Looks Good but is it True?
Arthur Drache, March 04, 2010
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| We have been covering federal budgets for well in excess of thirty years and we learned a long time ago that there is a difference between what governments lay out for public consumption and what actually happens. |
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| Indeed, in the twenty or so years before Paul Martin became Finance Minister, fiscal projections were laughable and you could bet the mortgage that the numbers Finance put before us were economic nonsense. That changed with Martin and if there was any reason to criticize, it was simply that he was so conservative that the final numbers (particularly on surpluses) were much higher than predicted. |
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| What we have seen in the past two years has been a return to laughable economic predictions in the Budget and economic statements of 2008. So there is no doubt that Finance Minister Flaherty has a sceptical audience when he lays out this government's exit strategy and deficit elimination programme. |
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| In a nutshell the 2010 Budget outlines a three-point plan for returning to budget balance once the economy has recovered. (Of course, it is not abundantly clear, though there are hopeful signs) that the economy is in a sustainable recovery, but that is another matter. |
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| . First, the Government will follow through with the exit strategy built into the Economic Action Plan. Temporary measures in the Action Plan will be wound down as planned. |
| . Second, the Government will restrain spending through targeted measures. Towards achieving this objective, Budget 2010 proposes $17.6 billion in savings over five years. (How this "saving is calculated is quite another story.because you have to have an original figure against which to measure in order to come up with savings.) |
| . Third, the Government will undertake a comprehensive review of government administrative functions and overhead costs in order to identify opportunities for additional savings and improve service delivery. |
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| The Government will not raise taxes and will not cut major transfers to persons and other levels of government. This of course has been the mantra from the beginning.namely that even with huge areas of financial transfer being untouchable and with the promise of no new tax increases, Canada will end up in a rosy fiscal situation a few years from now. |
| As a result of the expiration of the Economic Action Plan and the measures in this budget, the deficit is projected to decline by almost half over the next two years to $27.6 billion in 2011-12, and by two-thirds to $17.5 billion in 2012-13. In 2014-15, the deficit is projected to be $1.8 billion. |
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| The government says it will limit annual spending growth to about 2.5 percent - less than half the average annual increase of the previous decade. |
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| About a third of the budget savings will come from a cost crackdown, including a freeze on departmental operating budgets at 2010-11 levels and frozen salaries for the prime minister and lawmakers. It is not clear what the impact will be on the salaries and pension of public servants and while most Canadians couldn't care less, this is an issue which goes to the efficient functioning of government. |
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| The government will cap the foreign aid budget at 2010-11 levels and take a new look at defense spending once the military mission in Afghanistan ends in 2011. The government said tougher enforcement of tax laws and other smaller spending cuts also help shrink the budget gap. (We can never remember a crackdown on tax evasion which generated enough income in the overall budgetary process to make much difference. |
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| The government was under heavy political pressure to balance the books and in our view is prepared to cook the numbers and the assumptions to achieve that P.R. goal. Flaherty said Canada's deficit will peak at about 3.5 percent of GDP and total net debt - which includes provincial debt as well as public pension assets - as a proportion of GDP is projected to remain the lowest in the G7 at about 29 percent in 2014. |
| Now we always struggle against cynicism but we find it almost impossible to buy Flaherty's plan, his optimism and his numbers. |
| There were comparatively few tax changes announced and most of them were either benign or of a minor relieving nature, often simply technical. (see other article in this issue.) |
| The huge surprise in all of this was a complete rewriting of the rules with regard to charitable disbursements.essentially eliminating some of the most complex provisions which often have to be understood by volunteers. This is the result of a request by a couple of charity umbrella groups to Finance and the Finance Committee and in truth we thought that there wasn't a chance the idea would be adopted. So much for expert observation! |
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