Federal budget 2013: Flaherty’s fancy foot work

Canada Finance Minister Jim Flaherty slipped on a pair of new Roots shoes on Wednesday as part of a long-standing pre-budget tradition, and if the photo-op experience was any indication he's going to need them to do some fancy footwork when he delivers his budget tomorrow.

"What size?" asked one reporter, under a crush of camera flashes at a factory outlet in Toronto.

"How do they feel?" another asked to which Flaherty answered: "They're really comfortable, tie them up."

"They look great," chirped another reporter.

Icebreaker questions, check. Then the dreaded, but highly-expected onslaught of queries about mortgage rates and budget deficits.

Flaherty defended his recent meddling into the Canadian mortgage industry, stating he is acting out of concern for consumers. But then deflected all other questions related to news this week Manulife Bank quickly reversed a mortgage-rate cut after a Flaherty staffer informed the lender that Ottawa considered the cut to be “unacceptable.”

"I'm looking forward to the budget tomorrow. I'm not going to get into other issues now. I think the focus needs to be on what we're going to do tomorrow, which is important for the country," said Flaherty.

To spend or not to spend? If all the chatter is right, Thursday's modestly austere federal budget will reflect the Conservative government's unwavering plan to clean up fiscal house in order to balance the books within the next couple of years.

Asked whether he was still on track to eliminate the deficit by 2015 before the next election, Flaherty answered: "Absolutely."

Ottawa's budget shortfall, at about 1.5 per cent or less of the value of the overall economy depending on whether there are revisions on Thursday, is miniscule compared with that of Europe, the U.K. and the United States, said Sal Guatieri, senior economist at BMO Capital Markets. In the fall, Ottawa forecasted a $26 billion deficit for the fiscal year.

"It's a modest amount of austerity," is what he predicted of the government's budget.

"When people talk austerity today they think Europe, euro zone. They're undergoing pretty heavy duty austerity where you're trying to reduce a budget deficit on the order of 2 to 3 percentage points of GDP per year. That's quite punishing for an economy," added Guatieri.

So, as always, everything is relative. The country will wait and see how the government intends to balance the books amid a weaker-than-expected economic outlook. Given the market dynamic, there has to be an offset such as raising taxes or cutting spending.

The key themes are expected to be infrastructure and manufacturing, according to a widely publicized letter Flaherty wrote to the Conservative caucus. A top focus will be on jobs and skills.

"As we saw with Statistics Canada's latest numbers of job vacancies, nationwide, there are about six unemployed people for every job vacancy. If we can move more of the unemployed into these positions where the skills mismatch is a problem that could only result in less unemployment going forward," said Guatieri.