What can the UK learn from Canada's budget cuts?
- 7 June 2010
- From the section Business
Canada may be better known for its brightly-attired policemen and love of ice hockey, but its example of successful budget-cutting is suddenly all the rage with the UK government.
As Prime Minister David Cameron warns of the need for extensive spending cuts to bring down the UK's substantial public deficit, the Conservative-Liberal Democrat coalition is aiming to follow the achievement of the Canadian government between 1993 and 1996.
During those four years, the then Canadian administration of prime minister Jean Chretien managed to turn a deficit of 9.1% or 39bn Canadian dollars ($37bn; £25bn) into a small budget surplus.
While the UK government faces a tougher challenge - a deficit of 11.5% or £156bn - what lessons can it learn from Canada?
MAKE SURE THE GENERAL PUBLIC IS ON BOARD
Canadian economists say the first success of Mr Chretien's government was to secure widespread public support for what would be deep and painful spending cuts.
Scott Reid, a former adviser to the Canadian government, told the BBC's Today programme that the administration was greatly helped by the widespread coverage given to a story in the Wall Street Journal that described Canada as a "Third World banana republic".
Given most Canadians' dislike of all things American (think sibling rivalry), this insult by a US newspaper was enough to make them realise they had to get their national finances in order, whatever the misery along the way.
The Canadian government then pledged that cuts would be fairly distributed across the country's provinces and territories, and in all sectors of society.
Barring a similar scenario in which a damning French newspaper editorial makes the UK headlines, Mr Cameron is going to have to continue with a more straightforward public relations campaign to explain why it is vital that the UK cuts its deficit.
If this is successful will depend on whether the British public's response to deep spending cuts is stoically Canadian, or riotously Greek.
NOTHING IS OUT OF BOUNDS
The Canadian government determined from the start that no departmental budget would be protected from spending cuts.
Mr Chretien used the phrase "nothing off the table".
By contrast, Mr Cameron has already pledged to ring-fence the education, health and international aid budgets.
With extensive cuts to healthcare and education spending at the very centre of Canada's deficit reduction work, many Canadian economists argue that it could not have been successful if they had been excluded.
The impact was, however, severe.
The length of hospital waiting lists shot up, thousands of nurses lost their jobs and some hospitals even had to close.
The hospitals that remained open suffered from overcrowding and infection rates rose as a result.
In schools, average class sizes shot up from 25 children to 35, as fewer new teachers were taken on. And separate special needs classes were abolished.
In the UK, many people may moan about the treatment they get from the National Health Service, but at the same time, it is not an exaggeration to say it is a much-loved and strongly defended institution.
It would take a very brave or even foolhardy UK government to cut health spending - and the same goes for the education budget.
If you are doing something deeply unpleasant, then do it quickly - that was the argument of the Canadian government.
"It is preferable to move expeditiously, it creates hope at the end of the tunnel," said Jocelyne Bourgon, the then cabinet secretary for the Canadian civil service.
And move quickly Ottawa certainly did, as it cut 40,000 public sector jobs - between 11% and 12% of the total civil service workforce - in one stroke.
Overall, it trimmed government spending by 20%, with the Canadian budget of one year alone - 1995 - described even by ministers as the "bloodbath budget".
It is not yet clear how quickly the UK government will act.
FORM A CUTS COMMITTEE
To co-ordinate the cuts centrally, the Canadian government set up a special committee, chaired by the prime minister and finance minister, before which departmental ministers had to appear to defend their budget plans.
Mr Cameron and Chancellor George Osborne are proposing to do the same here, with a so-called "Star Chamber".
The idea is that ministers are challenged to come up with more spending cuts.
BUDGET CUTS, NOT TAX RISES
The focus of the Canadian government was firmly on spending cuts rather than tax rises, arguing that taxes had to be kept low to enable the private sector to grow and aid the economy.
As a result, the tax burden in Canada rose by only 0.3% between 1992 and 1997.
The Conservatives view themselves as intrinsically a low-tax party.
However, with today's UK deficit being substantially higher than that in Canada back in 1992, the jury is still out on whether the coalition government can resist the temptation - or even the need - to raise some taxes.
If taxes do rise, VAT is considered the leading candidate, with speculation that it will increase from the current 17.5% to 20%.
The UK government has yet to rule out a rise in VAT.
IGNORE THE ECONOMIC BACKDROP
When Canada started on its spending cuts in 1992, the country was still mired in an economic downturn.
And despite the Canadian economy not firmly picking up until 1996, Ottawa still continued with its extensive deficit reduction work.
The problem for the UK government is that our financial services sector is much larger than that in Canada, and therefore the UK is significantly more affected by any woes in the global financial markets.
Canada, by contrast, is a substantial exporter of oil, timber and other raw materials, plus agricultural products.
This enabled it to weather the worldwide financial crisis of recent years.
Further helped by much tougher banking regulation, not one major Canadian bank needed to be rescued by the Canadian government - markedly unlike the situation in the UK.
As a result, the UK government has to pay closer attention to the global financial system, which could make its spending cuts move at a significantly slower pace.