Canada budget to favor restraint over stimulus

Tue Feb 11, 2014 6:49am EST
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By Louise Egan

OTTAWA (Reuters) - Canada's Conservative government will present a cautious budget on Tuesday, lacking any big new measures, as it lays the groundwork for a surplus in 2015 that will allow it to offer tax breaks and other goodies before an election late in that year.

Finance Minister Jim Flaherty is eager to eliminate the government's relatively small budget deficit and restore the reputation Canada had before the financial crisis as having the strongest fiscal record in the Group of Seven major economies.

Infrastructure projects, youth employment and reducing the price difference between Canadian and U.S. consumer goods, possibly through tariff reductions, are some of the budget initiatives Flaherty hinted at in television interviews on the weekend.

But his No. 1 goal is to control spending.

"There will be initiatives in the budget that will help continue to encourage economic growth, jobs and prosperity in Canada," Flaherty said on Friday.

"But the primary function of the budget is to make sure that we stay the course, that we keep Canada the envy of the world, and that we make sure that we don't waver from the path of fiscal responsibility."

Canada had 11 straight years of surplus before the global financial crisis, but plunged into a deficit in 2008-09 as a result of stimulus spending and tax cuts. Germany is currently the only G7 country running a budget surplus.

The federal deficit stands at about 1 percent of gross domestic product (GDP). But the "general government deficit", which includes provincial governments and is used for international comparisons, was forecast at 2.2 percent of GDP in 2014 by the Organization of Economic Cooperation and Development. That compares with a 2.5 percent deficit in the European Union and a 5.8 percent deficit in the United States.   Continued...

Minister of Finance Jim Flaherty speaks after trying on a new pair of shoes during a pre-budget photo opportunity at Mellow Walk Footwear in Toronto, February 7, 2014. REUTERS/Aaron Harris