Carney's plan to cut tens of billions in spending is tough but doable, experts say

Yahoo

12-07-2025

The federal government has started its comprehensive review of government spending, but what will it mean for Canada's public service, what balance will it have to strike and can the Liberals really cut so much?
These are the questions facing Prime Minister Mark Carney as he embarks on one of the most ambitious public spending reviews since former prime minister Jean Chrétien and his finance minister Paul Martin balanced the budget in the 1990s.
Finance Minister François-Philippe Champagne kicked off Carney's review on Monday by sending letters to fellow cabinet members, asking for "ambitious savings proposals" that will lead to spending less on the day-to-day running of government.
Champagne wants to cut operational spending by 7.5 per cent for the 2026-27 fiscal year, 10 per cent the following year and 15 per cent in 2028-29.
Mel Cappe, who served as clerk of the Privy Council from 1999 to 2002, a position that includes heading up the public service, said meeting those targets will be tough but doable.
"There's somebody in the public who's going to be outraged by the cuts," he said. "This is going to require all ministers holding hands, saying prayers together."
Carney has said that there will be no cuts to transfers to the provinces for things like health and social programs, nor would he cut individual benefits such as pensions and Old Age Security payments.
Key programs rolled out by prime minister Justin Trudeau's government such as child care, pharmacare and dental care are also spared.
Sahir Khan, executive vice-president at the Institute of Fiscal Studies and Democracy at the University of Ottawa, estimates that when those areas are carved out, the government is targeting a pot of money that is about $180 to $200 billion of the $570 billion it will spend this year.
Watch | How much will Carney cut?:
Sharon DeSousa, the national president of the Public Service Alliance of Canada (PSAC), the union representing about 240,000 government workers, said she's concerned about job losses.
On CBC's Power & Politics this week, she said the cuts don't "have to be on the backs of public sector workers … there are solutions that we can actually propose."
To allay those fears, the Liberal government said it plans to meet its goals by eliminating vacant positions and reallocating staff rather than laying off workers.
But previous clerks of the Privy Council say it will be difficult for the government to avoid cutting staff because wages, benefits and pensions are such a large part of the operating budget.
In 2023-24, excluding one-time payments like back pay made after a new collective agreement was signed, the federal government spent $65.3 billion on salaries, pensions and benefits. That was a 10 per cent increase over the previous year.
"In 1995, the wage bill was so high that it was necessary to invest some money to facilitate people to leave by giving them cashouts," Cappe said.
"If you are going to do that on a massive scale, you have to be prepared to see those costs up front. Because it will save you a lot of money in the long run."
Michael Wernick — the clerk of the Privy Council from 2016 to 2019 — told CBC News that relying on attrition "doesn't make any sense as a management strategy."
"What happens if your absolute key cybersecurity expert retires next week? You're not going to replace her?" he said. "If your aspiration is a serious compression of the numbers, then you have to be more mindful about it and you have to do layoffs and buyouts."
One of the ways the prime minister has said his government will cut operating expenses is by looking for ways to employ artificial intelligence and automation.
Wernick says that approach will require investment in training and technology and that, like buyouts for public servants, comes with an upfront cost.
But both former clerks say the Liberal government can hit its targets and they have a suggestion for how it can be done.
"Stop doing some things, rather than an across-the-board cut," Cappe said.
By going this route, staff no longer carrying out a given function can be moved to work on other government priorities. Wernick says cutting entire lines of business also prevents spending from creeping back up.
"If you don't kill the program entirely, the pressure to restore it will come in almost immediately from the clients, from the mayors, from the caucus," Wernick said.
Donald Savoie, an expert in public administration and governance at the Université de Moncton, said the government can be downsized without hurting service delivery.
"Let's look at programs that we don't need anymore, let's look at organizations that we don't need anymore," Savoie said.
He said there is also room to cut the use of consultants and outside contractors, but Wernick warned doing so would cut off access to expertise. That can be mitigated, he said, by training public servants — but that comes with an upfront cost.
Savoie said Carney has two things in common with Chrétien that bode well for his cost-cutting ambitions.
The first is that unlike Brian Mulroney, Stephen Harper and Trudeau, both Carney and Chrétien had experience working in government well before securing the country's highest office.
Savoie said that means Carney, like Chrétien before him, knows which levers to pull.
The other thing both men share is a mandate to respond to a national crisis. In the 1990s, Canada's federal debt was so large compared to the economy that a third of every dollar collected in tax went just to service its interest payments.
"I think what helped Chrétien immensely in 1994-95 is Canadians were seized with a real crisis," Savoie said.
"So Canadians said: 'we got a problem' and so [Chrétien] could draw on public support. And in the same vein, Carney can draw on public support because Canadians see that dealing with Trump, dealing with tariffs, is very tough and some tough decisions have to be taken."
For that reason, Savoie said, Canadians will be much more open to suffering through cuts then they were five to 10 years ago, which may be just enough political licence for the expenditure review to bear fruit.