Jim Flaherty’s ninth budget, called “The Road to Balance; Creating Jobs and Opportunities”, consisted of 419 pages and 78 new initiatives.  Sounds like more than a “do nothing budget”, certainly when compared to the 2013 Budget, which contained few new initiatives and 433 pages.  Unfortunately, it is not just a “do nothing budget”, but, even worse, it is a “sleight-of-hand budget”.  And, regrettably, despite the title of the budget, there is nothing of substance in this budget to strengthen economic growth and job creation.

Mr. Flaherty’s only goal in this budget was to solidify his commitment to eliminate the federal deficit in 2015-16.  The Government is betting its reputation as a sound financial manager on this achievement. Nothing announced in this budget will jeopardize this commitment. Before any new measures, Mr. Flaherty is now a forecasting a surplus of $4.1 billion in 2015-16, $0.4 billion higher than forecast in his Fall Update. After taking into account the net fiscal impact of the budget measures, Mr. Flaherty is now forecasting a surplus of $6.4 billion, $2.7 billion higher than his Fall Update projection of a $3.7 billion surplus. 
He accomplished this despite proposing new initiatives of $1.9 billion in 2015-16.  However, $0.9 billion of this was financed through existing funds already in the fiscal framework – monies that would have “lapsed” at the end of the fiscal year. In other words, as in previous years, departments have been substantially under-spending funds appropriated by Parliament. This despite the commitment made by Mr. Flaherty in his November 2008 Update that “steps are to be taken to better align planned and actual departmental spending so that the spending information presented to Parliament and Canadians will be more accurate”.  Despite this commitment, the lapse in spending has increased from about $7.5 billion in 2007-08 to $11 billion in 2010-11 and to $10 billion in 2012-13.

In addition, Mr. Flaherty undertook new revenue-raising and expenditure restraint measures totalling $3.4 billion. Excise taxes on tobacco products were increased and tax compliance measures were strengthened, leading to savings of $1.1 billion Capital funding for defence was re-profiled by $0.9 billion.  This is the second major re-profiling of defence capital funding, since 2010-11. 

The largest source of savings is coming from retired public servants, as a result of the “phasing in equal cost sharing and increasing the minimum years of service required to be eligible for the Public Service Health Care Plan to six years”. This is expected to result in savings of $1.4 billion in 2014-15 and $7.4 billion over six years.  According to Mr. Flaherty, whether these savings will be realized will be dependent on the nature of the final plans.

A major part of the budget surplus of $6.4 billion in 2015-16 is attributable to a $2.4 surplus in the Employment Insurance (EI) Operating Account, resulting from the freezing of the EI premium rates to 2016.  In 2016-17, the annual surplus increases by $4 billion.  In the budget, Mr. Flaherty allocated $1.0 billion in 2015-16 in new money to “Supporting Jobs and Growth”. But reducing the EI rate to its break-even rate in 2015 and 2016 would have provided an additional $2.4 billion in tax cuts for employees and employers in 2015-16 and a further $4.0 billion in 2016-17. This would have provided major incentive for small and medium-sized enterprises to create jobs.  Mr. Flaherty chose not to do it, possibly waiting to September when the premium rates for 2015 must be set.

Mr. Flaherty stated that this budget does not contain a lot of “baubles”.  But in fact, this budget contains 78 new initiatives and can only be described as a “dog’s breakfast”. 
Under the section entitled “Connecting Canadians with Jobs”, there are 16 new proposals dealing with training, apprenticeship, youth employment, native education, older workers, immigrants, temporary foreign workers, among others.  One-third of the total funding of $245 million in 2015-16 is funded from existing funds in the framework and through reallocations.  

Under “Fostering Job Creation, Innovation and Trade”, there are 12 initiatives, totalling $0.7 billion in 2015-16 billion, of which two initiatives – the Windsor-Detroit bridge and the automotive sector – account for most of the funding. Again, over one-third is funded from existing funds in the framework and through re-allocation. 

Under “Responsible Resource Development, Conserving Canada’s Natural Heritage, and Investing in Infrastructure and Transportation”, there are 20 initiatives, totally $0.3 billion in 2015-16.  Of this, $0.2 billion is going to the rehabilitation of the Montreal bridges.  Again, over one-third is funded from existing reference levels and reallocation.
Under “Supporting Families and Communities”, there are 30 initiatives, totalling $0.6 billion in 2015-16, of which $0.4 billion through existing funds.

Like all the budgets since 2010, this budget stands out once again for a lack of any vision or narrative on where the Government wants to take the country. After inheriting a surplus of $13 billion in 2005-06, Mr. Flaherty created a sizeable structural deficit through tax reductions and spending increases.  This was exacerbated by the financial recession and temporary stimulus spending in the 2009 Budget.  Unprecedented deficits resulted in 2009-10 and 2010-11.  Since then, the Government’s only objective has been the elimination of the deficit. Austerity took precedence over economic growth and job creation, both of which have been declining over the last three years.  This budget continues this strategy.

This budget is based on a rebound in economic growth from 1.7% in 2013 to 2.3% in 2014 and 2.5% in 2015.  Although there is a consensus for a recovery in the United States, which could reach as high as 3%, prospects beyond that remain highly uncertain, primarily due to their unsustainable fiscal situation. Prospect for the EURO area remain poor and economic growth in China and other emerging markets is slowing. Medium-term global economic prospects remain volatile and uncertain. This means that the prospects for the Canadian economy remain highly uncertain as well.

The Government is on track to achieve a surplus in 2015-16 of $6.4 billion, provided that the savings from the various restraint measures are achieved.  In addition, the budget includes a $3 billion “risk adjustment factor”, which if not needed would raise the surplus to $9.4 billion.  As this budget clearly indicates, Mr. Flaherty has built substantial flexibility into the budget framework to ensure that a surplus will be achieved in 2015-16, as most of the new initiatives are funded through “existing funds in the framework”. 

After that, the size of budgetary surpluses remains questionable.


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