Why the Conservatives are cutting spending now

October 5, 2006

Suffering from fiscal whiplash? First the Harper government tells us the 2005/06 surplus is $13.2 billion. Then on the same day, it announces large spending cuts.

Doesn't it seem a bit gratuitous to cut spending if Ottawa is flush with cash? For a government focused on getting a majority in the next election, cutting programs popular with potential voters seems a funny way to do it.

But if you take another look at the numbers, you will see why Finance Minister Jim Flaherty must cut spending.

And what also becomes clear is that the spending cuts have only just started: There are more to come.

The federal government may look rich today. But that $13.2 billion surplus announced recently relates to the last fiscal year — 2005/06. It was generated mostly when the Liberals were in government. Since Prime Minister Stephen Harper took power, he has been rapidly emptying the treasury.

How is Harper burning through a mountain of surplus cash? Tax cuts.

The Conservatives' election platform had a ton of them. In his first budget, he promised almost $9.9 billion in tax cuts in 2006/07 alone. More than half of that went to the GST cut.

These tax cuts will deplete surpluses for years to come.

In addition, this year he is spending another $4.4 billion — mostly on defence and his pseudo-childcare program — and he committed to $3 billion in debt repayment.

Add it all up and his own budget indicates that he needs more than $17 billion to pay for his agenda in this current fiscal year alone. Paying for Harper's agenda will virtually empty the treasury this year — and for some years to come.

The Conservatives' tax cuts mean that days of large surpluses are over. And don't be misled by rumours of spectacular unexpected windfalls this year; the picture only looks rosy until you realize that tax cuts are just barely starting to register in the latest fiscal data.

The fiscal noose will be even tighter in the future. The Conservatives are supposed to cut the GST by one more percentage point, to the tune of more than $5 billion a year. Plus, we still don't know what the price tag is on Harper's "fiscal imbalance" agenda.

And he wants even more defence spending.

You can see the writing on the wall. Harper can't afford the stuff he has already promised, let alone any new tax cuts that the finance minister is hinting at.

How will he balance the books once all those expensive promises kick in?

The answer is simple: spending cuts.

If you looked at the fine print of the last Conservative party election platform, it claimed it would cut $22.5 billion in government spending over five years, possibly more. But, no doubt, the size and scope of these cuts won't be made clear until after the next election.

The spending cuts announced earlier this week are small potatoes compared to what is coming once all of Harper's tax cuts kick in.

Painful as it is to Canadians who are on the wrong end of the scalpel, the Conservatives have barely made their first incision. The serious surgery comes after the next election.

Ellen Russell is the Canadian Centre for Policy Alternatives' Senior Economist.