OTTAWA — The Harper government is well on its way to ushering in an era of smaller government.

That's the finding of Parliamentary Budget Officer Kevin Page's latest report, which shows the government is on target to restrain spending and to cut the size of the public service.

Overall, government spending during the first six months of the current fiscal year fell by three per cent to $123 billion, largely due to the winding down of stimulus programs, particularly infrastructure.

On the operations side -- the cost of running the government and paying for over 500,000 public servants, including soldiers and the RCMP -- Ottawa is doing even better. Expenditures fell more than four per cent in the first six months, compared with the same period last year.

Some of the reductions may be due to timing, and the PBO notes that Ottawa's budget projects a 1.5 per cent increase in overall spending this year.

The savings on the operational budget are more likely to be carried through the rest of the year, and to increase in subsequent years.

Page's report suggests that the departmental spending freeze that kicked in this fiscal year has already begun to bite, with most of the costs coming from limiting hiring or not replacing workers that leave.

"We're starting to see real restraint taking place," Page said in an interview.

"There's a sense that austerity has arrived and that money is not flowing as freely. The government said it is doing it, and we're seeing restraint in the numbers."

Gregory Thomas of the Canadian Taxpayers Federation says it's about time. The low-tax lobby group says the Conservatives have been on a spending spree in good times and bad.

"We hope this is a new approach the Harper government is taking, now that it is in a majority situation," he said.

Liberal finance critic Scott Brison cautions that Canadians could see the impact in services, noting documented complaints in the processing of employment insurance claims. Meanwhile, Brison says the government has no trouble finding money to build prisons.

As he has in the past, Page urges the government to be more forthcoming on how it plans to implement austerity, particularly as the coming budget will see the introduction of yet another spending cutback, this time to reduce departmental spending between five and 10 per cent over three years.

Finance Minister Jim Flaherty has said officials are still working out the details, but said some departments may be asked to cut more than 10 per cent.

Some departments have already announced staffing reductions, including Human Resources, Environment and Fisheries and Oceans, under a previously announced strategic review.

In a separate analysis, the Conference Board estimated about 9,000 public administration jobs are being eliminated in the Ottawa-Gatineau region in 2011 and 2012.

Page said deeper reductions are coming and that some departments may already be restraining spending in anticipation of the new measures, which will be outlined in the budget expected in late February or early March.

The report finds restraint is being implemented across departments and functions, but notes that expenditures remain at high levels because of the ramping up that occurred during the roll-out of the $47-billion stimulus program.

Capital expenditures were down 15 per cent in the first six months of the 2011-12 fiscal year, to $1.5 billion, in large part because of the end of infrastructure stimulus projects.

One of the few exceptions is Correctional Services. The report finds that capital spending in the department rose 146 per cent in the first six months, likely in anticipation of the government's new tough-on-crime laws now before the Senate.

The department also plans to add 4,000 employees to handle what is expected to be a bigger prison population.

Ottawa is getting a big return in its HST (harmonized sales tax) transfer expectations. Because British Columbia has rescinded its HST legislation, the federal government is expecting to get back about $1.9 billion it had given the province.