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Budget 2023 belt-tightening: Liberals order federal spending review, cuts

OTTAWA — Federal departments and agencies are being told to start tightening their belts as the Trudeau government looks for ways to pay for its latest budget promises while easing recent criticism over its use of outside consultants such as McKinsey
Deputy Prime Minister and Minister of Finance Chrystia Freeland delivers the federal budget in the House of Commons on Parliament Hill in Ottawa, Tuesday, March 28, 2023. THE CANADIAN PRESS/Sean Kilpatrick

OTTAWA — Federal departments and agencies are being told to start tightening their belts as the Trudeau government looks for ways to pay for its latest budget promises while easing recent criticism over its use of outside consultants such as McKinsey & Company.

But while Finance Minister Chrystia Freeland says the savings won't come at the expense of service to Canadians, the country's largest public service union and others warned the opposite is likely true.

Freeland unveiled the Liberals' latest federal budget plan on Tuesday, which promises billions of dollars for the health-care system, clean-energy infrastructure and other priorities.

Yet buried among the roughly $59.5 billion in new measures over the next five years are plans to rein in federal spending in other areas. That includes cutting back on government travel and hiring consultants, alongside a broader spending review.

"We are reducing government spending by more than $15 billion while taking great care not to reduce the services and direct support that Canadians rely on," Freeland said in her budget speech, according to prepared remarks.

"By exercising fiscal restraint, we are ensuring that we can continue to invest in Canadians and in the Canadian economy for years to come."

The budget plan estimates that Ottawa will save $7.1 billion over five years, and $1.7 billion each year after that, by cutting travel and consultant spending. It says the focus will be on reducing funding for professional services, "particularly management consulting."

The Liberals aren't the first to try to save money by cutting back on government travel, with Stephen Harper's Conservative government having implemented similar restrictions about a decade ago.

But the use of outside consultants such as McKinsey has become a politically sensitive issue for the Liberals due in part to the company's work with China and Russia, and the amount of money spent on such firms in recent years.

A House of Commons committee is currently studying those contracts after the federal procurement department revealed that McKinsey alone has been hired for $116.8 million worth of contracts since 2015, including at least $62 million between March 2021 and fall 2022.

Conservative Leader Pierre Poilievre has described such spending as wasteful while raising questions about the relationship between Prime Minister Justin Trudeau and the former global managing director of McKinsey, Dominic Barton, who was later appointed as the Canadian ambassador to China.

Travel and consultants aren't the only spending items being targeted, as the government is pressing ahead with plans to cut spending across federal departments, agencies and Crown corporations by about three per cent.

The government says the cuts, which are expected to total more than $8.2 billion over four years starting in 2024-25, won't affect the benefits or services that Canadians receive. They also won't touch transfers to other levels of government, Indigenous communities or the Canadian Armed Forces.

"We have been really thoughtful about where we put these efficiencies that we found," Freeland told reporters.

The head of the Public Service Alliance of Canada union, which represents more than 150,000 federal public servants, welcomed the government's commitment to scale back on the use of outside consultants.

But the union's national president, Chris Aylward, blasted the plan to cut spending across federal departments and agencies, warning there is no way such reductions won't affect the services that Canadians receive from the government.

"They're saying that Canadians are not going to see any change in services," Aylward said. "There is no way you can cut the public federal public service by $14 billion and say it's not going to impact services. It most definitely will impact services."

Sahir Khan of the Institute of Fiscal Studies and Democracy at the University of Ottawa was also skeptical of the government's promises not to reduce services to Canadians, given the result of a similar spending review by the Harper government in 2012.

That review resulted in hundreds of federal public servants being laid off, including at Veterans Affairs Canada, which has struggled with backlogs and long wait times ever since. It also left the military struggling to maintain key equipment.

"They're effectively cutting operational budgets for departments," Khan said. "The last time we tried laying off public servants, there were service cuts."

However, finding those savings will be critical as they were previously booked in last year's budget, though this year's budget plan estimates they won't start to be realized until 2024-25.

"This is the different between them hitting their deficit targets or not," Khan said.

In the interim, the budget plan says the government has already started to redirect nearly $6.4 billion in previously announced programs and projects to other priorities, though officials did not provide a list of what is being affected.

Khan said he believes the money was part of the billions that went unspent by federal departments last year, called lapsed funds. 

The Canadian Press reported in January that the government failed to spend a record $38 billion in 2021-22 on promised programs and services, including new military equipment, affordable housing and veterans’ services.

The unspent funds played a big part in the Liberal government posting a smaller-than-expected deficit in the year ending March 31, 2022. Canada rang up a $90.2 billion deficit — $23.6 billion less than expected.

This report by The Canadian Press was first published March 28, 2023.

Lee Berthiaume, The Canadian Press

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