The Canadian Press - ONLINE EDITION

Flaherty budget puts brakes on spending hoping to accelerate growth

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OTTAWA - When Jim Flaherty was a young man, they called it a brake stand — one foot on the gas and one on the brake, creating lots of noise and plumes of blue smoke but moving the vehicle sideways if at all.

Stephen Harper's finance minister is banking that all the torque in his eighth federal budget, delivered Thursday, will propel the Canadian economy forward in a burst sometime next year.

It's all geared to a fall 2015 election date, when Prime Minister Stephen Harper hopes to woo Canadian voters with the first balanced federal budget since 2008.

In the meantime, Flaherty's foot remains firmly on the government spending brake in a 2013-14 fiscal blueprint that shuffles priorities, re-allocates resources and cracks down on tax cheats but adds no new money while continuing dramatic cuts to direct program expenses.

Canadians have faith, Flaherty told the House of Commons in his budget speech, "that their government will be a benign and silent partner in their enterprise, not an overbearing behemoth squeezing them at every turn."

The deficit for the current fiscal year that ends in two weeks is projected to be $25.9 billion — exactly as forecast in the fall fiscal update but up significantly from the $21.1 billion posited by Flaherty in last March's budget.

Part of that bump comes from a one-time, $2.4-billion increase in Ottawa's nuclear cleanup liability.

Total spending, including debt-servicing charges, will rise to $282.6 billion this year, up less than one per cent on the 2012-13 spending envelope of $280.1 billion. That's effectively a cut after inflation and population growth are factored in.

More significantly, direct program expenses — which exclude major transfers to other levels of government — are projected to plunge almost $4 billion this year and another $2.5 billion in 2014-15.

The exact nature of those program cuts remains something of a mystery. The budget was delivered the same day the departing parliamentary budget officer, Kevin Page, was in Federal Court trying to force the government to release departmental details of spending cuts announced in last year's budget.

"It's very much a status quo budget," said economist Derek Burleton of TD Bank. "Reallocation is a key theme."

Political opponents of the government were less kind.

NDP Leader Tom Mulcair called it a "shell-game con job," and Green party Leader Elizabeth May dubbed it the "fudge-it budget."

"The propaganda machine is going to be working overtime because they've repackaged and put together some old programs and given them new names," groused Bob Rae, the interim Liberal leader.

The centrepiece of the document is a revamped plan for skills training to better align the Canadian workforce with employer needs.

"For the first time, the Canada Job Grant will take skills-training choices out of the hands of government and put them where they belong, in the hands of employers and Canadians who want to work," Flaherty told the House of Commons.

The plan won't kick in until April 2014 and is contingent on negotiations with the provinces, who are expected to foot the bill for a third of each $15,000 training grant, with Ottawa and the employer also chipping in $5,000 each.

Quebec's sovereignist government had begun kicking up a fuss before the budget was even tabled, and likely won't be the only provincial capital to squawk.

Skills training was moved to provincial jurisdiction in the last decade, and Ottawa's more direct intervention may be construed as a sharp change of course.

Ontario Finance Minister Charles Sousa said the plan appears to remove much of the flexibility needed to meet the specific labour market needs of the province.

"That's a concern," Sousa said in Toronto.

"They've indicated that they want to come out with these initiatives, they want the province to participate, they want the employers to participate, but they sort of want to control the delivery."

The NDP's Mulcair suggested the Conservatives were "simply taking (back) part of what had already been transferred to the provinces ... and they're putting a maple leaf on the cheque."

And after years of corporate tax cuts, the government continues to wrestle with flagging business innovation, introducing a series of new adjustments in an effort to promote manufacturing development.

Other budget elements:

— A renewed infrastructure fund worth $47 billion over 10 years, again starting in 2014.

— $241 million over five years linking training programs to First Nations people collecting income assistance.

— $100 million over two years to support housing construction in Nunavut.

— Additional tax breaks for adoption-related expenses.

— Reducing import tariffs on hockey equipment and baby clothes.

— A proposal to hike fees for processing visa and citizenship applications.

The Federation of Canadian Municipalities said in a release it was happy to get the infrastructure renewal — particularly a pledge to index the annual gas tax contribution to inflation and a 10-year timeframe that "entrenches the principle of longer-term sustainable infrastructure funding."

And the Canadian Manufacturers and Exporters said the budget directly addressed its priorities.

But most reaction was distinctly underwhelming.

The Conservative-friendly National Citizens Coalition sniffed that the budget "makes headline-inducing announcements for tinkering initiatives."

The left-leaning Canadian Centre for Policy Alternatives noted the infrastructure money, while long-term, actually reduces the annual funds available.

"Canada doesn't have a deficit problem, it has a growth problem — and government austerity is part of the problem, not the solution," said the centre's David Macdonald. "You can't cut your way to growth, particularly on infrastructure."

With its emphasis on deficit reduction, personal skills training and catching tax cheats, it is a deeply conservative document. A number of Flaherty's key assumptions, however, are decidedly not conservative.

The 2013-14 budget anticipates that closing tax loopholes and chasing tax cheats will rake in half a billion dollars this year and rise to $1.3 billion the year after. The Canada Revenue Agency is supposed to manage that feat while absorbing a $19-million budget cut this year and another $58 million in 2014.

Flaherty's officials assume GST revenues — which grew 1.8 per cent in 2012-13 — will rise 4.9 per cent annually and that corporate tax revenues will jump by 5.5 per cent a year, on average.

And they book in big savings from program cuts that are still working their way through the federal government.

To meet these targets, the budget document says the "government will introduce legislation as needed to consolidate operations and eliminate redundant organizations."

The Canadian International Development Agency is to be absorbed into the department of Foreign Affairs and International Trade.

The forecast is that the federal deficit will fall to $18.7 billion this year, then plunge to $6.6 billion in 2014-15 in time to be balanced for 2015-16.

"The stakes are really high on 2015," said Mary Webb, senior economist at Scotiabank.

The Conservatives dangled several pricey promises during the 2011 election campaign that were contingent on them balancing the books, including tax-splitting for couples with children under 18, doubling the annual tax-free savings account limit and doubling the children's tax credit.

"There were some campaign commitments that were made so there'll be lots of demands for funding in 2015-16," Flaherty told a news conference.

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