UNDER THE BIG TOP: Can cutting costs become a star turn?
BACKSTAGE AT OTTAWA WITH BLAIR FRASER
UNDER THE BIG TOP: Can cutting costs become a star turn?
SO MANY OPTIMISTS predict an “interesting” session that it seems curmudgeonly to doubt them, but I do. There may be interesting sideshows, like the public accounts committee which had such fun with the printing bureau last year. But as for the session itself, the main show in the big tent, I will bet anyone a bent buffalo nickel that it’ll be quiet and rather dull. The reason for this glum forecast is the same one the optimists use to the opposite effect the fact that the government is in financial trouble.
A government in trouble is so placed that all courses open to it are unpalatable These circumstances don't make for lively issues in the House of ( ommons Opposition parties don't invite a share of the responsibility by recommending any particular one of the unpalatable courses, nor by staging lastditch battles to prevent the government from adopting one rather than another. Their strategy is to let the government make its own Hobson's choice, and say “I told you so" when the inevitable drawbacks follow.
It would, for example, be unfair as well as unrealistic to expect the opposition to urge an increase in taxes. Raising taxes and taking the blame for it are the price a government pays for being m office. ! he same applies to reductions of expenditure, all of which are bound to be painful.
This year. F inance Minister Donald F leming has a uniquely difficult task in trying to cut expenditures. He will have to cut them by four hundred million dollars in order not to exceed the total he is spending for the year that ends March 31. I he increase of four hundred million will be created by laws already enacted, or deeds already done — many of them popular laws and deeds for which the government asked and got much credit from the electors.
The conversion loan of last summer, and other debt refunding, will add sixtyodd million to the cost of servicing the national debt. (Another billion will have to be refunded in 1959, but sufficient unto the day are the interest charges thereof ) The deficit of the Old Age Security fund, already $192 million, will go up ten million more. Family Allowances by fifteen million. Health insurance will cost an additional ninety million. Other payments to the provinces will be fifteen million larger, even without the “new deal” that all provinces want and have been promised. All that adds up to nearly two hundred million in new money for civilian uses.
The defense picture is more complicated. Here, for reasons of bookkeep-
ing, Fleming will have to cut more than two hundred million in order to show' the same amount as the current defense budget.
Seven years ago, when the post-Korea rearmament program was begun, Canada made substantial gifts of military gear to NATO allies. These items had already appeared in Canadian budgets a* expenses, and couldn’t very well be entered twice; to keep proper track of the outlays for NATO mutual aid, therefore, Canada set up a special “fund"—really no more than a bookkeeping entryto cover the cost of replacing these donations. The original fund was three hundred million, and about two hundred million more was added before the practice was discontinued in 1956. Each year, a portion of army re-equipment was charged to this special fund, and did not appear in the current defense budget.
l ast year, the department of defense charged about $49 million to this special account; there was still $165 million left. FTeming decided to abolish the fund, "in the interest of good accounting practice and the maintenance of proper parliamentary control of expenditures.” Instead of a mere $49 million, he applied the whole $214 million to the defense budget of the current fiscal year. There was nothing wrong with this in principle, but it has one major disadvantage — it can only be done once. This year, there is nothing left in the fund, so all defense spending must appear as budgetary items. Result: The Department of National Defense must either (a) cut $214 million out of its spending, or (b) show an “increase” in spending where no real increase exists.
To get an idea how difficult it would be to cut out $214 million, consider the case of the Avro Arrow, the supersonic fighter that the government may or may not decide to make. The Arrow is spoken of. quite rightly, as a massive item of expense, a two-billion-dollar project. But the cost of the Arrow program in this year's estimates came only to $175 million; that’s the very most the government could eliminate from the current total if it stands by the decision of last September and discontinues the Arrow program. The net saving would be less, for some cancellation charges would have to be paid—probably not more than $150 million, if that, will be cut from current spending if the Arrow' is dropped. And that would leave the RCAF with no supersonic fighter at all.
It’s not yet known how much money the Treasury Board has been able to
wring out of previous spending, but the operation was as drastic as any in human memory. For all the old loose talk about “waste and extravagance,” the new government has found very little. All government spending represents government service, more or less useful. Some of the services could be dropped without causing much stir, perhaps, but these don’t cost a great deal; if, for example, the federal government completely abolished its civil defense program, it would save only seven million dollars.
So much for the expenditure side; what about revenues?
The budget last June forecast a revenue of $4.6 billion. Latest estimates indicate that this was a bit optimistic —on the basis of third-quarter figures, tax totals look to be about $100 million lower than the budget predicted. That is for the current year, the one that ends March 31.
Revenue estimates for the coming fiscal year depend, of course, on the state of the economy. In 1958 the gross national product rose only by the amount of the price increases—in real terms it remained the same. A major decision for the minister of finance, when he draws up his budget, will be to estimate the increase in gross national product for 1958-59. If, as some economists think, that increase is no more than three percent, then his revenues at present tax rates will not be much more than the total he forecast for the current year.
Of course, if inflation really takes hold and prices shoot up, the dollar increase in revenues will be much greater—but many of the government's expenses will be higher too. In 1951, after Korea, the cost-of-living index went up eleven percentage points, almost a point a month. During the same year the gross national product went up seventeen percent. Even then, the government’s revenue surplus exceeded the budget forecast by only three hundred million—a lot of money, but less than a third of the probable deficit for the year ahead of us now.
Price levels over most of the last twenty years make a quite intelligible pattern. During the six years of war, the cost-of-living index went up about ten percentage points. Between 1946 and 1948, as price controls were removed, it shot up by another twenty points. Increases then became moderate until the Korean war set off another burst, and the index w'ent up about sixteen points in a year and a half.
But that was war. In the four years 1952-55 inclusive, the index did not go up at all; in 1956 it rose less than two percentage points. But in the last two years it has been moving upward, and seems to be gathering speed—up five points between June 1957 and November 1958. This during a period of recession.
Another billion-dollar deficit, according to all the textbooks of economics, will add dangerously to the pressure of inflation. But drastic cuts in government spending, or drastic increases in taxation, can hardly help but add to the recession, or impede the recovery. With a probable half million workers without jobs on budget night, Fleming will need a lot of courage to propose either of these harsh measures.
What combination of these evils he will finally choose, the event will show. But meanwhile, the opposition isn’t likely to help him out with any concrete suggestions.
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