March 2011

Prudential Liquidity Management: What is this all about?


Buried in Annex 2 of Budget 2011, the Government announced changes to its debt management strategy.  It proposes to increase its holdings of “liquid financial assets” by $35 billion in the form of domestic cash deposits and foreign exchange reserves.  What does this mean and why is it doing this now.

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Deficit for 2010-11 will be $2 Billion Lower Than Forecast in the Budget

The January 2011 Fiscal Monitor, released with the March 2011 Budget, shows the deficit for the first ten months of 2010-11 was $27.7 billion, nearly $12 billion lower than reported for the same period last year.  In the March 2011 Budget, the Minister of Finance forecast an improvement of $15.1 billion for the year as a whole.  This is $4.9 billion lower than what he forecast in the October 2010 Update.  We continue to believe that the deficit for 2010-11 will be about $38.5 billion; $2 billion lower than his current deficit forecast. 

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March 2011 Budget: The Deficit That Won’t go Away

In the 2011 Budget, the Minister of Finance forecasts a small budget surplus in 2015-16. Our analysis of the projections shows that this outcome is highly unlikely  We project a deficit of $8 billion in 2015-16.

Economic Assumptions

The federal government continues to use the average private sector economic forecast for budget purposes.  As shown in Table 1, the economic forecast is changed very little from that used in the October 2010 Update.  Nominal GDP is slightly higher in 2010 and this carries forward. 

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The Prime Minister said that the Budget would include a non-refundable tax credit for families that enroll their children in cultural activities. This continues the Harper government’s tax reduction strategy to provide special “boutique” tax preferences to every voting group in the country. It would appear, however, that he has forgotten one very important group -- PET-OWNERS.

Could a special tax credit for pet owners be justified? Of course, it could, probably a lot more than a tax credit for sports, public transit or cultural activities.

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Not a Budget but an Election Platform

The Canadian Centre for Policy Alternatives (CCPA) recently released its “Alternative Federal Budget 2011 – Rethink, Rebuild and Renew – A Post Recession Recovery Plan”[1].  Releasing this document just one week before the Minister of Finance clearly indicates that the CCPA does not expect that  the Minister of Finance will include any of its recommendations in his 2011 Budget.  At this time, all of the decisions with respect to the 2011 Budget have been made - the Bud

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TD Economics: Looking Ahead to the 2011 Federal Budget

As we approach Budget Day 2011, private sector forecasters are starting to release their projections of the federal budgetary balance. Should there be an election, these projections could become part of the election debate.

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Main Estimates for 2011-12: They tell us very little about what Government Spending will be

The Main Estimates for 2011-12 were tabled on March 1, 2011.  The press release claimed, “For the first time in over a decade, funding needed to sustain the federal government has decreased.  The 2011-12 Main Estimates are over $10 billion lower than the Main Estimates for last year.”[1].

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How Much would it Cost to Avoid an Election?

There is considerable speculation as to what the financial cost would be for the Harper Government (read the taxpayer) to gain opposition support for the upcoming budget.  This would not be the first time a minority government accepted opposition “demands” in order to get support for the passage of its budget and therefore avoid an election.   The New Democratic Party supported the 2005 Liberal budget only after the Liberals bowed to their demands for an additional $4.8 billion in new funding.  

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How Lessons from Canada’s 1995 Budget Can - "Not" - Be Applied Today

Recently, the Fraser Institute released its annual pre-budget report entitled "Budget Blueprint: How Lessons from Canada's 1995 Budget Can Be Applied Today"[1]. The report argues the federal government's current fiscal situation mirrors that of the 1980s and early 1990s and that drastic actions, like those in the 1995 Budget, are again required to return to fiscal balance. Here are some of the lessons we have learned or not learned from the Fraser report.

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The only thing the 2011 budget will likely be remembered for is that it may trigger an excuse to call an election, because of a 1.5 percentage point reduction in the corporate tax rate; a trivial economic reason, but, for some, an important political reason.

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