* Deficit to be eliminated in 2015/16 as promised
* Revenue gap to be offset by cuts, bolstered tax-collection
* Spending measures include infrastructure, manufacturing
By Louise Egan
OTTAWA, March 21 Canada's Conservative
government pledged on Thursday to close tax loopholes and curb
spending to erase its budget deficit in time for the 2015
election, even as it committed funds to infrastructure,
manufacturing and job training.
The projected deficit in the fiscal year ending March 31 is
roughly in line with Ottawa's previous forecast in November, at
C$25.9 billion ($25.4 billion). The deficit would be about 1.4
percent of the size of the economy, compared with about 5.6
percent for the U.S. deficit.
But a big hit to revenues as the economy slows has forced
Ottawa to project a bigger-than-expected shortfall in 2013/14,
at C$18.7 billion, or about 1 percent of gross domestic product,
compared with a previous estimate of C$16.5 billion. The deficit
will shrink to a third of that the following year before
returning to a surplus of C$800 million in 2015/16.
Finance Minister Jim Flaherty said he could have cut
spending more drastically but opted for "moderate choices" so he
could stimulate growth and jobs.
"I want our country to be in a very solid fiscal position in
case in the future we have another crisis," Flaherty told
"History tells us that crises - economic crises, credit
crises - are inevitable from time to time. So the best thing we
can do for Canada, it seems to me, is to make sure we have a
solid foundation," he said. "We do not need to slash and burn,
we can be sensible over time."
Moody's Investors Service confirmed Canada's triple-A bond
rating after seeing the budget.
But the political opposition was not impressed, accusing
Flaherty of shrinking government at the expense of growth, and
of failing to deliver any new spending programs to help the
"What we have here is an austerity budget ... You cannot
austere your way out of a crisis," said Thomas Mulcair, leader
of the main opposition New Democratic Party.
Bob Rae of the third-place Liberals called the budget
document "an exercise in rhetoric and propaganda."
The government of Prime Minister Stephen Harper oversaw the
country's slide into deep deficits at the height of the global
financial crisis after an 11-year string of surpluses, most of
them racked up by the previous Liberal administration.
It is now staking its reputation on balancing the books in
time for an October 2015 election campaign, when it could offer
new tax breaks it conditionally promised in the 2011 election.
WARNINGS ON AUSTERITY
The budget showed federal government revenues in the coming
year would be C$3.4 billion lower than anticipated just four
months ago, reflecting the weakest two quarters of economic
growth since the 2008-09 recession and a steep discount on
Western Canadian oil prices.
Bank economists saw the plan as feasible, but warned against
more extreme austerity of the kind that hammered growth in the
United Kingdom and elsewhere if the economy worsens.
"If the revenue side materializes as it is projected today,
then we're fine ... Obviously, if we need another round of cuts
in a year or two from now, that could be quite different. As we
know in Europe, too much austerity can be quite damaging to an
economy," said Sebastien Lavoie, assistant chief economist at
Laurentian Bank Securities.
To offset the impact of lower revenues, Flaherty promised to
decrease discretionary spending over the next five years to 5.5
percent of GDP from 6.7 percent and raise an additional C$6.8
billion in tax revenue without actually hiking tax rates.
At the same time, he managed to fund key priorities. The
budget extends by two years a write-off of investments in
machinery, as requested by the manufacturing sector.
It also provides C$47 billion for infrastructure projects
over 10 years, but critics said that represented a cut in
near-term funding with the big amounts postponed until 2020.
The budget even includes a populist measure designed to
please a hockey-crazed country - reduced tariffs on hockey gear.
Flaherty also plans several regulatory measures targeting
banks. These include curbing banks' use of government-backed
mortgage insurance, imposing higher capital requirements on
systemically important domestic banks and reviewing the
regulatory framework to allow smaller banks to enter the
Total spending restraint will save C$617 million over five
years, which is negligible compared with spending cuts made in
The bulk of the measures were on the revenue side, boosting
federal intake by C$7.9 billion over five years. This will be
done by tightening a myriad of tax loopholes and improving
auditing by the Canada Revenue Agency.
Ottawa will also raise tariffs on imports from 72 developing
nations like China, South Korea and Brazil, effectively ending
their inclusion in Canada's General Preferential Tariff regime.
The ratio of debt to gross domestic product is set to
decline to 28.1 percent in 2017/18 from 33.8 percent, which is
the lowest in the Group of Seven advanced economies.
"For the most part, very little surprises from a market
perspective. If anything, it's going to continue to show Canada
in a pretty favorable light," said Derek Burleton, deputy chief
economist at TD Bank.
Emboldened by the country's triple-A rating and popularity
with foreign investors, the federal government is looking at
offering a 40-year bond for the first time.
Flaherty stressed that jobs were his priority for the
economy, a top concern of businesses that have complained they
cannot find enough skilled workers, particularly in the
resources sector in Western Canada.
The budget proposes renegotiating Ottawa's agreement with
provincial governments on how to spend money for training by
creating a job grant to better match unemployed workers to
skills training, as well as support for apprenticeships.
There has been much speculation that Flaherty, who suffers
from a rare skin condition, might step down after this budget.
Asked whether this was his last budget, Flaherty said he'd
like to stay on until balancing the budget. "I'd like to finish
what I started."