The Conservative government is promising to wipe out Canada's $54-billion deficit by the middle of the decade without inflicting pain on middle-class voters, who could determine the party's fate in the next election.
Finance Minister Jim Flaherty unveiled a transition budget on Thursday, one that marks the last leg of a massive stimulus program while simultaneously setting the stage for a prolonged period of austerity.
Yet the government is hoping to shoulder the bulk of this austerity itself, or at least to cut spending in areas that will not be felt or seen by ordinary Canadians.
The Conservatives plan to eliminate $17.6-billion in spending over the next five years by clamping down on the public sector, closing tax loopholes for the wealthy, and scaling back on foreign aid and the military. Total new spending, meanwhile, will amount to just $1-billion annually over the next five years, making this the leanest federal budget since 1997.
Stephen Harper's government is determined to erase the deficit without resorting to tax increases or cuts to education and health care - unpalatable options if Canadians go to the polls this year. Critics say the strategy is both unworkable and too optimistic, with little margin for error.
Mr. Flaherty dismissed these criticisms, although he vowed he would cut deeper if necessary.
"We can do more if we had to, but we are getting to balance," said Mr. Flaherty, who promised a surplus by the 2015-16 fiscal year. "I don't like running deficits. We had to run this deficit temporarily because of the most serious economic crisis since the '30s, but it doesn't mean we continue with it."
All three opposition parties vowed to vote against the budget, saying it fails to do enough to protect jobs in a still fragile economy. But Liberal Leader Michael Ignatieff said his MPs would ensure the Conservative government is not defeated because Canadians do not want an election.
From a political perspective, Harris Decima pollster Bruce Anderson said the government is cutting in areas that are the least likely to be opposed by the public."If we're wondering what are the lightest pain points for a government, in terms of where to cut spending, those two [defence and foreign aid]would be at or near the top of the list always," he said.
Mr. Anderson said the Tories are taking a political risk by stretching out deficits for the next six years. But the upside is that the economy could stage a stronger than expected rebound, enabling the country to skirt more painful cuts.
There was little to surprise in yesterday's budget. As expected, the document outlined a move away from unprecedented, emergency stimulus spending, and toward a long battle with the deficit created by that spending.
This year, the government will spend the remaining $19-billion of its stimulus package, and it will shift more of this money to programs like job-sharing initiatives that have proved successful.
By next spring, however, that money will have been spent, and the government will be focused on austerity measures.
Administrative and program savings in departments will make up the largest share of the budget's restraint measures at $8.1-billion, followed by $4.5-billion in foreign aid, $2.5-billion from National Defence and $2.5-billion by closing tax loopholes.
Although there were several spending initiatives geared to research and education, and much talk about fostering innovation, the amounts were relatively meagre, with total spending accounting for just $1.1-billion.
The level of detail on cost savings is meant to counter criticism from former finance officials who have warned the government faces an ongoing "structural" deficit of about $19-billion.
"This is a big government and to start turning the ship around… we have to make some tough decisions," said Mr. Flaherty, stating that these decisions will ensure Canada does not have a structural deficit.
Mr. Flaherty's critics, however, remain unconvinced.
Peter DeVries, the department's director of fiscal policy from 1990 until he retired in 2006, says the deficit plan doesn't go far enough.
Mr. DeVries said the measures on defence, foreign aid and tax loopholes will produce savings, but he maintains his concern that the government is overly optimistic in terms of future tax revenue and its potential success in finding internal savings.
"There's still a structural deficit," he said yesterday, estimating that it is now slightly smaller at $15-billion.
In the budget's single biggest measure aimed at making Canadian companies more competitive, $300-million in cost cuts is provided for Canadian manufacturers by reducing tariffs on a wide range of imports used in production.
The government billed the measure as a major move, but Jayson Myers, president of Canadian Manufacturers and Exporters, said it is a "pretty marginal benefit" to manufacturers who rack up $500-billion in annual sales.
With a report from Shawn McCarthyReport Typo/Error