Minister of Finance Jim Flaherty speaks at a pre-budget press event at the factory for the Canadian shoe company Mello Shoes in Toronto on Friday February 7, 2014.Aaron Vincent Elkaim/The Canadian Press
Finance Minister Jim Flaherty has introduced a cautious budget for an uncertain economy, centred on a promise to drive Canada's debt burden below pre-recession lows.
Expecting only modest growth in the next few years, Mr. Flaherty offered no broad stimulus measures but focused on a "stay the course" approach that promised debt relief.
The minister announced a menu of modest and targeted measures aimed at protecting consumers, enhancing innovation and supporting labour market training.
Four years after emerging from recession, Canada remains vulnerable to global economic turmoil even as households rely too much on credit rather than rising incomes to fuel consumer spending, the minister said as he delivered his budget.
"The world economy is still fragile – one need look no further than Europe and the emerging economies to see that," he said.
"Here at home, household debt is still higher than we'd like to see. And there are still too many Canadians looking for work, and too many employers looking for workers."
Based on private sector forecasts, Ottawa expects the Canadian economy to grow 2.3 this year and 2.5 per cent in 2015, slightly lower than the growth rates anticipated last fall.
The Conservative government also expects the jobless rate to gradually fall, from 7 per cent currently to an average of 6.8 per cent this year and 6.6 per cent in 2015.
The minister said the Harper government would put the country back in the black by 2015-16 – and perhaps as early as this coming fiscal year – after running annual deficits since 2008-09.
But with surpluses looming, he insisted the government would not indulge in a spending binge ahead of the anticipated election in the fall of 2015.
"We will make sure Canada's fiscal position remains strong, strong enough to weather any future global economic storms," he said. "And that starts with paying down the debt."
Over the past five years, the Harper government has added roughly $150-billion to the federal debt as it steered the country through the worst recession since the Great Depression.
After posting a record deficit of $55.6-billion in 2009-10, Ottawa now expects a shortfall of $16.6-billion this year and a $2.9-billion deficit in the coming year, though with a $2.5-billion cushion, the 2014-15 budget could easily end up in the black.
Mr. Flaherty forecast a surplus of $6.4-billion in 2015-16, growing to $10-billion by 2018-19. That assumes, however, that the Conservatives don't shower voters with tax breaks in the next budget, the last one before an anticipated 2015 election.
Based on current projections, the federal government's debt burden would shrink from 33 per cent of gross domestic product this year to 27 per cent in 2017-18 – hitting pre-recession levels.
At a G20 meeting in Russia last September, Prime Minister Stephen Harper said Canada would reduce its debt-to-GDP figure – already the lowest in the G8 – to 25 per cent.
While the budget contained no major new spending or tax cuts, Mr. Flaherty did provide selective help for businesses and consumers.
Among the biggest-ticket items:
· Allocating $500-million in loans over two years for an Automotive Innovation Fund, which could be tapped by Chrysler as it looks to re-invest in Windsor plants;
· Providing up to $100-million a year for interest-free loans for apprentices who train in the trades – part of an effort to address business complaints about a shortage skilled workers;
· Selective infrastructure spending totalling $376-million over two years, including bridges in Montreal and between Detroit and Windsor to enhance the flow of commercial traffic;
· Measures that impose price controls on roaming fees for cellphones and promises to reduce the gap in prices between the U.S. and Canada by outlawing a corporate practice known as country-specific pricing;
· Although he warned about soaring consumer debt, Mr. Flaherty offered no new measures to combat it. But the Canada Mortgage and Housing Corp. will continue to reduce its insured-mortgage program and, in the budget documents, the government promised "to make further adjustments as necessary."
Business executives welcomed the emphasis on balancing the budget but are looking for more action next year, once the red ink has been eliminated.
"This year was about balancing the budget," Jayson Myers, chief executive at the Canadian Manufacturers & Exporters association, said. "The auto fund investment was an important bonus."
Mr. Myers said his members will be looking for an extension of the accelerated capital cost allowance in the next budget, before it expires.
The federal government has identified skills and jobs as top priorities, though "there's not really that much activity in the budget," Glen Hodgson, chief economist at the Conference Board of Canada, said.
While there are promises, the actual spending is "all a year or two years down the road," Mr. Hodgson said. "So it's almost like a set-up budget for future action."