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Budget 2011: Tough choices ahead for government

John Manley on the budget, and the "arduous and difficult process" ahead for government.

John Manley, CEO of the Canadian Council of Chief Executives, fields a question at the Halifax International Security Forum in Halifax on Saturday, Nov. 6, 2010. (The Canadian Press/Andrew Vaughan)

John Manley knows a thing or two about deficits. First elected to Parliament in 1988, Manley served as a Liberal when the government wrestled with Canada’s ballooning deficit during the 1990s. Currently president of the Canadian Council of Chief Executives, Manley shared his thoughts on the budget and the challenges ahead for government.

Canadian Business
: What are your thoughts overall?

John Manley: I’m happy with the fact that there were no surprises. It was very much what the finance minster promised, and what the Conservative party promised during the election campaign. The commitment to endeavor to eliminate the deficit a year earlier is a good thing, and so is the continuing pattern of developing economy opportunities, whether it’s on innovation or measures for small business to create employment.

CB:The opposition critics are saying it doesn’t go far enough in terms of stimulating the economy and employment.
JM: If you’re going to stay within the fiscal framework and eliminate the deficit, you can’t spend too much more. The proof will be in the pudding in terms of identifying the cuts that have been promised. I know it’s an arduous and difficult process and it will take time. I can guarantee you, I’ve been there. All those ministers that stood there and gave standing ovations to [Finance Minister Jim] Flaherty, they’re going to be fighting him tooth and nail behind closed doors to try to hold on to their programs.

CB: Flaherty characterized the degree of spending cuts as relatively modest. Is that accurate?
JM: It’s not as big as we were required to do in 1994-1995, either in absolute or in relative terms. But I can tell you, having tried to champion a $3-billion expenditure reallocation program in the 1993 budget, it’s not easy. And ministers will fight you. Flaherty has to have the unflinching support of the prime minster to achieve what he has to achieve.

CB: Having been a Liberal MP in the 1990s, do you have any advice on making these cuts?
JM: If they’re going to do it well, they have to use a very sharp knife. They can’t bludgeon those cuts out. To our experience, if you just try to dial down the total expenditure by a certain percentage, that’s not the best way to do it. What you do is you take some programs that are effective, and you make them subscale. So what was working no longer works anymore. And you’ve got other programs that you really should be winding down, and they continue on. So using a set of criteria and exercising judgment on a program-by-program basis is really essential if you’re going to get results. But that will not get you away from getting a lot of criticism.

CB: Do you think Canadians will feel the impact?
JM: Some definitely some will. My guess is you’ll see expenditure reductions in defense because in terms of discretionary spending, it’s the largest department. They’ve taken transfers to provinces and to individuals off the table, as I understand it. Those are the big numbers. So if you’re not going to do that, you’re doing all of the cutting within the discretionary budget of the government. That’s going to be quite challenging, but it’s not impossible within their timeline.

CB: Why is it so important to slash the deficit now?
JM: We’ve got growth in the economy. So when there’s growth, that’s the time to get your finances back into balance.… That means we’re in good shape the next time the world goes on a bit of a roller-coaster.

CB: And is the political will to make the necessary cuts?
JM: The government has staked its reputation on it. The critics out there, the NDP and organized labour, they’re saying, “What are you cutting for? This isn’t the time to cut.” But I don’t think they ever thought it was time to cut even in the mid-1990s. The political base for the Conservatives wants to see a balanced budget. They’ve been promised it, and the government is going to feel the heat if they fail to deliver it.