June 6, 2011 / 8:13 PM / in 6 years

Government charts return to balanced budgets

<p>Finance Minister Jim Flaherty prepares to deliver his budget in the House of Commons on Parliament Hill in Ottawa June 6, 2011.Chris Wattie</p>

OTTAWA (Reuters) - The government unveiled a budget on Monday that reasserted its aim to make Canada the first Group of Seven industrialized country to return to balanced books.

The budget is almost identical to the one the Conservatives presented in March but which never came to a vote before the government was toppled by the opposition parties, which at that point had a majority of seats in the House of Commons.

The Conservatives won a majority in the May 2 election, which means the new budget will be approved quickly in Parliament. Prime Minister Stephen Harper campaigned for reelection on the idea of staying the economic course and not hiking taxes.

Finance Minister Jim Flaherty's budget formally projects deficits through 2014-15, when it sees a C$300 million gap. But Flaherty said the government should actually be able to run a C$3.7 billion surplus that year by cutting spending.

The government plans to save C$11 billion over four years through a spending review, but it did not formally book the savings in this budget, saying it did not know yet what programs would be cut.

Canada ran 11 straight budget surpluses from 1997-98 until it ran a deficit in 2008-09 as the global recession struck.

In reaction to the recession, Ottawa embarked on a two-year stimulus program that pushed the budget deficit up to C$55.6 billion in 2009-10, a record in nominal terms. The deficit fell to C$36.2 billion last year.

The budget projects a deficit of C$32.3 billion for the 2011-12 fiscal year, shrinking to C$19.4 billion in 2012-13, C$9.4 billion the next year and just C$300 million in 2014-15. These figures do not account for any spending cuts the government may implement.

Flaherty told reporters the spending review would undoubtedly eliminate some programs and he said he was optimistic the government could trim 5 percent from direct expenditures.

"It's really quite amazing, if not shocking, that there has not been an operational review of the government of Canada's operations in 15 years," Flaherty said.

Transfers to Canada's 10 provinces to help cover health costs will not be affected by budget cuts.

"It looks like billions of dollars of cuts are being hidden away," New Democratic Party leader Jack Layton told reporters.

"So our job as the official opposition is going to be to root out what it is that the government's up to."

The government will also press ahead with long-standing plans to phase out direct subsidies of political parties. That is likely to hurt the opposition parties, which have been less adept than the Conservatives at raising money from the public.

The Conservatives have a much broader base of supporters than the other parties, and this will make it tougher for the opposition to campaign effectively ahead of the next federal election in 2015.

The budget also books C$2.2 billion to be given to the province of Quebec for harmonizing its sales tax with the federal goods and service tax.

Bob Rae, interim leader of the opposition Liberal Party, highlighted to the fact that the budget was mostly a repeat.

"This is a groundhog budget," he said. "There's the same spirit of complacency."

Additional reporting by Chandra Ramarathnam; Editing by Peter Galloway

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