President and Chief Executive, Thomas d’Aquino.

“The token $1 billion reallocation exercise announced in the last budget took twice as long as planned,” Mr. d’Aquino added. “If the government is serious about being able to meet new and growing needs in areas such as health care and defence, it has to look a lot harder at how to make better use of the money it already spends.”

In its pre-budget submission to the Standing Committee on Finance of the House of Commons, the CCCE recommended a continuous multilevel spending review process. As part of this process, each department would be required to identify annually the least effective five percent of its spending each year.

“This ‘5 percent solution’ would create a pool of more than $3 billion for reallocation to new and growing priorities, and force precisely the kind of change in culture in the public service that the government has recognized as crucial,” said Mr. d’Aquino. (Details of the CCCE’s submission to the Finance Committee are available here.)

Mr. d’Aquino added that the existence of a significant reallocation pool, for instance, could have enabled the federal government to make a firm commitment to provincial governments on increasing transfers to health care, instead of leaving a contingent $2 billion transfer in limbo until the federal books are closed late next year.

Mr. Manley’s confirmation that Canada’s weak economic performance this year will force the federal government to eat into its $3 billion contingency reserve for 2003/04 provides another powerful reason to focus on smarter spending, Mr. d’Aquino added.

The finance minister noted two major reasons for fiscal prudence moving forward: the risk that the current economic recovery in Canada’s major market, the United States, may not be sustainable; and the extent and speed of the rise in the Canadian dollar, up about 20 percent against its United States counterpart in less than a year.

“At a time when the economy has suffered major unexpected shocks and faces continuing pressure from the rapid rise in the Canadian dollar, the explosion in federal spending that we have seen over the past four years simply cannot be sustained,” Mr. d’Aquino said. The fiscal update shows that direct program spending this year will be 36 percent higher than in 1999/2000.

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.