“It’s the fine line that they’re having to walk between continuing to try and make sure the economic recovery continues, and at the same time obviously trying to rein in some of the rising costs that we’ve had over the last few years,” said Christopher Stoney, professor of public administration at Carleton University and co-editor of How Ottawa Spends.
It is this fine balance, along with the financial instability in Europe, that could be causing delays in releasing the 2012 budget, say sources.
“It is no doubt a very challenging time to be writing a budget,” said Derek Burleton, TD Bank Financial Group’s vice-president and deputy chief economist.
“You’re dealing with a much wider range of possibilities,” he explained, adding that the confirmation of another bailout for Greece last week has reduced the risk of near-term market uncertainty affecting Canada.
One source with ties to the Conservatives said that depending on how the economic situation unfolds in Europe the government could be looking at changing the scale of some of their budget initiatives.
“There’s different things that you can do or not do depending on the state of Europe,” the source said.
Last week Finance Minister Jim Flaherty (Whitby-Oshawa, Ont.) made it clear that since Canada hadn’t racked up European-level debts, there was no reason to expect the level of austerity seen in some European countries.
“I think Canadians should realize our context, this is not an austerity situation in Canada,” he told reporters in Toronto February 23.
But insiders also said because of the European situation, the Canadian government is hesitant to make its own fiscal projections that would normally be included in the budget.
At the moment, prevailing speculation in Ottawa pegs the release of the budget to March 13. The date follows suit with the pattern of presenting the spending document on a Tuesday.
Political insiders said last week that the tradition when presenting a budget is to introduce it during a sitting week that precedes a break week, which includes March 13, or alternatively April 3. Then MPs can later go and “sell” it to their constituents when they’re in their ridings.
While the norm is also to release a budget before the end of the government’s fiscal year (March 31), legally, the Conservatives can take up until June.
Mr. Flaherty was coy last week saying only, “not too long.”
Whenever it comes out, expect a “fairly bold budget where Conservatives try and really begin to implement some of their philosophical and policy leanings,” said Mr. Stoney.
Mr. Flaherty and Prime Minister Stephen Harper (Calgary Southwest, Alta.) have said repeatedly that jobs and economic growth are their first priority.
Mr. Stoney said to also expect funding to be shifted towards the government’s priorities, such as trade, security and defence, while heritage and the environment are left by the wayside.
“The thing with the Prime Minister is he is generally fairly up front in the hints that he gives,” noted the source.
The government has also signaled that Old Age Security reform is on the agenda, possibly by raising the age of eligibility from 65 to 67.
“We do want to look ahead and look down the road so that we can make sure that the important government programs we have are available down the road for younger Canadians,” said Mr. Flaherty.
The PM has already foreshadowed that aboriginal education, trade, regulatory reform and restraining government spending are at the top of his list, according to the source.
“We’ve had a lot of important budgets lately,” said Mr. Burleton, pointing to the 2009 budget that brought in stimulus. But he added that the change from spending to saving makes this year’s important too.
“The government is looking at a radical overhaul of spending, so it’s a very important budget,” Mr. Burleton said.
When the Conservatives came to power in 2006 they inherited a budget surplus of $8-billion. In 2008, the government entered into a deficit due to falling tax revenue and higher spending.
In its November 2011 economic update, the government projected Canada’s deficit for 2011-2012 would be $31-billion, though recent numbers suggest it could come in lower. In 2010-2011, Canada’s actual deficit was $33.4-billion.
The government has said it will run a surplus of $600-million by 2015-2016, with the help of savings identified by the strategic and operating review.
The goal of the strategic and operating review (also labeled the deficit reduction action plan) is to find ongoing savings of at least $4-billion a year by 2014-2015 from departments’ total $80-billion operating budget. More than 60 departments have submitted plans to Cabinet for either five to 10 per cent cuts to their budgets, by finding operating efficiencies and examining the usefulness of programs.
Mr. Flaherty has said recently some departments could face more than 10 per cent in cuts, and cuts could amount to closer to $8-billion.
Because of the number of cuts the government is expected to make, lobbyists said the Conservatives are having a difficult time deciding what to cut, what to keep, and where to reallocate the scarce funds.
Jenn Gearey, spokesperson for Treasury Board President Tony Clement (Parry Sound-Muskoka, Ont.) said last Thursday “final decisions have not been made” on the spending review.
The source told The Hill Times that the government is down to the “final strokes” on the cut decisions.
Liberal finance minister Paul Martin led a program review in the mid-1990s. Some of the portfolios most affected back then were Agriculture, Environment, Industry, Fisheries, National Defence, Natural Resources, Public Works, Transport and Treasury Board Secretariat.
In 1994, Mr. Martin was facing a deficit of $38.5-billion. His cuts resulted in $17-billion in savings and 45,000 public servants lost their jobs.
While the government has changed from Liberal to Conservative since then, Mr. Stoney said that the past cuts could be a useful indicator of where this round may fall, as those departments represent softer targets.
The New Democrats have been pushing the government to invest in job creation rather than make cuts.
“An austerity budget at the time would be the worst-possible move, the most irresponsible move, the government could make, and what we really need to see is investment,” said NDP Finance critic Peter Julian (Burnaby-New Westminster, B.C.).
Mr. Julian said that the cuts to corporate taxes in recent years have worsened Canada’s deficit position.
Since 2006, the Conservatives have lowered the corporate tax rate from more than 20 per cent to 15 per cent as of this year.
“It’s the corporate tax cuts that have lead to the imbalance, and we predicted that that’s what would happen,” he said.
Mr. Flaherty said raising corporate taxes was not on the table.
“We don’t raise taxes, we reduce taxes, and we try to watch our spending, and we’ll do some more of that in the budget,” he said.
The government has also lowered the GST from seven to five per cent, a move the Conference Board of Canada has estimated lost the country several billion dollars in revenue. Mr. Julian said that to raise GST back to previous levels now would only end up hurting the middle class.
Mr. Julian said this budget is a fork in the road for the government.
“We’re on a cusp or a threshold that could go in two directions,” he said.
“One is with serious service cuts and job losses that compound the economic difficulty we’re experiencing. The other is one that really targets investment and helps to build Canadian jobs and the Canadian economy,” he said.
The preliminary results of a study released last week suggest that if the government cuts more than $8-billion, there will be a reduction in Canada’s GDP that could tip the country back into recession. It was funded by the Canadian Association of Professional Employees, a federal union of about 14,000 whose membership includes the government’s own financial experts and auditors.
The study, which used a government economic model and data from Statistics Canada, also suggests that the cuts will eliminate more than 116,000 jobs in both the public and private sectors.
“I think certainly if they did it in one fell swoop it could have a significant impact, but I think the idea is that these are savings that are likely to be targeted over a multi-year period, so I don’t think in and of itself they could put Canada into a recession,” said Mr. Burleton.
Mr. Stoney said that if the government veers too far into retrenchment, a double-dip recession would be in Canada’s cards, but he noted that he’s skeptical of any research paid for by an organization with a political agenda.
He added that the impact of the cuts, and the budget as a whole, depends on how much the strategic and operating review is actually strategic and not just an across-the-board cut.
“If this is done smartly I think it could be something that actually has very little effect on services,” he said.
The government’s especially leak-proof budget deliberations have caused speculation on how much departments and services will actually be cut to go into overdrive in Ottawa.
Certain departments and organizations, such as Veterans Affairs and the CBC, are rumoured to be facing cuts of substantially more than 10 per cent, but workers in these organizations have no idea what they are actually facing.
Union president John Gordon, of the Public Service Alliance of Canada, which represents more than 170,000 public sector workers, the majority being federal employees, says the he sees the government floating “trial balloons” prior to the budget.
“Saying ‘It may be greater than 10 per cent’ is that real or is that just a tester?” he asked.
Mr. Stoney said that the government is currently engaged in “sabre-rattling”
“I think essentially they’re doing what McGuinty did with the Drummond report. You essentially have someone set out the worst-case scenario and even though what you come out with is bad, it could have been worse,” he said.
The insider said that the government has been mindful of ensuring that the overall cuts don’t go over more than 10 per cent total of the government’s operating budget, but there is more flexibility in cuts to individual departments.
Mr. Flaherty said that the cuts would not be “draconian.”
“This is not austerity. This is not draconian. It will be moderate in its approach,” he said.
Original Article
Source: Hill Times
Author: JESSICA BRUNO
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