With his first majority budget, Stephen Harper has laid bare his vision for the future Canada: Government will be smaller and less intrusive, individuals will take more responsibility for their own retirement and business will return to driving the economy.
The 2012 budget is a showcase for Mr. Harper’s hands-off political approach, one that combines sweeping spending cuts to the public service with a handful of targeted policy changes geared to drive future investment.
Ottawa plans to chop 19,200 public-service jobs, cut federal program spending by $5.2-billion a year and, in perhaps its most controversial move, extend the retirement age of millions of Canadians to 67.
The budget was billed as an effort to make hard choices now so that federal programs and benefits are sustainable over the long term, but the level of cuts was more cautious than many had expected – neither calming union fears nor satisfying fiscal hawks.
There were some economic measures that were clearly in keeping with Mr. Harper’s economic vision. On natural resources, the government is clearing away regulatory hurdles to drive Canada’s energy sector and stepping up its battle with oil industry opponents.
But there also are some surprising departures. For the first time, Mr. Harper’s defence-minded government is cutting back on military spending. And while attempting to expand economic ties overseas through trade, the government is slashing budgets for diplomacy and aid.
“We are fiscal conservatives, we are a majority now, the economy is growing – albeit modestly. … We’re looking to the future,” Finance Minister Jim Flaherty told the House of Commons. “We have a rare opportunity to position our country for sustainable, long-term growth.”
If that economic growth continues, the federal deficit could be erased sooner than planned through a mix of stronger growth and slightly more aggressive spending cuts. For all the talk about reduced spending at various departments, the government remained vague about where those cuts would be felt.
The budget includes a long-term cost-cutting measure that will see the age of eligibility for the Old Age Security pension and Guaranteed Income Supplement for low-income seniors rise to 67 from its current 65. The change will start in 2023, meaning all Canadians who are 54 and older as of this weekend will not be affected.
For the millions of Canadians who will be affected, it will mean added pressure to save more and to consider a later retirement at a time when Canadians are holding record levels of household debt. The government’s decision to include GIS in the change is already generating controversy, as the program is geared at Canadian seniors with incomes under $16,368.
NDP Leader Thomas Mulcair went so far as to say the budget would stoke generational tensions between baby boomers and Gen-Xers.
But early reaction to the budget from the business community struck a more positive tone.
Former Liberal finance minister John Manley, who now runs the Canadian Council of Chief Executives, said the Harper government is showing the business community it is serious about reversing the massive stimulus that got the country through the recession, but that it recognizes there is still a need to tread with some caution. At the same time, Mr. Manley said it is the right time to start relying much more on the private sector, and he is confident businesses will deliver.
“If you create a positive business environment, business will generate economic activity and that will create jobs and prosperity,” Mr. Manley said, adding that about 35 of his group’s members are planning more than $100-billion in capital spending over the next three years – much of which will be helped along by measures in the budget.
Political spinners often say a successful budget is one that is quickly forgotten, but this one appears to have legs. Due to its vagueness as to where $5.2-billion in savings will be found, details are expected to emerge in the coming days and weeks as to what programs and services will be cut.
Through much of the recovery, policy makers have urged companies to increase investment, not just to help themselves with new rivals in emerging markets and re-orient their exports away from the shaky U.S. market, but also to power the domestic economy after debt-strapped governments and consumers were no longer able to keep spending.
Still, for many, especially labour, environmental groups and the opposition parties, the business-friendly aspects of the budget are juxtaposed against the measures that start to reshape Ottawa’s social spending.
With a report from Dakshana Bascaramurty in Toronto