Spending cuts expected in budget

OTTAWA — Stephen Harper’s disciples have waited six years for an unapologetically conservative budget.


OTTAWA — Stephen Harper’s disciples have waited six years for an unapologetically conservative budget.

Finance Minister Jim Flaherty says they are going to get it Thursday.

“Yeah, I think this one is going to pass,” he told reporters Wednesday while trying on a new pair of shoes he will wear for the annual event.

Sources and officials agree Flaherty’s 7th budget — and first with a parliamentary majority to back it — will be his longest and most far-reaching, laying the foundations for a business-friendly Canada with smaller government and curtailed social entitlements.

The headline from the document being introduced in the Commons at 4 p.m. will centre on spending cutbacks, which Conservative sources say amount to about $7 billion in annual savings by the 2014-15 fiscal year.

That is on the upper end of the $4-$8 billion Flaherty has been signalling for months. The finance minister much of that burden will fall primarily on the public service — which will shed tens of thousands of jobs — insisting services to Canadians will be mostly left untouched.

“The majority of the spending review reductions relate to back-office operations, they don’t relate to services,” he said. “There are (service) consequences, but most of it is back-office stuff.”

The budget will also seek to curtail long-term spending by slowing the growth of entitlements such as elderly benefits under Old Age Security, building on December’s decision to limit future health care transfers to the growth in the economy.

Reports suggest Flaherty also intends to give notice to the public service unions they must pay more for their indexed pension plans.

And the CBC will likely see its wings clipped, by anywhere from five to 10 per cent of the annual $1 billion funding.

The House of Commons sent a signal Wednesday of the belt-tightening in store for most, if not all, departments. An all-party committee voted to decrease MPs office expenses by almost seven per cent — $30.3 million — over the next three years.

But the budget isn’t all austerity. It is expected to signal a major overhaul in the way Ottawa hands out almost $12 billion in research and development grants with a goal to bend research to business needs, and relax restrictions on natural resource projects.

For example, sources say the government wants to eliminate overlap with provincial environmental impact reviews, impose time limits on hearings and narrow the government’s focus to large projects only.

Such aggressive initiatives will draw howls of protest from unions, environmentalists, scientists, the elderly, and a host of interest groups.

Newly-minted NDP Leader Thomas Mulcair got the backlash going early at his maiden speech to the caucus, warning Harper “will have a fight on your hands” if the pre-budget signals bear out.

There is expected to be some goodies as well in the budget, including, money for native education and water projects, green technology, infrastructure and jobs training, as well as tweaks to employment insurance to encourage employers to hire local rather than foreign workers.

Observers believe if the Harper government ever intended to show its stripes, this is the time given that it has until October 2015 before it needs to face the voters again.

“The budget will be the first clear sign that we get from the government whether it’s prepared to be more bold and transformational,” said Perrin Beatty, a former Tory cabinet minister under Brian Mulroney, now president of the Canadian Chamber of Commerce.

TD Bank chief economist Craig Alexander also calls the initiatives transformational, a word Harper himself used in his much-quoted speech in Davos, where he signalled in January his intend to position Canada for the long-term.

“It’s about eliminating the deficit, and making commitments to run balanced budgets in the future,” Alexander said.

“The challenge Canada faces is with an aging population, there’s going to be more demand for health care, for social services and as a consequence… (the government) may want to make adjustments to entitlements.”

Some economists have argued Ottawa doesn’t need to go as far or fast as it appears prepared to go.

The deficit is already falling sharply without further cost-cutting. According to a Royal Bank analysis using government data, this year’s fiscal hole will shrink to between $20-$25 billion from last year’s $33.4 billion.

RBC economist Craig Wright estimated Ottawa could well balance the budget by 2015-16, or possibly a year earlier, and still keeping spending restraint modest. That’s a problem any member of the G7 industrial nations, including Germany, would love.

Cuts, even if directed to the public service, are a drag on an economy facing challenges from weak global demand and high dollar, as well as a tapped out consumer.

“It will act as a moderating force and a fairly important moderating force for a number of years,” said Douglas Porter of the Bank of Montreal, lumping the federal cuts to Ontario’s belt-tightening announced Tuesday.

But neither Alexander or Porter think government restraint will be of an order to send Canada back into recession.

There many be as much political calculation as economic necessity in Flaherty’s approach.

Under current projections, Ottawa is not slated to balance the budget until 2016-17. That is at least one year too late to serve the government’s purposes.

Eliminating the deficit a year earlier, before heading to the polls, would allow the Conservatives to keep expensive promises made in last year’s campaign, including income-splitting for families with children under the age of 18 as well as a doubling of the limit individuals can put in Tax Free Savings Plans to $10,000. Both of those promises were contingent on balancing the budget.

— With files from Heather Scoffield