Archive for March, 2010


Tuesday, March 2nd, 2010

What a difference a recession makes. For Stephen Harper, previous federal budgets were like chess games that showcased his tactical savvy. This time it’s his high-wire skills that will be on display as he and his minister of finance walk a fine line between conflicting political and economic considerations — without a safety net.

Not only will they have to finesse a contradictory storyline of continued stimulus spending and sharp cuts; but they will have to balance the economic and fiscal needs of a country limping out of the recession with the political imperatives of a minority government gearing up for a possible fall vote.

It’s a safe bet that they will turn to the same budget playbook that is helping them set a longevity record for minority governments in this country.

In their first four budgets, tax and program spending measures targeted critical Conservative demographics with surgical precision. And while boutique politics is nothing new in Canada, the level of market segmentation and the number of sugar pills in each of the first four Conservative budgets were probably unmatched in Canadian history.

Many of those measures—from tax credits for hockey moms and home renovations, to tax deductions for truckers’ meals–were carefully calibrated to ensure the opprobrium of any number of demographic or interest groups for whatever party that threatened to defeat the budget (and the government).

This strategy provided political cover for the government as it moved its budgets through Parliament, and it  helped build support among key groups and constituencies. But it had a third, perhaps more important advantage:  it helped frame a  sustaining storyline of sound economic management tempered by down-to-earth values.

While not particularly significant from an economic or policy perspective, the government’s  Timbit strategy (sweet but not very healthy or nutritious) helped cement its brand as a party in touch with the main-street concerns and values of ordinary Canadians.

Now with the multi-billion dollar surpluses that were the staple of federal budgets over most of the last decade replaced by a $56-billion deficit, will the government change its tune and its tactics?

Not likely.

The strategy of market segmentation and targeting that served it in previous budgets will  be showcased again this week, only this time to help tell a story of restraint.

Expect the narrative to revolve around three principal themes:

  • Safeguarding a fragile recovery
  • Fiscal balance (without tax increases or cuts to transfers)
  • Living within our means

We  know that the government will not close the taps on billions of stimulus dollars already earmarked for projects across the country.  And the prime minister has said the government removed transfers to the provinces from the chopping block (although recent statements suggest it may be looking for some wiggle-room).

Expect the real action to be on the non-stimulus expenditure side, as the prime minister and his minister of finance display their skills at “slicing and dicing”.

With up to 80 per cent of the federal budget funding  salaries, social benefits and provincial transfers, government operations along with grants and contributions are the likely targets.

In 2008 the government undertook strategic review exercises for selected departments, with each required to identify up to 10 per cent (though only 5 percent would be expected to shift) of their budget for reallocation.

This week’s budget could well be when the results of that review become apparent.

First, we can expect the government to try to rein in the federal public service pension plan. That move, in addition to providing long-term structural savings, would play well to the Conservative base and support the government’s new “living within our means” storyline.

A fiscal sidebar to cuts to public service benefits could well see MPs pensions and benefits also cut.  Such a move would reinforce the government’s narrative and draw a line in the sand for Opposition parties that might be tempted to vote against the budget.

Second, the government will look to reduce its institutional liabilities to the many organizations it supports. This could mean cuts to institutions ranging from the CBC to obscure boards, commissions, councils and agencies.

Here too expect laser-like targeting in support of the new narrative.

As the federal government  prepares to tell Canadian households that, like them, it too will have to cut spending to balance its books, no department should consider itself immune; no agency should consider itself indispensable; and no grantee should fail to have a back-up plan.

In the new narrative being written in Ottawa, anyone who opposes the budget risks being branded as out of touch with ordinary Canadians or, worse still, fighting for their entitlements.