Overall Theme and Pre-Budget Expectations

Yesterday afternoon, Finance Minister Jim Flaherty tabled the 2013 Federal Budget.  With an expected major cabinet shift  coming this summer, and due to health concerns, it is unclear as to whether or not this will be Flaherty’s last budget offering - despite assertions from the Finance Minister that he will stay on the job until the budget is balanced. 

The overall theme of this fairly modest budget seems to be austerity coupled with finding ways to increase productivity, with the ongoing goal of eliminating the deficit by 2015.  Heading into this year’s budget, pundits expected more or less exactly what they got: an increase in spending in some areas including infrastructure, evened out with restraint and austerity in others; renewed focus on the closing of tax loopholes; the folding of CIDA into DFAIT; and the creation of new job-training programs designed to take training out of the hands of bureaucrats and place control in the hands of employers.

Federal Debt Projections:

(Source: Toronto Star, March 22nd)

Projected Economic Growth:

(Source: Toronto Star, March 22nd)

Projected Budget Balance:

(Source: Toronto Star, March 22nd)

In his budget speech, Flaherty noted that: “We find ourselves further ahead than any other G-7 country when it comes to creating jobs and economic growth …further ahead than any other since 2006 when it comes to income growth. …further ahead than any other when it comes to our debt-to-GDP ratio.”   He continued by noting that while Canada is one of a handful of nations that is still holding a triple A credit rating, the global economy remains incredibly unstable - with some nations threatening double-dip recessions.  Because of this fact, Flaherty argues that Canadians cannot afford to be complacent; economic growth has slowed the world over and Canada is not immune. Consequently, the Minister feels that the economic problem will be compounded unless we act now and take what he feels is a pragmatic approach including tough austerity coupled with targeted spending. 

As one can see from the budget highlights below, this latest offering is very modest, with little to cheer for, or deride.  While those on both the left of the political spectrum will likely take issue with what they perceive as a lack of stimulus spending, many on the right will likely be dismayed at what they perceive as too much spending.  However, despite the inevitable misgivings from both sides of the ideological spectrum, the fact remains that this budget offering seems to have gone out of its way to not rock the boat.
 
Budget Highlights

• Committed to balancing the budget by 2015
• Revenues for 2013-14 forecast at $263.9 billion, spending at $282.6 billion, deficit at $18.7 billion
• Deficit projected to drop to $6.6 billion in 2014-15 and become $800 million surplus in 2015-16
• Will not raise taxes
• Smallest increase in discretionary spending in 20 years
• Money transferred to provinces and individuals not reduced
• “Canada Job Grant” to provide up to $15,000 per person to ensure Canadians are getting the skills employers are seeking; up to $5,000 per person provided by feds, employer required to match funds, provinces to put up the final third 
• Extension of  Accelerated Capital Cost Allowance, providing $1.4 billion in tax relief to manufacturing companies investing in modern machinery and equipment
• Building Canada Plan: 53.5 billion over next 10 years for provincial, territorial and municipal infrastructure, including three components:
  • Community Improvement Fund - $32 Billion to municipalities for roads, transit, recreational facilities.  Incorporates Gas Tax Fund and GST Rebate for Municipalities, gas tax portion to be indexed and increase over time.
  • Building Canada Fund - $14 billion to support major projects across country
  • P3 Canada Fund, $1.25 billion to continue to support innovative ways to build infrastructure projects faster.  All planned projects w/ capital costs of more than $100 million will be screened for P3 potential.
  • An additional $6 billion provided to provinces, territories, municipalities under current infrastructure programs
• Canadian International Development Agency (CIDA) to be folded into Department of Foreign Affairs and International Trade (DFAIT).  New entity to be named Department of Foreign Affairs, Trade and Development, to continue same functions as before
• Venture Capital Action Plan: $225 million to modernize post-secondary research facilities across the country, invest additional $165 million to support genomics research
• Work w/ provinces to harmonize requirements for apprentices and will examine use of practical tests as a method of assessment
• 3 year investment of $70 million to support 5,000 new paid internships to post-secondary grads
• Extend and expand temporary hiring credit for small business for an additional year
• Measures introduced to improve skills training for disabled
• Special tax break for first-time charitable donations to encourage young people to give
• Tariffs to be reduced on items including baby clothing and sports equipment
• Work to close tax loopholes that allow some to avoid paying taxes by doing such things as moving money offshore
• Rideau Hall will begin paying GST and HST on purchases for use by the Governor General.
• $253 million will be allocated over 5 years to affordable housing
• $44 million over two years to improve processing of citizenship applications, and an additional $42 million over two years to enhance processing of temporary residence applications
• $920 million over five years to renew the federal development agency for southern Ontario
• $248 million over five years to boost accuracy of weather radars and climate monitoring stations

 
Opposition Commentary

NDP
According to an NDP release, the 2013 budget focuses too much on “job-killing austerity cuts” and not enough on creating jobs.  The budget:

• Fails to address the specific challenges faced by Aboriginal peoples, introducing a regressive new workfare program for First Nation communities
• Cuts billions to infrastructure programs and fails to introduce new measures to create jobs
• Last year, the Conservatives predicted economic growth that never came – overestimating growth by over 35%.

Opposition leader Tom Mulcair was quoted as saying: “there is nothing in this budget to prepare Canada for a 21^st century economy.  The Conservatives are leaving a huge environmental, social and fiscal debt to our children”.
 
Liberal Party of Canada
According to a Liberal Release, the budget fails to deliver a real plan to strengthen the economy and create Canadian jobs.  The budget:

• Repackages existing programs and hikes Employment Insurance premiums
• Cuts infrastructure funding, freezes funding for training at pre-recession levels
• Does not include any offerings large enough to kick-start the economy
• Does not include new money for First Nations Education
• Doesn’t address youth unemployment, income inequality, or household debt.

Interim opposition Leader Bob Rae was quoted as saying “this budget should be renamed the Economic ‘Inaction’ Plan, for all the good it will do Canadians”.
 
Realities, Challenges, and Opportunities

Much like last year’s offering, this year’s modest budget seems to have underwhelmed the expectations both government critics, and supporters alike.    Once again, the deep cuts that opponents feared and fiscal conservatives had hoped for were toned down in favour of a balanced and less-aggressive approach.  Although this budget can be taken as austere in some ways, it also raises spending significantly in certain areas.  Regardless of the course taken to get there, if, as predicted, the government is able to balance the books in time for the next election in 2015; it would have to be considered to be a huge win for the Conservatives, and would likely have serious ramifications on the electoral outcome.  The Harper Government knows this, and will do everything they can to push the needle in this direction over the next two years.