CCA Bulletin 28/10

November 8, 2010

The Economic Update: what does it mean for the cultural sector?

Just the facts

On October 12, federal Finance Minister Jim Flaherty delivered his Economic and Fiscal Update. The speech provided updated information on Canada’s economic and fiscal context, but did not contain any spending announcements, as has sometimes been the case in past years.

On the economic side, so far, Canada is performing quite strongly in relation to its G7 counterparts, notably the United States. On the fiscal side, things are less rosy, particularly in the short-term. This year’s deficit will be the largest ever at the updated level of $55.6 billion, up $1.8 billion from the March estimate (most of the increase is due to accounting changes that shift expenditures for transitional assistance payments to the provinces from the 2010/2011 fiscal year to 2009/2010).

But the government maintains that it is still on track to reduce the deficit to a much smaller figure by 2014/2015, even projecting a surplus of $2.6 billion in 2015/2016. However, the Parliamentary Budget Officer thinks otherwise and projects that in 2015/2016, the deficit will still be at $11 billion!

If the Parliamentary Budget Officer is correct and the government’s deficit reduction figures turn out to be rather ‘rosy’, one can fear that deeper and more prolonged cuts in program spending may be on the horizon, with culture being, as usual, one of the casualties of governmental restraint.

As noted in the CCA’s analysis of the 2010 budget, as part of expenditure restraint, from now on, strategic reviews will result in hard cuts, i.e., departments will have to reduce their expenditures by five per cent when they undergo a strategic review. The CBC, Canada Council for the Arts, National Film Board and Telefilm Canada all underwent strategic reviews in 2010 with no cuts – so they are ‘safe’ for the moment. On the other hand, the Department of Canadian Heritage and Statistics Canada will undergo a strategic review in 2011/2012, so a five per cent expenditure reduction is soon to take place at both departments. Like other departments, crown corporations and agencies will also have to absorb inflation as well as general costs and salary increases.

Tell me more

Canada has recovered almost all of the economic activity lost during the recession: job growth is climbing, unemployment has fallen to eight per cent and GDP is on the rise. The private sector still forecasts real GDP growth of just over three per cent in 2010, 2.9 per cent in 2011 and 2.8 per cent in 2012.

Internationally, the recovery is still very fragile, particularly in the United States. While a ‘double-dip’ recession is unlikely in Canada, the government is remaining cautious with its economic projections in light of the uncertainty in the global economy. As such, for purposes of fiscal planning, starting in the fourth quarter of 2010, it has adjusted private sector forecasts of economic growth downward by 0.5 percentage points at annual rates for the next four quarters.

The economic update also states that the government remains committed to its strategy to reduce the deficit as outlined in budget 2010: putting an end to stimulus spending as the economy recovers, limiting growth in program expenditures and cutting administrative and overhead expenses.

Federal Deficit Projections 2009/10 to 2014/15

Source: Finance Canada, Update of Economic and Fiscal Projections, 2010; Parliamentary Budget Officer, Economic and Fiscal Assessment 2010.

Because of their specific circumstances, large segments of the arts sector are feeling the pinch of the 2008/09 recession with a delay. In this context, it is more important than ever that the sector not be unduly burdened in this period of fiscal restraint or worse still, that it face disproportionate reductions compared to other federal programs and services.

Preserving cultural funding levels in this period of fiscal restraint is essential, and it will be important that all avenues to do so be explored. This will likely include a closer look at administrative expenses associated with federal cultural programs.

As indicated in the CCA’s most recent federal budget analysis, administrative expenses (salaries and other administrative costs) associated with various federal cultural programs can be quite significant (see table below for a sampling). It is expected that where such expenditures can be reduced without compromising the delivery of programs, the Department will do like the Canada Council in the 1990s and seek greater efficiencies rather than cutting direct funding to program recipients.

Administrative Expenses Associated with Selected Federal Programs in the Cultural Sector, 2010/2011 (millions $)

                                      Source: Department of Canadian Heritage.

What can I do?

Never miss an opportunity to let your MP know about the importance of sustaining investments in the cultural sector because the arts, culture and heritage sector is still grappling with the effects of the recession and because this sector plays an important role in the shaping of a national digital strategy.

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