The Conservative government has confirmed its string of federal deficits will run longer than planned, meaning money will be tight as provinces ramp up campaigns for new health and equalization transfers.
Declining government revenues for Ottawa and most provinces – triggered by slower growth and rising unemployment – will pose an added challenge as the Harper government must decide how to renew the current transfer deals that expire in two years.
Finance Minister Jim Flaherty said Tuesday he’s prepared to keep health transfers growing at 6 per cent a year until 2015-16, but is not making any promises beyond that.
Ontario Finance Minister Dwight Duncan is warning that his province feels short-changed by many of the existing deals.
“We’re going to be talking a lot about fiscal arrangements within the federation,” Mr. Duncan told reporters on Tuesday. “They need to be fair to Ontario.”
Meanwhile, Saskatchewan’s newly re-elected Premier Brad Wall suggested Tuesday he’d like to see the discussions touch on health care “innovation,” a term sometimes used to describe increased private-sector involvement.
“With respect to the health accord and transfers, the government has talked about 6 per cent. … We hope that’s the case,” Mr. Wall said. “But here’s something else I’ll say – we also would be open to the fact the federal government might say, ‘Look, we’d like to see dollars support innovation in health care.’ ”
Since it became clear in late summer that the European and U.S. economies would not rebound as world leaders had hoped, Prime Minister Stephen Harper and Mr. Flaherty have promised they would be “flexible” should that trouble hit home.
Now that it has, Tuesday’s federal economic update provided the first clear example of what this flexibility looks like. Ottawa’s timeline for erasing the deficit has been pushed out, employment-insurance premium hikes will be half the original planned increase on Jan. 1 and a temporary work-sharing program will be extended in response to a worsening Canadian economy.
The measures come on the heels of this month’s Statistics Canada report showing the Canadian economy shed 54,000 jobs in October – almost all of them full time jobs – as the unemployment rate climbed to 7.3 per cent.
As a result, the Prime Minister’s 2011 election campaign promise that Canada would be in surplus by 2014-15 is now only an “aim,” rather than the government’s official plan.
Instead, Ottawa is now promising to balance the books by 2015-16 if it succeeds in finding $4-billion a year through a strategic and operating review of government spending. Should that exercise fall short, the budget won’t be balanced until 2016-17.
The Finance Department’s numbers assume for planning purposes that increases in federal health-care transfers will continue at 6 per cent through 2016-17. The existing accord expires in 2013-14. Mr. Flaherty indicated that provinces should not bank on those numbers beyond 2015-16.
“The commitment is two years beyond the current accord – at 6 per cent with respect to the Canada health transfer,” Mr. Flaherty said Tuesday. “For planning purposes we run it out throughout the projected period at 6 per cent. That has to be seen in the context of the discussions that will take place.”
The size of the federal debt is now projected to rise from $550.3-billion in 2010-11 to $640.6-billion by 2015-16.
The Canadian Taxpayers Federation fumed that Mr. Flaherty “has betrayed millions of Canadians who voted for a balanced budget,” while NDP Interim Leader Nycole Turmel dismissed the statement as “tinkering” rather than a new job-creation strategy.
The opposition Liberals, who have repeatedly urged the Conservatives to freeze EI premiums, noted rates are still going up on Jan. 1.
“During times of high unemployment, any increase in job-killing payroll taxes is dangerous and reckless,” said Liberal MP Scott Brison.
The Canadian Federation of Independent Business said the higher rates will hurt employment, but the government’s announcement is still “good news” for employers who were bracing for worse.
Mr. Flaherty confirmed that instead of raising EI premiums by 10 cents per $100 of insurable earnings for employees and 14 cents for employers on Jan. 1, 2012, as previously announced, the increase will be limited to five cents for employees and seven cents for employers.
As for Mr. Flaherty’s deficit timeline, there are several ways in which the final numbers could come in better than currently planned – giving the Conservatives some positive political news as they approach the next federal election.
For instance, if the short-term risks to the Canadian economy from Europe do not materialize, Ottawa’s deficit will be smaller. Similarly, if Ottawa finds more savings than planned, or economic growth beats expectations, the small planned deficits in the outer years could vanish.
With reports from Nathan VanderKlippe in Calgary and Josh Wingrove in Regina
The new math
2014-15: The year the Conservatives promised to balance the books during the 2011 election campaign, based on a plan to find $4-billion a year in government savings.
2015-16: The year Ottawa now says the books will be balanced, should the cost-savings exercise hit its target.
2016-17: The year the books will be balanced if Ottawa fails to find $4-billion a year in savings.
Before accounting for spending cuts, Ottawa is now planning for deficits of $31-billion in 2011-12, $27.4-billion in 2012-13, $17-billion for 2013-14, $7.5-billion for 2014-15, $3.4-billion for 2015-16 and a surplus of $500-million for 2016-17.
In contrast, the government’s June budget forecast deficits of $32.3-billion for 2011-12, $19.4-billion for 2012-13, $9.4-billion for 2013-14, $300-million for 2014-15 and a surplus of $4.2-billion for 2015-16.
– Bill Curry