Federal budget vows to slash deficit

OTTAWA — Hard decisions on wrestling a monstrous deficit have been punted one year down the road by a Conservative budget that promises dramatic future cuts but leaves the punishing ground game for later.

Finance Minister Jim Flaherty

Finance Minister Jim Flaherty

OTTAWA — Hard decisions on wrestling a monstrous deficit have been punted one year down the road by a Conservative budget that promises dramatic future cuts but leaves the punishing ground game for later.

The two-month suspension of Parliament that Prime Minister Stephen Harper said he required to “recalibrate” his government’s agenda now comes down to just five words: Over to you, Stockwell Day.

The Treasury Board president was positioned as Harper’s “Dr. No” when he was appointed to his new cabinet post in January. Day may have to shave his head, get a cat, and wear a death’s head pinky ring if the budget plan presented Thursday by Finance Minister Jim Flaherty is to come to fruition.

Total federal spending in 2010-11, including debt charges, will hit $280.5 billion — up almost $13 billion over the fiscal year that ends March 31. Program spending is projected to plunge almost $8 billion in 2011-12 before rebounding slightly the following year.

“We can see our destination on the horizon,” Flaherty told the House of Commons, conjuring images of a future flat line.

The budget forecasts a deficit of $53.8 billion this year, down slightly from the most recent $56-billion projection, and red ink totalling $49.2 billion in 2010-11.

Flaherty says deficits will plunge dramatically after that, falling to a modest $1.8 billion budgetary shortfall in 2014-15. But by then, the total federal debt is projected to hit $622 billion — up $136 billion from the $486 billion on the books when Harper took power in 2006.

“Listen, this is a very tough budget,” Flaherty insisted during a budget lockup news conference prior to his speech. “Some very difficult decisions have been made. Most of the answers to requests for funding were ’no.”’

He said there are fewer new spending measures in the document than in any federal budget in the last decade.

One thing Flaherty need not worry about is the minority Conservative government’s defeat over his budget. Liberal Leader Michael Ignatieff said he doesn’t support the spending plan, but also won’t force a spring election over it.

“The key thing is that Canadians are saying to me … give us an alternative,” Ignatieff said outside the House of Commons.

“When Canadians can see a clear choice between cuts and freezes and gimmicks and an alternative that gets this economy going — really meets the challenges of jobs and growth — then maybe then we’ll have an election.”

Public opinion polls that gave the Conservatives a wide lead last autumn after Ignatieff vowed to bring down the government have since narrowed, putting the Liberals and Tories in a dead heat or giving the Conservatives a small lead.

The polls suggest another Conservative minority, or possibly a Liberal minority — an outcome that suits neither Harper nor his opponents.

That helped produce a budget that’s politically cautious, and independent analysts were unusually cautious in their assessment of it.

“It’s hard to give this budget a grade now because you can’t really grade it until you see if they can actually do it,” said Kevin Dancey, president of the Canadian Institute of Chartered Accountants and a former senior Finance Department bureaucrat.

Dancey was part of the bureaucracy during former Liberal finance minister Paul Martin’s “come hell or high water” battle against deficits in the mid-1990s and worries about unforeseeable shocks knocking the Conservative blueprint askew.

“There’s no real contingency built into the budget,” said Dancey.

But a senior Finance Department official said government revenues will likely be slightly higher than projected in the coming year or two, giving the Conservatives some small room for unforeseen contingencies.

Critics complained the Tory budget signals restraint without detailing specifics, while scattering baubles across the fiscal landscape:

— An extra $44 million over two years for Canada’s elite athletes.

— Eliminating the tax deduction for cosmetic surgery.

— New rules for banks that reduce the hold period for cheques to four days.

— A freeze on the EI premium rate (paid by workers and employers) until the end of 2010.

“They’re still trying to be all things to all people,” said Kevin Gaudet of the Canadian Taxpayers Federation.

The Conservatives say recession-fighting stimulus spending announced a year ago will come to an end next March, a figure the government put at $19 billion. But that figure includes a number of measures that won’t actually fold back into the government’s books.

Once extended EI benefits and previously scheduled tax measures are removed from the equation, the total savings realized in 2011-12 are essentially the $7.7 billion from ending stimulus infrastructure spending.

Other budget measures did leap out at analysts, including the previously announced but uncosted final elimination of tariffs on manufacturing inputs. The government says this will save businesses $300 million annually by 2015.

The Tories are also closing a tax loophole for companies and executives who receive stock options, pulling an extra $270 million into the federal treasury in 2010-11.

The benefit to both the government’s bottom line and to Conservative electoral fortunes of this last measure is undeniable.

“That executive with the nose job is really in for a shock,” joked Dancey.

Still, previously planned corporate tax cuts will continue, prompting sighs of relief from a business community that feared the deficit fight might turn the Tory tide.

“Corporate Canada is going to be reasonably satisfied,” said John Manley, the former Liberal finance minister who now serves as president of the Canadian Council of Chief Executives.

With ongoing corporate tax cuts, no tax increases and Conservative vows not to touch government transfers to provinces, pensions, health care or Defence spending, finding savings is going to be a huge challenge.

“The jury’s out on how the government will achieve spending and saving targets,” said economist Derek Burleton of TD Bank. “But it is quite a shift from the status quo.”

Highlights

• Total spending of $280.5 billion, up $12.8 billion over last year.

• Deficit of $49.2 billion.

• Total debt rises to $566.7 billion.

l Basic personal income-tax exemption (the amount you can earn before paying any taxes) for 2010 rises to $10,382.

• $3.2 billion in personal income-tax relief, largely through raising the basic personal tax exemption and higher child benefits for parents.

• Plan to reduce the deficit to $1.8 billion by 2014-15, largely by ending stimulus funding next year and restraining program spending.

• $7.7 billion in stimulus money for infrastructure.

• $4 billion for extra EI benefits and training.

• Freeze on EI premium rate (paid by workers and employers) until the end of 2010. Rate will likely rise in 2011.

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