Awash in windfall cash, the Conservative government took only baby steps to rein in spending despite election pledges to trim expenditures by $22.5-billion over five years.
The first Tory budget in 13 years is also unabashedly less prudent than previous Liberal fiscal plans in that it abandons the use of a $1-billion prudence cushion previously used to help safeguard against economic downturns.
While the budget made little headway on Tory pledges to trim spending, the Conservatives said they've asked Treasury Board president John Baird to look for savings of $1-billion this year and next.
Finance Minister Jim Flaherty said Tories are still serious about reining in spending and cutting unnecessary programs, but offered few details to match election vows.
"Our government is taking decisive action to get runaway spending under control," Mr. Flaherty said. "Canadians deserve to know their money is being used efficiently, effectively and on priorities that are important to them."
The election platform vowed to make $22.5-billion in trims to fund Conservative priorities.
The reality, as yesterday's budget indicated, is that Ottawa's need to restrain spending is not as dire as it might have been as a booming economy swells federal coffers.
Economic output is expected to be about $22-billion higher than previously expected in both 2006 and 2007 as Canada enjoys the fruits of a prolonged boom in commodity prices that is generating billions of dollars more in personal and corporate tax revenue.
As a result, Ottawa is expected to rake in a windfall of nearly $15-billion in unforeseen tax revenue between the 2005-2006 fiscal year and the 2007-2008 fiscal year, the budget reported yesterday.
Despite all this luck, the Tory budget remains vulnerable to being sideswiped by the economy and veering closer to deficit.
The Tories forecast an underlying budget surplus of $3.6-billion for the current fiscal year and $4.4-billion for 2007-2008.
But as budget documents show, a one-percentage-point hike in interest rates that's sustained for a year would cost the treasury $1-billion in revenue. Furthermore, a one-percentage-point decrease in economic growth would cost Ottawa's coffers $2.7-billion, the budget says.
If the Tories wanted to stay on track to find $22.5-billion in savings by reining in spending, they would need to find about $4.5-billion per year -- or $9-billion over two years.
By comparison, the Tories only expect to free up $3.6-billion in savings this year and next, partly by Mr. Baird's $1-billion-a-year savings program. They are also cancelling Liberal-established, climate-change abatement programs, which will save them another $400-million over two years, as well as the $1-billion-a-year daycare funding arrangement between Ottawa and the provinces.
(The Conservatives are using the cash from cancelled climate-change programs to pay for a new public-transit-pass tax credit.)
The Tory election promise was to rein in government spending increases so they matched growth in inflation plus population, which together are running at between 3 per cent and 3.5 per cent. By comparison, Ottawa's program spending will rise 5.3 per cent this fiscal year over last to $189-billion, and 4.1 per cent in the next year to $196-billion.
That's less than Liberal program spending increases that averaged 8 per cent over the last five years, but still short of the Tory target.
Canadian Taxpayer Federation national director John Williamson said the Conservatives aren't living up to their campaign pledge to ratchet back spending, and this will crimp their ability to offer more tax relief to voters in the next budget.
Pleading lack of fiscal room, the Tories are partly reversing an income tax break introduced by the Liberals. Fully preserving the cut would have cost $1.6-billion more.
