Canada's Fiscal Future

What to make of former Bank of Canada governor David Dodge's predictions on Canada's economy?

"Can Canadian governments balance their budgets by mid-decade with program spending cuts alone? It would mean a significant reduction in services or income-support programs, even if there were unprecedented productivity gains in public services. Specifically, it would require significant cuts in public-pension payments, employment-insurance benefits and welfare payments, health and long-term care coverage as well as increased co-payments."

• David Dodge

In a recent piece called ”Canada’s Fiscal Edge to Fade Without Tough Action,”, former Bank of Canada governor David Dodge set out his predictions respecting the economic troubles that Canada faces in the next decade unless the country can get its fiscal house in order.

Dodge does not believe that spending cuts alone will be sufficient to stem the tide of red ink despite recent GDP growth, and he calls for more consumption taxes in order to balance the books in the future. Yet in his assessment of the spending cuts that will be required, he notes that "cuts would need to be both continuing and more radical than those of the mid-1990s."

So let's concentrate for a moment on just one of the areas that Dodge singles out for a haircut and take a quick look at what significant cuts to welfare might look like in the next decade.

The welfare cuts implemented by Ontario Premier Mike Harris in 1995 shaved 21.6 per cent off the benefits for non-disabled welfare recipients and lone parents with children. The single monthly welfare rate dropped from $663 to $520. In 2010, the monthly benefit level stands at $585 a month. Had it been adjusted for inflation, the pre-Harris rate would now stand at $900 a month, $315 higher than it currently is. Welfare recipients might well think that they are already contributing to the new austerity Dodge envisions.

With benefit cuts and eligibility restrictions implemented across the country, welfare caseloads fell precipitously, and the bill for welfare now is significantly below what it was in the mid-1990s, even after taking the Great Recession of 2008-09 into account. There is simply no other program spending area that can make this claim. But no matter – as Dodge points out, the new cuts will have to be more radical.

Across Canada, the cost of welfare for people who do not have disabilities stood at roughly $8 billion for the 2008-09 fiscal year. We can therefore assume that a more radical cut than 21.6 per cent – let's say 25 per cent – would meet Dodge's criteria for “significance.” Canada's balance sheet would reap a helpful $2 billion infusion.

Single welfare benefits in Ontario would be cut from $585 to $439 a month. With the lowest possible cost of a basic food basket and a transit pass in Toronto coming in at $372 a month, this would leave less than $70 to meet shelter costs. There are not many apartments going for less than $75 a month anywhere in Canada and certainly not in Toronto, so the real result would be a form of guaranteed annual homelessness for most welfare recipients. Either that or find a meagre place to live and starve while walking to and from the job searches that are a mandatory requirement of continued welfare eligibility.

It’s interesting that a former Bank of Canada governor would single out welfare programs as one of his specific choices for significant cuts, especially when these payments were cut after the last recession and never recovered. It’s even more interesting when it is understood that these costs have been largely kept in check for the last 15 years, and benefits continue to relentlessly erode. Never mind that the programs are now so small that a 25 per cent cut would yield only $2 billion while Canada's support to single welfare recipients is already among the lowest in the OECD.

I have many other possible alternatives for Dodge to consider beyond his selfless inclusion of the public pension plans from which he personally benefits. Here’s one to start the list: The estimated cost for Canada to replace its CF-18 fighter planes stands at about $10 billion. Why not just replace 80 per cent of the fleet and allow welfare benefits to continue to erode to inflation in the same way they have for the past 15 years, but spare them a renewed round of cuts?

The simple answer is that the jet fighters are needed to secure our borders and ultimately a way of life that could include $439 a month for the most vulnerable among us.