Any government aiming to enact fiscal reform is predictably focused on a basic question: How can it achieve meaningful and durable fiscal savings with minimal political risk, writes Sean Speer for Inside Policy.

By Sean Speer, March 22, 2018

Deficit reduction and fiscal reform seem to be recovering as political issues in recent weeks. New polling shows that Canadians aren’t as permissive of rising spending and ongoing deficits as some might think. This is a positive development for those of us in favour of fiscal probity.

But it’s insufficient to be merely opposed to deficit spending. It’s necessary for deficit critics to present credible plans to reduce spending and restore budgetary balance. Transparency is key. it’s a crucial ingredient for both an effective and politically durable set of fiscal reforms.

The case for balanced budgets is generally well-known. But the best means to achieving them are more elusive – especially in light of the inherent politics of spending cuts.

Any government aiming to enact fiscal reform is predictably focused on a basic question: How can it achieve meaningful and durable fiscal savings with minimal political risk? The latter usually trumps the former. The result is vague promises of “inefficiencies”, arithmetic gimmicks, or ultimately inaction.

Ontario Progressive Conservative Party leader Doug Ford’s recent emphasis on undefined inefficiencies is one example. The idea that he can realize substantial fiscal savings without net public service job losses is not only incorrect, it’s not even a worthwhile goal. Public sector employment has grown nearly 5 times as fast as private sector employment in the province over the past decade or so. There’s good reason to reduce the public payroll.

The Trudeau government’s fiscal inaction is another example. Its 2015 election platform committed to $3 billion in savings from a “government-wide expenditure review.” The 2017 budget further committed to review three departments in order to “eliminate poorly targeted and inefficient programs, wasteful spending, and ineffective and obsolete government activities.” The end result? New reports are that the government’s expenditure reviews have actually led to a net increase in spending.

The question, then, is: what’s a better model for fiscal reform?

National Post columnist Andrew Coyne recently provided good advice on how to cut spending. He cautions against across-the-board cuts or one-off efficiencies which are, by definition, arbitrary and impermanent. Instead he rightly argues “what’s needed, rather, is to think carefully about the role of government, what it should and should not do.”

This is sensible advice. The key though is how to operationalize it. Reform-oriented governments need to establish processes that increase the probability of success – both substantively and politically. Fiscal reform necessarily requires granularity.

The best model, based on experiences in Canada and across the Anglosphere, is institutionalized spending reviews involving standardized tests and drawing on publicly-available evidence. Sound public policy and good politics can and must go hand-in-hand.

The Harper government’s “strategic reviews” in the pre-recession period are a useful model in this regard. They involved reviewing one-quarter of government spending annually over a four-year cycle. This rolling process enabled better planning, prioritization, and cross-departmental trade-offs.

Programs and services were subjected to various tests – including core federal role, efficiency, and priorities – and 5 percent of departmental spending was to be reallocated from low-performing, low-priority activities to higher ones. The outcomes were generally positive. It contributed to some useful reforms and fiscal savings and involved minimal political risks. The results were reflected in the federal budget from 2008 to 2011.

But it doesn’t mean there’s no room for improvement – namely by establishing greater independence and drawing more on evidence and transparency to mitigate the inevitable political risks. The goal should be to institutionalize the process and further insulate it from politics.  

Three key design features would be to (1) establish an independent commission or tribunal to apply public tests (such as the ones used in the 1990s Program Review) and publish their analysis and recommendations and (2) impose a reverse onus on governments so that policymakers must justify where they diverge from the commission’s recommendations and (3) set out in advance precisely how any savings would be redeployed (such as a combination of tax reductions or new spending) so that people would have a stake in the process and its results.

The outcome would be more evidence-based decisions that are less arbitrary and seemingly political. It would likewise enable more effective political communications rooted in an independent and transparent process.

Transparency and granularity can be helpful rather than a hinderance both with regards to executing and defending fiscal reforms. This is the best means to respond to the public’s understandable concern about rising deficits and debt in Ottawa and across most of the provinces.

Sean Speer is a Munk Senior Fellow at the Macdonald-Laurier Institute.

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