Dollars and political nonsense
Reading the Liberal fiscal plan sheds no light on what they mean by "operational budget", but we know it will be balanced thanks to increased government productivity.
I previously wrote about Mark Carney’s statements about balancing the operational budget, and how that meant austerity. The Liberal platform and fiscal costing came out over the Easter weekend, and while it’s clear that the definition of ‘operational budget’ has changed since he defined it in an interview with Rosie, it’s no clearer what exactly balancing the operational budget actually means.
The good news is that there are some new spending announcements in the platform, the costing makes clear that balancing the operational budget does not mean balancing the whole budget, and some existing spending is highlighted to show that there won’t be cuts (like $10/day childcare, which is not enhanced, but also not cut).
The bad news is that the way the undefined ‘operational budget’ gets balanced is through “savings from increased government productivity”, and this amount grows to $13 billion in Year 4. The latest budget and economic update already included billions of dollars in cuts to the federal public service - so these new cuts are on top of existing deep cuts.
Since they don’t define what is included in the current budget for operational spending, or even which of the new announcements are from operational or capital budgets, it’s pretty hard to evaluate their claim that it ends up in surplus in 2028/29. It becomes little more than a political framing exercise, defining things that can be put into the capital category as politically good, and limiting austerity to those things in the operational category.
I went through the platform fiscal costing and pulled out things that I thought could not be classified as capital investments, by any stretch of the imagination, and came up with $17B in new operational spending by Year 4 of the platform.
The Liberal platform does have two pie charts, showing what percentage of this platform spending they have allocated as operational, what percentage is new debt charges, and what percentage is allocated as capital.
They do break out total new spending on debt charges in the fiscal table, so using that amount - $5.6B over four years, we can back out that the total platform spending is just over $200B over four years, so around $66B has been classified as operational budget spending, and around $129B has been classified as capital spending. What I’ve identified in the table above adds up to about $56B over four years, so I’m missing about $10B in operational spending.
There were a bunch of smaller items that I wasn’t sure how to classify without more details, but it seems reasonable to me that they would add up to this missing chunk. This means that transfers to provinces which have been specifically allocated towards capital investments, and tax breaks meant to incentivize capital investments, like cutting the GST for first-time homebuyers, or removing development charges, have probably been classified as capital for the purposes of the platform, even though for the federal government they really are transfers.
The point of this exercise is to try and figure out what component of current federal spending has been classified as “operational”, and will be balanced over the next four years. I don’t think there’s a clean definition here, which is why they haven’t cleanly defined it.
Shifting definition of “operational”
Before the debates, Mark Carney consistently named transfers to provinces and individuals as part of his definition of the operational budget that he wanted to reduce and balance in three years.
Then, at the debates, after the NDP raised concerns that balancing the budget for all of the spending that Carney included in his definition of “operational” would mean drastic cuts, Carney narrowed his definition to just a portion of the operations budget. He put a number on it - saying:
“We will preserve all transfers to the provinces, including the increases. We will preserve all the transfers to individuals, I won't detail them all. So we are looking at addressing an operational spend, which is about $150 billion. We will address that. We will make it more efficient and we'll do it in three years and we'll balance that budget.”
The platform draws an arbitrary, and undefined line, and shows this arbitrary line to be balanced in four years. That is pretty meaningless. There are huge hidden cuts in this platform that aren’t explained, policy items that were already in the fiscal framework are profiled as if they are new (the fiscal costing shows them accurately, but the language in the rest of the platform is deceptive), and the whole framing is frustratingly vague, and shifts every time Carney talks about it.
$13B in (undefined) cuts by year 4 is still a pretty big and concerning number, but it’s much better than $43B in cuts. I don’t think it will be a vote-determining issue for anyone, but in terms of transparency and honesty, it’s less than ideal.
Increasing government productivity
What is more meaningful, especially for public servants, is that the budget is balanced by increasing government productivity. For government, finding increased savings/revenue through productivity increases must necessarily mean cutting the number of public sector workers - they don’t sell a product, so they can’t shift to a higher value output while maintaining the same number of workers. The platform does have a line for investing in “new digital services for efficient immigration”, and I didn’t count the number of times it talked about “cutting red tape”, but that phrase popped up all over the place. At the federal government’s workforce development summit in Montreal at the end of 2024, there were whispers of plans to use AI to replace existing federal government front-line workers. So do less, and use more bots.
There is one other option. The federal government spent $8.5B on external consultants and other outsourcing in 2015, and this rose to $20.7B in FY 2023/24, despite the assertion in the 2023 Budget that this spending was going to fall, not increase. (Side note: Polievre was going to save money in his proposed platform by cutting this spending in half, but that doesn’t seem plausible, and I imagine he wasn’t going to bring the work back in house - it just wouldn’t get done.)
The PBO analyzed just the IT portion, and found the cost of external consultants was between 22% - 25.7% higher than in-house workers. As an economist for a public sector union, I’m clearly biased, but I think the best way to improve government productivity and effectiveness is to bring work back in-house. You never know, maybe that’s what Carney meant by improving government productivity.