Budget Predictions ...

Re-soled shoes for Flaherty in flinty budget that will spend to paint Tories green

Sun Feb 24, 4:03 PM

By Julian Beltrame, The Canadian Press

For months Prime Minister Stephen Harper has been preparing for an election campaign based on frugal stewardship of the country as it heads into an economic slowdown.

But just in case anyone missed the prime minister's preaching the virtues of parsimony, Finance Minister Jim Flaherty will drive the point home Monday by forgoing the usual new shoes for budget day and head to the Healthy Feet shoe repair shop in downtown Ottawa to pick up a pair of his re-soled brogues.

And if the point still eludes voters increasingly concerned about the economy, a camera crew from Conservative party campaign headquarters will be there among the news photographers to capture the images of a flinty finance minister scaling back in sympathy with any voter who might be experiencing tough times.

Flaherty is widely expected to introduce a budget Tuesday that will attempt to make a virtue of slowing growth. It will likely be high on rhetoric about encouraging Canadians to save and companies to invest, but low on the kind of big-ticket items that have characterized his past offerings.

It is also expected to be his last budget before an election.

The finance minister has spent the last few weeks crying poor, and picking fights with both federal and provincial Liberals about proposals he says would send the government into deficit.
Austerity will be central in Tuesday's budget.

Flaherty is expected announce another round of program review that will compel departments to find new cuts to their spending.

"You don't throw money around when times are tight ... especially now in a time of economic slowdown," Flaherty said in his last meeting with reporters before the House shut down last week.

But there is a widespread belief that Flaherty has more room to act than he lets on. Economists point to the $7 billion surplus on the books this year that Flaherty earmarked for debt reduction in October, plus a $3 billion contingency fund and a $1.6 billion planning surplus. And any more money the program review can scare up.

"I find it hard to believe we're going to have a budget that could possibly precede an election and have virtually nothing in it," said TD chief economist Don Drummond.

And as one Conservative insider put it: "Jim always likes to have a surprise or two in his budgets."

Those surprises are expected to include:
-Measures to encourage Canadians to save, either through an enriched RRSP program, an investment income deduction of up to $1,000, or an investment savings fund that would allow people to park and grow savings withdrawn upon retirement.
-A request for proposals for a carbon capture or sequestration pilot project in the Alberta tar sands.
-An extension of the lake clean-up initiatives he announced in the last budget, as well as funds for clean water projects. Much of this will build on programs aimed at winning votes in Ontario.
-Revamped and enriched programs to encourage research and development, such as the Science, Research and Experimental Development programs.

As well, Flaherty will likely sweeten the working tax income benefit, designed to increase incentives for low-income individuals to enter or stay in the work force.

He will also opt for a renewed and enhanced commitment to post-secondary education funding.

The merit of most of the initiatives is that they will cost the government little or will only hit the treasury in later years, when the economy is forecast to recover and government revenues rebound.

In his last round of consultations, Flaherty was also encouraged to set down markers for personal income tax reductions that would be realized in future years. He and previous governments have followed that route with corporate taxes.

Several insiders say Flaherty is likely to use a portion of his surplus for personal tax cuts by sweetening the Tax Back Guarantee from interest savings on debt, and for a one-time infrastructure fund that provinces can access.

Paying down the debt now, given the slowing state of the economy, would be a major mistake, said Jayson Myers, head of the Canadian Manufacturers and Exporters.

"There's far better ways of using the surplus," he said. "We know we need to improve infrastructure, we know we need to improve the border, we know we need to replace coal-based generating stations. These are all major things the government should be taking the lead on".
The wish list from those outside the Finance Department is long.

The NDP has asked the government to roll back business tax cuts and use the savings to bolster the beleaguered manufacturing sector. There is no chance of a tax-cut rollback.

And the left-leaning Canadian Centre for Policy Alternatives would go even further. On Monday, they plan to release their annual "alternative budget" calling for a rollback of $190 billion in tax cuts already announced and for the money to go toward combating global warming and poverty.
For Flaherty - who has vowed he will not be the finance minister who drags the government back into deficit - the relevant numbers are $1.4 billion and $1.3 billion.

Those are the surpluses forecast for the upcoming 2008-09 budget year and for next year. And if those numbers hold up, he can do very little.

Yet, Flaherty is expected to make a show of pulling some rabbits out of the tiny hat the slowing economy - and his previous spending - have handed him.

Almost certain to be included in the budget is an extension of the manufacturers' write-off on investments in machinery and equipment, at a cost of about $1.3 billion over five years.
The mining sector will get an extension of the exploration tax credit scheduled to expire March 31.

In his last round of consultations, Flaherty was also encouraged to set down markers for personal income tax reductions that would be realized in future years. He and previous governments have followed that route with corporate taxes.

Flaherty will also likely "re-announce" many of the measures he introduced in his Oct. 30 mini-budget, and the $1 billion community relief fund that was intended to be a centre-piece of this budget but was split off into a separate bill.

"They will resurrect many of the things they've announced in the past and make a show of being good stewards of the economy and say all they've already announced is stimulating the economy," said former finance official Len Farber.

But the meal is unlikely to satisfy, said Farber, now a tax analyst with Ogilvy Renault.
"It'll be a thin budget and it will be noticed."