No, Carney Is Not Engaging In Austerity

On Spending Cuts And Math

Did Stephen Harper cut health spending?

It’s a trick question, because the answer is both yes and no. Harper changed the formula for calculating the health transfer from a 6% guaranteed growth year over year to a lower growth rate. There was a figure by the end of the Harper majority claiming he “cut” tens of billions from the system, which is only true if you extended the Martin-era formula in perpetuity. In reality, provinces received far more in 2015 in real cash than they did in 2006 or 2008 or 2011 or any point in Harper’s tenure.

Reductions in the rate of growth - slowing down the rise - are the Schrodinger's Cuts of politics. They’re only cuts against a baseline, because the raw dollars are still going up. This is all relevant because Mark Carney is talking about a spending review and allegedly big cuts of up to 15% over 3 years. Terms like austerity and draconian are being tossed around, but it’s nonsensical. The Canadian government was forecast in the December 2024 Fall Fiscal Update to spend $485B in 2024-25 on program spending. A “15% cut” on 3 years out from this year - which is what the Globe was saying was the best case scenario, also known as “the big scary number you leak to soften the ground for a smaller number to look reasonable in comparison” - would see the government spend … $467B. In % terms, a “15% cut” is actually a nominal 3.8% cut.

“Oh, but with big increases in defence spending, that’s an even bigger cut to domestic spending”, I can already hear. True, though plenty of the defence spending being mooted to get to 3.5% is being promulgated beyond this timeframe, but sure, if defence takes up a slightly bigger share of the pie you need to find the money elsewhere. That's fine. But these massive numbers being bandied about are a fiction.

The reason you ask for 15% at the start of the process is because you know you’re not going to get it. You’re not getting 15% across the board - we know we can't do that simply because of the health transfers alone. You ask for 15% so that you get 8% cuts where you can find the money, at which point you’re increasing spending in those 3 years by a nominal 3% and basically taking a 1%/year haircut adjusted for inflation (assuming 2%/year). And that’s assuming they can get to 8% across the (non-defence) board, which I highly doubt. So why are we all pretending to be dumb?

If we had held spending increases to a nominal 5% a year from Trudeau’s first year onwards we’d be spending $482B this upcoming year, not the $500B we forecast to spend in 2025-26 in the Fiscal Update. At a time when inflation was significantly below 5% for the vast majority of that period, why did we spend so much outside of COVID years? Does anyone want to make an argument that we got perfect value for money?

A big way Carney will get reductions in cost compared to current baselines is simple - the latest civil service contract is coming up soon, and last time the civil service got essentially 4% a year. With inflation where it is now, there’s room to reduce their annual pay rise without hurting anyone. If you get them at 2.5% on their next deal everyone is walking out of there with inflation covered and the government saves billions without cutting a single program or job.

The idea that Carney will slash and burn Ottawa is nonsensical, and doesn’t pass muster. I’ve argued that this sort of process is imperative for the government, because if you want the political capital for either tax rises or big deficits you need to show you’ve done what you can to keep deficits down. One of the reasons Trudeau wasn’t able to land the cap gains tax stuff is because rich Canadians who were going to pay the price for that saw that as a way of funding a government that was refusing to address bloat and waste. If you want to go to the public for further tax rises, you need to show you’re spending the money we already raise efficiently.

When the answer to what all of this means is the Canadian government spends $525B in a year they’re currently projected to spend $540B in and the world doesn’t collapse, we will all understand what matters here. At some point the Canadian left will have to reckon with their defence of institutions even when those institutions aren’t worthy of it. Again, does anybody want to claim we’re getting a great deal on the half trillion dollars we spent this year before debt interest?

Of course nobody wants to. Nobody wants to because it’s not true. But it’s also not true that Carney will deliver huge, mass swathes of cuts. The 15% is a fake number. When Carney was a central banker, and especially at the Bank Of England, he saw a bunch of parties make promises that they could never keep on spending cuts and deficit reduction. The Chancellor he was appointed by kept having to push back his timetables because it wasn’t as easy as he wanted to believe it was. Across the continent, governments never found the cuts as easily as they thought they would.

Carney is setting ambitious targets that will never be met. He is, I’m sure, fully aware that the Federal government will not be $20B smaller in nominal terms by 2028-29 than in 2024-25. He’s not expecting it to be. He wants ambition from his cabinet, and that means setting a high bar so that when there is inevitable pushback - from the civil service unions, the left both inside and outside the LPC, and people who get consulting work cancelled by big cuts - he gets the credit for being benevolent and compromising while getting the amount of cuts he actually wants.

If Carney actually tries to impose a level of austerity that a 15% cut would be, and that ends up being huge reductions in transfers to people and/or provinces, I’ll scream blue murder about them with everyone else. When - and I do mean when - Jeanette in Accommodations who doesn’t really have a purpose anymore in a hybrid workforce or Solitaire McGee in HR who can’t be fired because PSAC won’t let them retire and aren’t replaced, everything will be fine.