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Canada's Finance Minister Jim Flaherty reacts during Question Period in the House of Commons on Parliament Hill in Ottawa February 14, 2011. (CHRIS WATTIE/Chris Wattie/Reuters)
Canada's Finance Minister Jim Flaherty reacts during Question Period in the House of Commons on Parliament Hill in Ottawa February 14, 2011. (CHRIS WATTIE/Chris Wattie/Reuters)

Analysis

A path to a balanced budget - but no road map Add to ...

Finance Minister Jim Flaherty's short-lived budget offers few clues how Ottawa would make its $40.5-billion deficit vanish.

Now that a federal election seems inevitable, the question is whether the opposition is willing to provide a distinctly clearer view of Canada's economic and fiscal future.

The recession has caused lasting damage. Canadians are getting older and needier. Health care costs are soaring. And the rest of the world is awash in uncertainty - from Middle East unrest and European debt woes to Japan's nuclear power nightmare.

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In face of all that, Mr. Flaherty offered uber-caution. As he readily admitted, this budget is really about staying "on track," not about radical change. The Conservative budget promises a balanced budget within five years, and lower taxes.

The budget, which Mr. Flaherty dubbed a "low-tax plan for jobs and growth," now becomes the Tories' economic election plank.

So what would the opposition do differently?

The Liberals have vowed fiscal prudence, focused first on spending. That includes scrapping the final instalment of a series of corporate tax cuts slated for next January. Beyond that, their economic and fiscal plan remains a bit of a mystery.

The rest of the opposition wants more spending, but isn't clear how they would pay for it. The New Democratic Party, for example, said it can't back the budget because it doesn't give nearly enough to seniors, homeowners and low-income Canadians.

Mr. Harper's budget - now headed for almost certain defeat because none of the opposition parties supports it - would throw some modest tax breaks at a few favoured constituencies, including small businesses, manufacturers, volunteer firefighters, caregivers and parents.

Mr. Flaherty also launched a comprehensive review of all federal spending, with an aim to slashing as much as $4-billion a year, but offered no hint on how to get there.

There was scant detail on how the government would wipe out this year's estimated $40.5-billion deficit by the target of 2015.

A move to close some popular tax loopholes - $4.1-billion in savings over the next five years - would exceed the sum of any new tax breaks.

In his speech to Parliament, Mr. Flaherty returned to a favoured theme - that life in Canada is pretty good compared to much of the rest of the world. The economy is doing relatively well. The deficit is on a downward track. Taxes are headed lower.

"We have a plan ... a plan that is working well," Mr. Flaherty assured members of Parliament.

The plan would see Ottawa virtually eliminate the deficit in 2014-15, and then generate a surplus the next year.

Most economists suspect the path to surplus could be longer, and bumpier.

The problem, critics worry, is that the path to balance - or surplus - is not yet very clear. And Mr. Flaherty offered no roadmap Tuesday.

The government assumes that its revenues will gradually come back as the economy improves.

It's using relatively prudent estimates of future economic growth. Mr. Flaherty is assuming that the economy will grow more slowly over the next five years than private forecasters expect - a nod to the economic uncertainty out there.

Mr. Flaherty estimates that government revenues will grow from $235.6-billion this year to $309.2-billion in 2015-16.

The government has also built an implicit $1.5-billion contingency into its budget projections, just in case the economy stumbles.

But a better economy will only go so far. It will eventually take real spending cuts to get the budget to balance - cuts that could prove painful for many Canadians.

"Without cuts to programs, I don't see how they're going to do it," said Peter DeVries, a senior Finance official in both the Chrétien and Martin governments.

And Mr. Flaherty pledged again Tuesday not to cut transfers to the provinces for health care and social services. The catch is that under existing deals, the provinces are getting about 6 per cent more every year. Those agreements are due to expire at the end of 2013 - smack in the middle of Mr. Flaherty's forecast period.

Even holding the line on government spending won't be easy at a time when Canadians want - and need - more from Ottawa. The aging population is expected to put an increasingly heavy strain on federal and provincial budgets in the years ahead.

Overall, Ottawa projects that program costs will rise to $265.6-billion in 2015-16 from $245.7-billion this year.

The cost of servicing the federal debt is also forecast to rise - to $39.4-billion in 2015-16 from $30.8-billion this year.

Barring an economic boom, the hard work still lies ahead - whichever party wins the next election.

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