Budget fights deficit with freeze on future spending
Published Thursday, March 4, 2010 9:58PM EST Last Updated Saturday, May 19, 2012 1:06AM EDT
OTTAWA - The Conservative government hopes to rein in federal spending, including planned funding to the Canadian Forces, to cut a deficit that has soared to $53.7 billion.
But that goal depends on economic growth returning to the modest pace of pre-Recession levels, and inflation hovering around an expected 2.2 per cent. Otherwise, targets to reduce the deficit will not be met.
"This is the toughest budget I have ever had to do," Finance Minister Jim Flaherty said Thursday, before unveiling the 451-page document.
Stimulus spending will end this year, and the popular Home Renovation Tax Credit will not be extended. To save money, the government even plans on making Canadian coins -- loonies and toonies -- less expensive to make.
The Conservatives say a total of $17.6 billion can be saved over the next five years. Significant steps include:
- Slowing the annual growth of spending to the Canadian military, saving $525 million in 2012-2013 in planned spending after troops leave Afghanistan, and $1 billion annually starting in 2013-2014. By 2015, $2.5 billion would be saved.
- Freezing government salaries and department budgets for the next three years, saving about $300 million in 2010-2011. In order to pay for the mandated salary increases of unionized public service workers, departments will have to find other areas to cut, which could lead to job losses.
- Capping funds for International Assistance, after increasing it by 8 per cent, or $364 million, to $5 billion for 2010-11. By stopping any further growth, Ottawa hopes to save $438 million in 2011-2012, and $1.8 billion by 2014-2015.
- Closing tax loopholes and cracking down on tax evasion, saving $2.5 billion in the next five years.
In conjunction with anticipated economic growth, the Conservatives hope to reduce Canada's debt-to-GDP ratio, estimated to be 35.4 per cent in 2011-11. By contrast, it's 67 per cent in the U.S. The Canadian government plans to cut its ratio to 31.9 per cent to 2014-2015.
Even after the deficit starts to decline, the budget shows that Canada's national debt will continue to rise by billions of dollars. It's estimated to be $566.7 billion for 2010-2011, up from $463.7 billion in 2008-2009. Four years from now, the national debt is forecast to reach a staggering, record-breaking $622.1 billion.
Meanwhile, Parliamentary Budget Officer Kevin Page has warned the government must cut spending or raise taxes to reduce the deficit.
"We do not have a sustainable fiscal situation, and the whole world is watching," he warned.
Boosting science research
Despite efforts to halt government spending, the budget has some surprises for new funding for scientific initiatives.
British Columbia's TRIUMF nuclear facility, which has the largest cyclotron in the world, will get $126 million over the next five years. That's in conjunction with $96 million already earmarked from the National Research Council of Canada, totalling $222 million.
The government also wants to shift responsibility for making medical isotopes away from Ontario's troubled Chalk River reactor, which caused an international scandal when safety concerns led to the plant being temporarily shut down last year.
The reactor produces the bulk of the world's medical isotopes, which are crucial for cancer testing.
The budget devotes $35 million over the next two years to Natural Resources Canada, to research and develop new ways to create medical isotopes.
The Conservatives will also take another step towards boosting Canada's scientific presence in the North, by giving $18 million over five years to start the pre-construction phase of the Canadian High Arctic Research Station.
Tax measures to help families, businesses
Ottawa will finish its Economic Action Plan spending this year with the remaining $19 billion in stimulus measures, already promised last year, and enact tax-relief measures for families and businesses.
Canadians can expect $3.2 billion in personal income tax relief, including child benefits for single parents, under changes to the Universal Child Care Benefit and Child Tax Benefit.
The government will also reduce the federal general corporate income tax rate from 18 per cent this year to 16.5 per cent in 2011, and finally 15 per cent in 2012, which would be the lowest level in the G7.
The budget also calls for a Red Tape Reduction Commission that would look into ways to cut down on bureaucratic paperwork and federal administrative costs for small businesses. According to the Canadian Federation for Independent Business, it's estimated those costs amount to $30 billion each year.
And in a nod to the NDP, the budget reiterates plans for a Code of Conduct for the Credit and Debit Card Industry, to protect consumers from raising interest rates. However, if the industry fails to follow that code on its own, the finance minister would step in and enforce regulations.
While giving tax breaks to some, Ottawa also wants to crack down on those who avoid paying taxes altogether.
Measures include strengthening the ability of the Canada Revenue Agency to pursue tax evaders, and give the agency up-to-date information on emerging tax avoidance schemes.
Meanwhile, the government wants to ensure provisions of the Criminal Code that apply to "serious crimes" like money laundering can be used in cases of tax evasion prosecuted under tax statutes.
The government hopes to fight trade protectionism in the wake of the Recession, in an effort to help Canada's hard-hit manufacturing sector.
With the Canadian dollar flirting with parity, the industry has had a difficult time exporting goods to the United States, and tariffs have further increased the cost of doing business.
The budget eliminates all remaining tariffs on manufacturing inputs and equipment. That would reduce the cost of production, and make it less expensive for companies to buy new equipment.
The majority of the 1,541 tariffs currently in effect will be axed immediately, and the remaining 381 will be phased out by 2015.
New Canadian currency
In an example of how far the government is willing to go to save money without major cuts, the budget also calls for modernizing Canadian currency.
Canada's $1 and $2 coins are getting a high-tech facelift; the Royal Canadian Mint will change their composition, using cheaper, multi-ply plated steel technology.
That could save Canada an estimated $15 million each year.
And starting in 2011, banknotes will be made of tougher stuff: a polymer material that can outlast current cotton-based bills, further reducing production costs.
The same material is currently used in Australian currency.