Federal budget 2014: Spending shrinks as Ottawa’s hunt for surplus takes hold

You can go back to watching the Olympics now, or shoveling your driveway.

There was not much to see in the latest budget unveiled by the Conservative government on Tuesday.

Even economists were quick to point out that the document looked a lot like last year’s, just with fewer spending plans and what one aptly called the “short track to surplus.” (Keep the Olympics references coming!)

It all made for a nice preview of the windfall that is expected to come next year when the government readies for its next trip to the polls.

“It seems almost certain now that the Federal government will meet its timetable for eliminating the budget deficit before fiscal year 2015-16, which will give it the wiggle room it needed to deliver on its promised tax cuts ahead of next year's federal election,” said Capital Economics economist David Madani in a note.

While some feel the government could have loosened the purse strings a bit more, Madani thinks the fiscal plan is prudent given his cloudy outlook for Canada’s economy.

“The government will need every bit of this fiscal room and more to help bolster an otherwise sagging economy.”

More optimistic economists believe that, if the economy does do well as they expect, the surplus could come early.

“The Federal government is still on track to succeed, even demonstrating a slight outperformance,” wrote RBC chief economist Craig Wright.

“The prospects are such that absent an unexpected negative shock, there is the strong likelihood that a surplus could come a year earlier in 2014/15.”

The budget calls for the deficit to fall to $2.9 billion in 2014–15, after taking into account a $3 billion rainy day fund. Then the plan is to hit a surplus of $6.4 billion in 2015–16.

To help balance the budget, the government says it will raise taxes on tobacco products, delay defence spending and cut overall spending.

“Restraint continues to hang thick in the air,” said TD Bank economist Sonya Gulati.

She noted the few spending items that did find their way into the budget focused on infrastructure, such as bridge repairs, and job training to help address a skilled-labour shortage.

Business groups not surprisingly lined up to praise the prudent budget.

"We have urged the government to focus on where Canada needs to be in five or 10 years, even if it means making tough decisions now,” stated Canadian Chamber of Commerce President and CEO Perrin Beatty.

The Canadian Taxpayers Federation (CTF) may have hit a nerve when it said the budget “projects the first year-over-year spending cut since the Chrétien-Martin era.”

Still, it liked the balanced budget plan, but called on the government to starting thinking about how to return the future surplus to taxpayers. It also offered a suggestion, which is to reverse EI payroll tax hikes that have increased by 28 per cent since 2008.

“Canadians would rather see more money on their paycheque than … frittered away on snowmobile trails and boutique tax credits,” stated CTF federal director Gregory Thomas.

How to spend the money will be a nice problem for the government to have, and groups will continue to line up to suggest how to spend it.

Economists warn them to be careful.

“Ottawa has always had an easier run than most others in the global austerity Olympics, now four years old, and the finish line is clearly within sight for Canada,” wrote BMO economists Douglas Porter and Robert Kavcic in a note.

“The challenge after hitting the fiscal goals will be ensuring the recovery stays on track and that spending remains largely under control.”