Canada’s $54-billion deficit will be almost gone in five years, says the federal finance minister, a claim some local analysts find hard to believe.
Jim Flaherty tabled this year’s budget in the House of Commons Thursday. Pitched as a “jobs and growth” budget, it features personal and corporate tax relief, about $4 billion more for Employment Insurance and $7 billion for infrastructure. Most of this spending was announced in last year’s budget and is already committed.
It also projects a $53.8-billion deficit for 2009/10, one it says will shrink to $1.8 billion by 2015. “We are taking steps to reduce the deficit,” Flaherty said, “to return to balanced budgets in the medium term.”
Flaherty proposed reaching this goal without raising taxes or cutting transfer payments to the provinces. Ending the federal government’s stimulus programs by March 31, 2011 will have an effect, with the rest of the savings coming from about $17.6 billion in cuts to administration, defence and foreign aid.
But that proposal makes a lot of rosy assumptions, said Moshe Lander, economist at Grant MacEwan University. “They’re assuming that the [economic]recovery is going to be long, sustained, sharp and quick, and there’s any number of those adjectives you could call into question.”
Not much new
The budget has about $19 billion worth of stimulus funding in the form of personal income tax relief, infrastructure projects and extended EI benefits announced last year.
The basic personal amount of tax-free income will rise by $62 to $10,382, at a cost of $3.2 billion. About $4 billion will extend work-sharing and training opportunities for the unemployed. The budget also reiterates a pledge to cut corporate income taxes to 15 per cent by 2012, making them the lowest among G7 nations.
Ivan Mayer, head of the Riel Business Park Association, said he was glad the government didn’t raise taxes. “If they were to raise taxes right now, it’ll throw a lot of businesses into a real difficult time.”
New spending is almost non-existent. There’s $45 million to attract top researchers, for example, and $222 million over five years for nuclear research. Cattle processors will get $75 million over three years, while foresters will receive $100 million over four years to tap into renewable energy. Missing is money for other forms of renewable power and an extension to the Home Renovation Tax Credit.
Most of the new items dealt with cutting the deficit. The budget proposes $17.6 billion in savings over five years, $6.8 billion of which come from unspecified administrative savings. Department salary budgets would be frozen, as would the salaries of senators and MPs.
It’s no surprise the government is cutting back to reduce the deficit, Mayer said, but he doubted that it could get rid of it in five years. “We’re talking $60 billion. I can’t see it being done in five years without raising taxes.” Previous deficit projections have also been way off. “Their numbers don’t make any sense.”
The government’s plan depends on 2.8 per cent annual economic growth for the next five years. “Canada doesn’t grow at 2.8 per cent,” Lander said — it averages about 2.4, and actually contracted by two per cent last year. A slow global recovery, a sputtering U.S. market or a high Canadian dollar could all scuttle the deficit plan, he said.
This budget is based on the best economic forecasts available, said Brent Rathgeber, member of Parliament for Edmonton-St. Albert. “If there is another meltdown in the U.S. economy and our economy follows suit … our deficit forecast is likely to be out.”
The budget will go to a vote later this session. The NDP and Bloc Québécois have said they will not support the budget. Liberal Leader Michael Ignatieff said his party would vote against it, but not in sufficient numbers to trigger an election.