Penny steals budget thunder
“This is a budget
without any overarching theme
or tone.”
The first announcement of any significance in Thursday’s federal budget speech was that The Royal Canadian Mint will stop making pennies this year.
“Pennies take up too much space on our dressers at home. They take up far too much time for small businesses trying to grow and create jobs,” Finance Minister Jim Flaherty told the House of Commons.
Well, if that’s the lead item in a budget speech, it gives you a pretty good indication of what’s in it.
Not much. This is a budget without any overarching theme or tone. It isn’t about austerity or prosperity, it seems more about marking time – an odd strategy for a Conservative administration delivering its first majority-government statement.
After months of speculation about draconian cuts in public spending, the government did little other than announcing that 19,200 public service jobs will be phased out, mostly by attrition over three years. Public-sector pension benefits also will be tightened.
Flaherty announced an annual spending reduction in the civil service of $5.2 billion that will take effect over three years but much of that was negated by increased spending to help employment and business investment. One economist figures there’s less than $1 billion of spending reductions on a net basis.
Overall program spending will rise on average by two per cent in the government’s forecast. “It’s keeping pace with inflation, and it’s a long way from draconian, or outright cuts,” said Douglas Porter, an economist with BMO Capital Markets.
There was no real urgency to act because “they came into this with their deficit much better than expected,” said Porter. “The deficit for the current year is now pegged at less than $25 billion, they had thought it was going to be $31 billion.”
“For the coming year it’s going to fall further to $21 billion. So we’re starting off in much better shape than we thought just as recently as a couple of months ago.”
There was even a budget surplus in the month of January. “We haven’t seen a monthly budget surplus in three years. It shows the underlying story has improved fairly meaningfully.”
Flaherty hasn’t changed his target date for budget balance of 2015-16 but he’s clearly given himself plenty of wiggle room should the economy get worse.
The budget “really doesn’t mark a watershed,” Porter said, but there were some important changes made just the same. The age of eligibility for Old Age Security was raised as expected from 65 to 67 but that won’t begin to take effect for another 10 years.
Speeding up environmental reviews for big projects like pipelines is perhaps important for business investment but is not a budget item per se.
“Other than that, the penny was the big surprise in this document and that really doesn’t make a difference” for the budget outlook.
Given the uncertain state of the global economy, Flaherty probably didn’t want to be too aggressive. “The On- tario government has already piled on some heavy restraint and we’ve had some pretty soggy employment numbers in the last six months.
The planned return to budget balance and the low level of federal indebtedness compared with other Western governments are encouraging, said Paul-andré Pinsonnault, an economist at National Bank of Canada.
With a debt-to-gdp ratio of 34 per cent in the fiscal year just starting, Canada still looks like the envy of Western nations and that ratio will fall to 28.5 per cent by 2016.
The government could have a been a bit more aggressive on age eligibility for Old Age Security, but chose to avoid any real impact on Baby Boomers by delaying implementation until 2023.
Among other measures, the budget will extend by one year the tax credit on new hiring for small business.
Employment Insurance premium increases will be limited and the government will bring in changes to the governance and oversight of Canada Mortgage and Housing Corp.
Maybe the only thing Canadians will get excited about, besides the demise of the penny, is that cross-border shopping limits will be raised.