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Thursday's budget from Finance Minister Jim Flaherty is shaping up to be far less ambitious than his sweeping 2012 budget. Last year's document was so full of policy measures – including deep budget cuts and reforms to immigration, environmental laws and Old Age Security – that it took months before its impact was fully understood (and detailed in two large budget bills).
Thursday's budget is expected to have a much more narrow focus. Here are five things to watch for when Mr. Flaherty tables his 2013 budget.
1. The return to balance
All other parts of the budget revolve around this pledge. Prime Minister Stephen Harper has made it crystal clear that he wants to see the deficit erased before the next federal election in 2015. This will be a challenge for Mr. Flahery, who had tried to give himself a bit more wiggle room in November with a fiscal update that pushed off the timeline for balance to 2016-17. Now he must deliver a budget that returns Ottawa's target to 2015-16. He must do this with less revenue than expected due to slower economic growth. Something has to give.
2. Spending cuts
On this, the minister has been cryptic. Unlike the run-up to the 2012 budget, which was clearly built-up as a cost-cutting budget, there were no big signals throughout the year that the Conservatives were planning anything more than letting the 2012 budget's three-year plan of spending cuts play out. However, in recent weeks, Mr. Flaherty has hinted that more cuts could be coming. They are unlikely to be large. If they are, the Conservatives risk catching Canadians by surprise. Big negative surprises rarely go over well in politics.
3. Skills and innovation
Anyone who has listened to a speech over the past year from the Prime Minister or any of his economic ministers will know that demographics and labour shortages are a major policy preoccupation for the government. Last year's budget paved the way for several changes – some controversial – to immigration and Employment Insurance that are aimed at tackling the challenge of skilled jobs going unfilled. The next step is expected to focus on skills training and innovation. Ottawa has little money for big new programs, so expect to see some shuffling of existing spending in the hope of getting better results. That will likely mean a pledge to renegotiate the terms of deals with the provinces that see about $2.5-billion transferred from Ottawa to the provinces for skills training.
In a budget that is expected to be light on new spending, this is expected to be the one big exception. A multibillion-dollar infrastructure program with the provinces is set to expire in 2013-14 and the 2013 budget will announce its replacement. At least $3-billion in transfers are already promised to municipalities. Canada's cities have called for about $6.6-billion annually over 20 years. But mayors know 2013 is not a good year to be asking for money, and will likely be happy with a middle-ground compromise. The Federation of Canadian Municipalities has said they are expecting between $4.25-billion and $5-billion annually for a deal that will be longer than seven years.
5. The surprise
Most finance ministers – who are accustomed to dishing out plenty of bad news – generally like to pepper their budgets with a few consumer-focused items that are likely to be popular. Last year it was the end of the penny and a new national park in the Greater Toronto Area. In 2011, Mr. Flaherty banned unsolicited credit card cheques. What does Mr. Flaherty have up his sleeve this time?
Bill Curry covers finance in The Globe and Mail's Ottawa bureau.
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