Timidly betting on prosperity

Hey there, time traveller!
This article was published 05/03/2010 (5776 days ago), so information in it may no longer be current.

Prime Minister Stephen Harper didn’t quite deliver on his vow to eliminate deficits, but like the adage of horse shoes and hand grenades, his budget Thursday came close enough to clinch political survival. Liberal Leader Michael Ignatieff, an eye on the polls, said his party will not bring down the Tory government over this budget.

Mr. Ignatieff said some Liberal MPs will vote against the budget, but not enough to combine with the Bloc and New Democrats to defeat it, risking an election.

But Mr. Harper and his finance minister, Jim Flaherty, were not really aiming to appease the opposition. The real target of their projections was the parliamentary budget officer, Kevin Page, who last year warned a big piece of the $56-billion deficit projected this year would become “structural” — a living legacy as Canada’s aging population ratchets up program spending while, in retirement, contributes less to government revenues.

The budget Thursday aimed to deflate that warning, yet fell short of setting out numbers to eliminate deficit-funding. Mr. Flaherty says now that 2009/10 will finish off with the government $53.8 billion in the hole, but Ottawa will still be $1.8 billion in the red in 2015.

It is a remarkable forecast, nonetheless, predicting a dramatic drop in the deficit in two years and a reduction of two-thirds in three years.

How will the Tory government do this? This budget made no cuts in spending, but demands restraint among government departments.

Further, Mr. Flaherty predicates his forecasts on the continued growth of the economy, even while acknowledging that the United States, Canada’s largest trading partner, is worried it may fall back into recession.

Mr. Flaherty found $17.6 billion to trim over five years by capping spending on foreign aid, forcing departments to find money internally to pay for public servants’ salary hikes and by slowing the growth of the defence budget. Notably, current increases in transfers to provinces are safe only until the spring of 2014.

Similarly, Mr. Harper’s commitment to create new jobs also depends on a rising GDP, which is predicated on low interest rates. The predictions, economists noted, are sound enough for two years out, but for five years? No one was sidling up to the Tories’ hopes on that.

Tax cuts promised to corporations will continue as promised and the Harper government rejected, as expected, the calls by some to raise the GST back at least to six per cent, to backfill some of the revenue losses to the treasury.

But the budget held no new, bold programs to put people back to work. Instead, Mr. Flaherty tossed small amounts to fellowships to post-doctoral students and job-sharing schemes, and further cut tariffs on inputs, machinery and equipment, a move directed at small- and medium-sized businesses.

The Tory roadmap back to prosperity and balanced budgets held to a “steady as she goes” approach. But even the government is hedging its faith in that: Mr. Flaherty reminded Canadians that if the economy doesn’t go according to plan, there will always be another budget to alter course. The Harper promise of no new taxes and no program cuts is only as good as the paper it’s written on.