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Business Briefing Budget 2013: Don’t spit tobacco, get off your butt and shoot clay pigeons instead

These are stories Report on Business is following Friday, March 22, 2013.

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Budget themes
Finance Minister Jim Flaherty wants us to get off our butts and do something healthy, be it skating, snowboarding or golfing. Or making babies.

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For those who might have missed it, one of the themes in yesterday's budget, along with fiscal restraint, is healthy living.

As in, this document isn't aimed at lazy people who smoke and aren't into golf.

The budget slashes some $76-million a year in tariffs, which the government says is meant to both lower prices on goods that cost more than they do in the United States despite the rise of the Canadian dollar, and encourage fitness.

"The government shares Canadians' concerns about the Canada-U.S. price gap and wants to see lower prices for consumers," it says in the budget.

"In order to lower prices for Canadian families, Economic Action Plan 2013 proposes to eliminate all tariffs on baby clothing and sports and athletic equipment," it adds.

"The latter includes products such as ice skates, hockey equipment, skis and snowboards, golf clubs and other equipment to promote physical fitness and healthy living, consistent with past initiatives such as the children's fitness tax credit."

Some of us may have preferred lower prices for things like couches, big-screen TVs and beer, but Mr. Flaherty is taking the high road, slashing certain import tariffs as of April 1.

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Gone is the 18 per cent on skates, the 2.5 per cent to 18 per cent on hockey equipment, the up to 20 per cent on skis and snowboards, the up to 7 per cent on golf clubs, and the 6.5 per cent on exercise equipment.

And the 18 per cent on baby clothes, in case you want to skip Sunday afternoon golf and exercise by starting a family.

And, as The Globe and Mail's Steven Chase reports, the government is also slashing tariffs on clay pigeons. (Right, because so many of us are hot and bothered over that price discrepancy.)

How will the government make up that $76-million? By making smokers pay more, a measure projected to boost tax revenues by some $75-million in the 2013-14 fiscal year, and $65-million in the next.

"A key component of the government's health strategy is to tax tobacco products at a high and sustainable level to discourage their consumption," the budget notes.

"Economic Action Plan 2013 proposes to eliminate the preferential excise duty rate that currently applies to manufactured tobacco (e.g., fine-cut tobacco used in roll-your-own cigarettes, chewing tobacco) to make it equivalent to that applying to other tobacco products."

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(This means, of course, that I can no longer spit tobacco on the lawn while shooting clay pigeons.)

Flaherty wins praise
Overall, yesterday's budget won high marks from economists.

As The Globe and Mail's Bill Curry and Barrie McKenna report, the government is sticking to its plan to wipe out a deficit of almost $26-billion within two years, despite issues dogging the economy.

The government is betting on an economic rebound after a slow start to 2013, which would in turn boost tax revenues by some $25-billion over two years.

Ottawa is also cracking down on tax loopholes and raising import tariffs on products from more than 70 countries.

(Here, it means we'll probably pay more for our big-screen TVs.)

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Moody's Investors Service, one of the major U.S. ratings agency, said late yesterday the budget supports Canada's triple-A rating.

Canada remains one of the world's few triple-A rated economies.

"The prospect of a return to budget balance by 2015-16 and the beginning of a decline in the debt ratios after then 2014-15 year indicate that, relative to other large Aaa-rated sovereigns, Canada's debt position will remain favourable," Moody's said.

"Even though economic growth is slowing and government revenue has recently exhibited some weakness, the projected deficit in the coming fiscal year, at 1 per cent of GDP, remains modest by global standards, according to Moody's," the agency added in a statement.

"Furthermore, the government's commitment to expenditure reductions in order to keep the deficit on target over the medium term is positive, despite its possible marginal effect on economic growth. Expenditure is budgeted to rise by less than 1 per cent in nominal terms in the coming year and by an average of 2.3 per cent annually in the coming five years. If achieved, this would bring the level of federal government expenditure in relation to GDP to its lowest level in decades."

Cyprus at the brink
Cyprus is racing today to head off a financial collapse and, possibly, be forced to quit the euro zone.

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As The Globe and Mail's Eric Reguly reports, the European Central Bank has threatened to pull emergency funding to Cypriot banks if the country does not strike a bailout deal by Monday.

Initially, Cyprus planned to meet bailout terms by forcing losses on bank depositors, though rejected that amid widespread anger.

The country's banks are closed until Tuesday, but there has been a mad dash for ATMs, leading to restrictions on withdrawal amounts.

The latest plan would see the country's second-biggest bank restructured, but events are moving so fast in Cyprus that it's hard to tell whether any deal can be done in time. Politicians were voting today.

"We look to be ending the week precisely as we started it, with Cyprus at the centre of the headlines, staring into the abyss of potential bankruptcy and a possible exit from the euro area," said senior analyst Michael Hewson of CMC Markets in London.

"With the troika of the ECB, IMF and EU playing hardball telling the Cyprus government to present an acceptable plan by Monday or have the ECB pull the liquidity line to their banking system, the stakes could not be higher," he added in a research note today.

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"This threat by the ECB is a very high stakes threat, because without the [bank funding] program the Cypriot banking system would collapse and take the economy with it, with the ever present risk that Cyprus could leave the euro zone. Even if a deal is agreed and the banks re-open it is almost certain that the Cyprus banking system will collapse anyway as savers rush to pull their money out from the banks after last weekend's botched bailout plan."

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