Canadian government to survive on modest budget

Tue Feb 26, 2008 6:16pm EST
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By Louise Egan

OTTAWA (Reuters) - The Conservative government presented a lean budget on Tuesday, designed to steer a steady course through tough economic times, but offering enough treats to prevent the opposition from voting it out of office.

The Liberal Party, trailing the Conservatives in many polls, quickly signaled it would back the budget even though they considered it a shallow document.

"In the circumstances, I don't see enough in this budget that would justify that we precipitate an election that Canadians do not want for now," Liberal leader Stephane Dion said outside the House of Commons, while Finance Minister Jim Flaherty was still delivering his speech.

In a move to encourage saving, Ottawa delivered an unexpected tax-free shelter for Canadians to squirrel away their extra cash, including capital gains.

Foreseeing shrinking revenue this year amid a possible U.S. recession, and also because of its own past tax reductions, Flaherty stuck to his pledge to pay down C$10 billion ($10.2 billion) in debt in 2007-08 and still balance the budget for the 11th consecutive year.

But he broke away from a commitment to reduce debt by at least C$3 billion in subsequent years, opting to inject some stimulus into the economy instead.

"Our government is taking the path that requires focus, prudence and discipline -- it's an economic plan rooted in reality," Flaherty told Parliament. "Instead of a year-end spending spree, we are giving Canadians a direct stake in -- and a direct benefit from -- debt reduction."

There were no blockbuster tax cuts in the plan, with Flaherty saying he had already done the heavy lifting on that front with a C$60 billion tax package last October.   Continued...

<p>Finance Minister Jim Flaherty smiles as he prepares to deliver the budget in the House of Commons on Parliament Hill, February 26, 2008. REUTERS/Chris Wattie</p>