New spending in budget

OTTAWA — The federal government could have as much as $3 billion in extra revenue in the budget Tuesday to use either to entice voters in a spring election — or ward one off.

OTTAWA — The federal government could have as much as $3 billion in extra revenue in the budget Tuesday to use either to entice voters in a spring election — or ward one off.

Finance Minister Jim Flaherty offered few clues Monday morning at made-for-TV fitting of twice-resoled shoes in step with the frugal, stay-the-course messaging of the Conservative government.

The budget will contain some new spending for families and to help create jobs, he said, but the focus remains on eliminating the deficit at the appointed fiscal year 2015-16.

“One of the goals of the budget is to make sure we stay on course, maintain the fiscal track that we set out in the fall update and move back to a balanced budget, and at the same time make some investments to promote economic growth, jobs,” he explained.

Flaherty and other ministers have broadly hinted at several measures that will likely make the grade Tuesday. They will likely include:

— Help for seniors without benefit of a pension, likely through a boost to the guaranteed income supplement.

— A tax credit for parents who enrol their children in artistic activities.

— A two-year extension of a program helping firms buy efficiency-enhancing machinery and equipment.

— Modest measures on pension reform and on financial literacy.

— Measures to help veterans acquire job skills to transition to civilian life.

But with the opposition parties pounding on election drums, none of the measures may see the light of day or even get to a vote in the House.

Flaherty has passed an extraordinary five budgets in a row as a minority finance minister. He’s counting on a sixth.

“I hope we vote on it. I hope it’s passed. There are some very good measures in the budget,” Flaherty said.

All three of the opposition parties have issued their conditions for supporting the budget, most of which Flaherty rejects. But even if he could satisfy one of the parties, the government could still fall later this week on a non-confidence motion built around a contempt of Parliament citation for concealing the true costs of the F-35 jet and justice programs.

The government is expected to have additional room to meet opposition demands. The Bloc Quebecois has suggested it would support the budget if it included $2.2 billion for Quebec to harmonize its sales tax.

The Quebec government says it has crafted a draft agreement that is now in Ottawa’s court. But in response to a question in the House, Natural Resources Minister Christian Paradis said while negotiations have gone well, there is no deal yet.

Economists who met privately with Flaherty two weeks ago say he has about $3 billion, and possibly more, up his sleeve that wasn’t there at the time of the update last fall thanks to faster than expected economic growth.

They told Flaherty the economy will expand by about 5.8 per cent this year in nominal terms — which includes inflation and is directly tied to tax revenues — more than one point higher than the previous estimate.

In dollar terms, nominal gross domestic product is running at about $23 billion more than was expected in December, yielding the government an anticipated $3 billion extra in corporate and personal taxes.

Revenues have also been coming in faster this year, which means Flaherty is in position to report that this concluding year the deficit will shrink to under $40 billion, rather than the $45 billion projected in the fall.

Flaherty can make use of all or part of this extra revenue, or he could build in a prudence factor against unexpected future surprises, as he has several times before.

“It does seem like they have a little more room to manoeuvre, so I wouldn’t be surprised if we see some little wrinkle that might please the electorate,” said Douglas Porter, deputy chief economist with the Bank of Montreal.

The more likely option is that Flaherty will hold the line on spending, as he has promised to do all along, however.

TD chief economist Craig Alexander noted that the changing course now would undercut the government’s carefully crafted image as responsible managers of the government books.

As well, he said Flaherty’s plan for eliminating the budget entails ambitious spending controls few think will possible to maintain for the three or four years required.

“The fact that income in the economy is growing faster than previously anticipated does give them some flexibility, but I think the flexibility is very limited,” he said.

“The fact tax revenues are coming in better makes life easier on the government, but make no mistake, the recovery is not going to be adequate to eliminate the deficit on its own.”