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Cuts may copy Canada's 'bloodbath budget'

By Emma Thelwell

Updated on 07 June 2010

As the coalition government proposes drastic spending cuts, the Institute for Government tells Channel 4 News why implementing a Canadian-style 'bloodbath budget' could work.

George Osborne plans to model UK spending cuts on Canada's Program Review of the 1990s (Image: Getty)

Prime Minister David Cameron today said his government's proposed plans will  "take the whole country with us" as the coalition begins to tackle the £156bn deficit.

If drastic cuts are not implemented, the Treasury would be spending an annual £70bn on debt interest within five years he said - more than on schools in England, transport, and fighting climate change put together.

David Halpern from the Institute for Government told Channel 4 News that the key to public acceptance of cuts is sharing the pain across society.

In Canada, "even public service moral was up" Dr Halpern said, after the country wiped out its deficit during the mid-1990s with huge spending cuts - in what became known in Canada as the "bloodbath budget".

Canada emerged from its economic mire with a new-found frugality. "It became a major unwritten rule of Canadian life, that you don't run deficits any more than you spend what you receive," Dr Halpern said.

"This might be the kind of legacy that Alan Budd leaves", he said, pointing to the head of the new Office of Budgetary Responsibility.

Canada's 'bloodbath budget'
Between 1994-97, the Canadian government slashed spending by 20 per cent over three years.

"Nothing was off the table", said Jocelyne Bourgon, former Canadian Senior Civil Servant and Governor of the Institute for Government.

Canada managed to turn a 9 per cent budget deficit into a surplus - by implementing massive cuts to healthcare and education budgets, and through the loss of thousands of job.

Each government department, organisation and agency was offered the chance to "redesign itself to fulfil its roles and responsibilities within a federal government better adapted to the needs and requirements of the future and within its constrained budget".

Ms Bourgon said the Canadian case was an "example of cabinet government at its finest" - an impressive show of partnership between elected officials and public servants.

"Citizens are always the real heroes of public sector reform, because it is they who must accept the sacrifice and it is they who pay the price of failure," she added, in her case study on Canada's Program Review for the Institute for Government.

Dr Halpern said Canadians did not like the pain, but they accepted it as it was spread across society.

"The key issue is that the pain was shared," he said. "That was the key element of public acceptance."

Canadian civil and public servants held public meetings in town halls to canvass public opinion on a solution to the country's debt, he added.

Under Canada's Program Review spending was drawn back in absolute terms by more than 10 per cent. By 2007-09, the country's debt to gross domestic product (GDP) ratio was down to 30 per cent - from almost 70 per cent during the deficit.

Ms Bourgon said there were important lessons to be learnt from Canada's drastic cuts - firstly that the job is not a normal budget exercise, and as such needs a more open and inclusive approach that engages the whole government.

Scale, speed and prudence are key, she said, adding that while luck plays a role, it does not last forever. "During the period of (Canada's) Program Review, there were no major external shocks to throw the exercise off course," she pointed out.

Between 2007-2009, Canada had the lowest level of public debt in the G8.

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