National Post (National Edition)
ECONOMY GIVING OTTAWA NO BREAKS
OTTAWA • The Conservative government says it is continuing along a narrow fiscal path on the way to balancing its books within the next two years.
But weaker revenue — hampered by recently discounted Canadian oil prices — and a stumbling post-recession rebound have not made that job any easier.
The challenge Ottawa now faces, as it has since the economic downturn, is finding the money to spend on skills training and funding infrastructure projects.
On Thursday, Finance Minister Jim Flaherty addressed some of those concerns in his Budget 2013, telling reporters: “I want our country to be on very solid ground … in case, in the future, we have another crisis.”
Some of the fiscal breathing room will be realized by closing tax loopholes, characterized by the budget as “complex structured transactions that have allowed a select few to avoid paying their fair share of taxes.”
These loopholes include transactions in which the taxes on certain sales can be deferred for an extended period of time. Often these involve closely held private corporations and their owners. According to government figures, Ottawa could claw back about $4.4-billion over the next five years.
“We will not raise taxes,” Mr. Flaherty said. “But new measures to close tax loopholes will help ensure everyone pays their fair share.”
Also on the revenue side, Ottawa expects to bring in $263.9-billion this year, up from $254.2-billion in 2012. For 2014, income is forecast at $279.6billion.
The government has cautioned that revenue could take a temporary hit from lower taxes on commodities — oil in particular.
“Indeed, lower prices for Canadian crude oil, as well as for natural gas, relative to global benchmarks, are reducing gross domestic product by about $28-billion per year, translating into over $4-billion annually in potential federal government revenues,” the budget says.
The minister also confirmed the manufacturing sector will see a twoyear extension to the Accelerated Capital Cost Allowance, which provides $1.4-billion in write-offs for investments in machinery and equipment.
True to his pre-budget proclamations, Mr. Flaherty stuck to his timeline of 2015 for erasing the federal deficit — estimated to be $25.9-billion in 2012-13, down from of $26.2-billion in 2011-12.
Thursday’s budget estimates the shortfall will be whittled down to $18.7-billion in fiscal 2013-14, narrowing to $6.6-billion in 2014-15. The break-even point would come the following year when the ledger will go from a slight shortfall to a small surplus of $800-million.
“Our government is committed to balancing the budget in 2015 — period,” Mr. Flaherty told Parliament.
The government has estimated the surplus will rise to $3.9-billion in 201617 and reach $5.1-billion a year later.
“In uncertain global economic times, the most important contribution a government can make to bolster confidence and growth in a country is to maintain a sound fiscal position,” the minister said.
Mr. Flaherty confirmed the economy will underperform this year, with gross domestic product expected to grow by just 1.6% in 2013. That is down from the minister’s previous estimate of 2% this year.
Mr. Flaherty, along with many economists, still anticipates a pickup later in the year, leading into stronger growth in 2014. The budget sets GDP at 2.5% growth next year, followed by 2.6% in 2015, before slowing to 2.4% in 2016.
The biggest unknown in these forecasts is how the European debt and banking crises will play out and whether the United states, still Canada’s biggest trading partner, will get its fiscal house in order. On the plus side, any improvement in U.S. spending and a healthier Europe export market will benefit Canada. “The global economy is still fragile. And, some of our biggest trading partners are among the worst affected. This makes our job more difficult,” Mr. Flaherty told Parliament.
Bank economists praised the budget plan as feasible, but said if the economy worsened the government should be wary of more extreme austerity measures like those that have hammered growth in the United Kingdom and elsewhere.
“The fact that 2015 is an election year makes it more likely that we’re actually going to see the books balanced,” said Sebastien Lavoie, assistant chief economist at Laurentian Bank Securities.
“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,” he said.
The opposition New Democratic Party slammed the Conservatives for what it called excessive cutbacks that could harm the economy.
“What we have here is an austerity budget ... You cannot austere your way out of a crisis,” said NDP leader Thomas Mulcair.