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Finance Minister Jim Flaherty speaks to reporters before delivering a speech in Vancouver on Aug. 30, 2009. (DARRYL DYCK/The Canadian Press)
Finance Minister Jim Flaherty speaks to reporters before delivering a speech in Vancouver on Aug. 30, 2009. (DARRYL DYCK/The Canadian Press)

Globe editorial

<reference type="image" priority="-1" element="TITLE.inline" source="ece-v4-image" sourceid="207061" align="left" alttext="" />More bluntness, please Add to ...

Jim Flaherty, the federal Minister of Finance, in his fiscal update on Thursday, sensibly lowered expectations about a return to a budget surplus, but he evaded the probable need to make cuts to federal transfer payments or to raise taxes.

It is true that, at the moment, economic prospects are looking up, most strikingly in the revival of merger and acquisition activity, and in the winding down of emergency relief for banks in the United States, announced by Timothy Geithner, the Secretary of Treasury; calm is being restored on Wall Street, the very epicentre of the financial crisis. And the Bank of Canada's comparatively favourable forecasts are now earning some corroboration. But the future course of Canada's gross domestic product is uncertain, and may yet be jagged.

Transfer payments make up a very large part of federal expenditures. To a great extent, the Crown in right of Canada is a paymaster and a tax collector more than it is an administrator. The federal government's regular operating expenses for fiscal 2009-2010 will be only about a quarter of its total spending.

The key passage of the fiscal update says there will be spending-growth restraint on direct program spending, in contrast to protection of the "growth track" of major transfers to persons and provinces. Meanwhile, there is an undertaking not to raise taxes - though the fine print leaves open the possibility of a rise in employment-insurance premiums.

The upshot is that Mr. Flaherty and his colleagues are relying heavily upon economic recovery for the repair of the federal government's finances, rather any policy changes. For example, there is little hope of any action to restrain the relentless upward pressure of health-care costs - which the previous recession and the resulting budgets of Paul Martin temporarily limited.

It is difficult to refrain from interpreting this week's fiscal update in the light, or shadow, of the impending federal election - a time when politicians are naturally reluctant to deliver unwelcome news. Since the financial crisis struck, the Harper government has shown a willingness to change course suddenly, with little warning. If it stays in power, it may yet deliver less welcome news on spending and revenues.

As for the Liberals, John McCallum, their finance critic, responded to the fiscal update by saying they likewise would not raises taxes or cut transfers. In this, the two largest parties are in accord.

If symptoms persist, the discussion of public finance in the probable autumn election will be notably barren.

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