Report says exemptions shrink review to $175 billion, risking higher debt-to-GDP ratio
The federal government’s effort to trim expenditures will save less than half of what is needed to keep finances stable, according to the CD Howe Institute.
In a report titled Federal Expenditure Review: Welcome, But Flawed, John Lester estimated the review launched in July will deliver $22bn in savings by 2028/29.
He said this figure is far below the $50bn required to place federal finances on a “prudent path.”
“The federal government’s ‘comprehensive spending review’ falls short of its name and purpose,” Lester said.
As per the report, carveouts and exemptions significantly weaken the scope of the review.
Programs tied to capital investment and proposed increases in defence spending will remain untouched, while transfers authorized by legislation and refundable tax credits also appear exempt.
Letters sent to ministers by Finance Minister François-Philippe Champagne instructed departments to cut operating expenditures by 15 percent, with responses due by the end of this month.
Most departments face that full target, but the Department of National Defence, the Canadian Border Services Agency, and the RCMP face only a two percent reduction.
“With all these carve outs, spending in 2025/26 subject to the ‘comprehensive’ review will amount to $175bn, which is about two-thirds of operating expenditures but only one third of program spending,” Lester said.
He added that the savings projected will not prevent the debt-to-GDP ratio from rising over the forecast horizon.
The study recommended broadening the review to include all program spending, including measures delivered through the tax system.
It also urged abandoning the across-the-board approach in favour of targeting the weakest performers.
“It takes time to identify underperforming programs and to build political support for substantial spending reductions,” the report stated.
Lester suggested imposing a multi-year cap on operating costs to provide immediate restraint while leaving space to identify underperforming programs and build consensus for longer-term reforms.
