Putting a lid on the "administrative costs" of government is a key factor in Ottawa's plan to find billions of dollars in savings over the next five years in order to balance its books.

Public servants participate in a rally for striking museum workers in Ottawa in December 2009. The government is hoping to reduce public service costs in the years ahead. (Canadian Press)

In unveiling the 2010 budget on Thursday, Finance Minister Jim Flaherty repeated his frequent pledge that Canada can emerge from its deficit hole without having to raise taxes or cut transfer payments to the provinces.

The budget trims around the edges of numerous departments, but the largest share of Ottawa's savings projections come from reining in administrative costs of numerous government agencies.

That primarily means salaries for government workers, as federal departments are forced to do more with less.

Flaherty started the ball rolling with elected officials, pledging to introduce legislation to freeze the salaries of the prime minister, cabinet ministers, members of Parliament and senators for the next three years. In the budget speech, he urged other government departments to do the same.

"We cannot agree to every request for new spending," he said.

Civil service wages

A large number of civil servants are to get annual wage increases of 1.5 per cent for the next several years. Those aren't necessarily under threat, but will have to be funded from existing budgets.

"Employees will continue to see their wages increase as set out in collective agreements, [but] departments will be required to reallocate from the remainder of their operating budgets to fund the increases," the budget document states.

A recent report by independent economist Dale Orr of Economic Insight predicted that Ottawa's main weapon in taming the deficit beast would be to rein in salaries.

Outright cuts to salaries and benefits can be tricky to implement, but some gains could be found from simply not filling current vacancies and allowing salaries to shrink by attrition, Orr said.

Although the exact figure will not be decided until fiscal 2010 comes to a close at the end of March, in practical terms, the operating budgets for federal departments will be frozen at 2010 levels for the next two years after that.

The era of thinned-out civil service budgets is bound to last a while.

Little change in pensions

In recent months, Ottawa has faced pressure from all sides regarding pension reform. Calls to bolster the amount Ottawa sets aside to safeguard Canadians' retirement have been met by demands for fiscal restraint.

Discarded placards following a protest on behalf of out-of-luck Nortel pensioners on Parliament Hill in October 2009. A problem that won't go away. (Canadian Press)

The high-profile insolvencies of Nortel Networks Corp. and Canwest Global Communications Inc. in the last 12 months fanned the flames of pension reform, as thousands of pensioners from both companies were left in the lurch when the companies went bankrupt.

A few months ago, Flaherty tinkered with some of the rules surrounding public pension plans (raising the over-contribution amount and making it more difficult for companies to get out of their pension obligations) but, ultimately, little of substance changed for most Canadians.

At a summit in Yellowknife in January, finance officials from the provinces met with Flaherty to discuss pension reform. No consensus was reached, with some provinces lobbying for a supplemental pension plan while others balked at the proposition.

"Pension reform was the dog that didn't bark in this budget," said Ian Lee, the director of the MBA school at the Sprott School of Business at Carleton University in Ottawa.

"We were all expecting the other shoe to drop, but it never did. Pension reform was kicked down the road for the next one or two budgets, but it will come back."

In a report that was timed to coincide with the Yellowknife summit, University of Calgary economist Jack Mintz concluded Canada's pension system is not in nearly as dire straits as some have claimed.

At any rate, employee pensions and other benefits are not subject to the budget freeze announced Thursday.

Indeed, the budget provisions allow the Canada Pension Plan's budget to grow at its projected pace – which is more than many government departments were allotted.

Even with all the belt-tightening in the civil service, the savings in the 2010-11 fiscal year will be minor – only $300 million – but will snowball to $1.8 billion by 2012-13, the budget forecasts.