Skills and Innovation: A Good Time for a Full Spending Review

by Kevin Page

Budget 2017 is expected in the next few weeks. It will be the second budget for the Liberal government. The stakes are high.

The first budget made bold spending commitments on child care and infrastructure as well as changes to the tax system to rebalance after tax incomes. While some economic barometers like GDP growth and the employment rate have recently tilted in a better direction, public finance indicators related to the budget balance and program spending have deteriorated over the medium-term outlook.

So, the stage is set for Budget 2017. Canadians have been told to expect a budget focused on skills and innovation. I think it is smart when governments address long-term issues. We need to lay the foundation for future generations to compete in the global arena where fast-paced technology change is the norm. Past U.S. President Obama famously said that “a country that out-educates will out-compete”.

Our productivity numbers––the amount of output per unit of input––have been consistently disappointing. According to Statistics Canada, the level of multi-factor productivity for the business sector is actually lower now than it was ten years ago, thanks to a steep drop in capital productivity. To add insult to injury, real business investment has flat-lined in recent years. We have a problem. The Liberal government is focusing on the right issue.

The millennial generation should get rightfully anxious when their parents’ generation increases spending without paying their fair share through increased taxation. Can a government review existing programs on skills and innovation and launch a new agenda? Why not?

The fiscal outlook has deteriorated. Some of this deterioration is purely economic––weaker growth. Some of this deterioration is a fiscal choice––more spending and higher deficits. If the government refuses to raise taxes to deal with the higher spending because it is politically unpopular, would they consider reviewing existing spending to strengthen alignment to priorities and address weak performance? We want them to.

The 2016 federal budget committed to fostering innovation in Canada with investment in various sectors such as science, manufacturing, business, etc. Infrastructure investments for post-secondary institutions ($2 billion), support for the development of clean technologies ($1 billion), and investment in clusters and networks ($800 million over four years) were also highlighted.

Was there any analysis on the current spending programs associated with these incremental investments in Budget 2016? For example, how much do we currently spend to support science, manufacturing, and business? Was there any analysis on the performance of current spending programs to support science, manufacturing, and business? No.

There are a few reasons why governments focus on new incremental initiatives in the budget. One, governments like to highlight that they are doing new things. Two, new things look big in the window when they are not compared with ongoing programs. We already spend billions of dollars each year supporting post-secondary education, new technologies, and networks. New investments often look small against existing spending or the challenges we face. Three, governments, parliaments, and public services around the world do not do a good job scrutinizing existing spending. It is hard and tedious work. It eats up a lot of oxygen in cabinet rooms, often for uncertain political gains.

Sadly, big reviews tend to happen after economic and fiscal crises when bond rating agencies start looking closer at our fiscal sustainability or when electorates wise up to economic realities––i.e., we are spending beyond our means.

What is the probability that Budget 2017 will contain analysis and recommendations from an in-depth review of all programs related to innovation and skills that are financed by Canadian taxpayers? If history is any guide, you guessed it: the probability is low.

Two University of Ottawa economics students, Kevin Emmanuel and Emel Medinic, said enough (debt) is enough. Using the 2014-15 Departmental Performance Reports (DPRs)––the government’s own publicly available data––information on spending and performance was captured for all activities related to innovation and/or skills training and development. Undaunted, they worked with colleagues at the IFSD to sort through the program activities and tax expenditures of all 94 federal departments and agencies. 

To quote Robert Kennedy, sometimes “this world demands the qualities of youth … a temper of the will.

In the true spirit of openness and transparency, Kevin, Emel and the IFSD are making all this information available for public access, warts and all. You will find program descriptions, spending, and performance information linked to a responsible department. If university students can pull this together, then so can public servants. It is the first step in any review process. It should be a first principle (review) of good spending management before governments launch new programs.

In their 2015 election platform, the Liberals promised to use data in their decision-making, stating that they “will use accurate data to make good decisions,” that they “will stop funding initiatives that are no longer effective and invest program dollars in those that are of good value”. Identifying good value starts with understanding and tracking performance.  The information is sorted and available: there’s no better time to use it