True to its word, Canada's Conservative government unveiled a budget on Thursday aimed at slaying the deficit by 2015, in part by closing tax loopholes and limiting spending, even as it tried to present some goodies in the area of jobs, infrastructure and manufacturing.
Ottawa's budget deficit for the current fiscal year, projected at $25.9 billion, or roughly 1.4 per cent of the value of the total economy, was largely in line with its estimate in the fall. In 2013-14, the government said it expects the deficit to shrink to $18.7 billion and then fall to $6.6 billion the year after. In 2015-16 the government expects a surplus of $800 million.
That guidepost was generally appropriate, said Doug Porter, chief economist at BMO Capital Markets, characterizing Ottawa as generally "sticking to the plan" of eliminating the deficit by 2015.
"It was mostly an effort of microeconomics. It really didn't have much of a macroeconomic impact," said Porter.
"The net new measures when you look at all the net new spending or any new restraint measures like the closing of some tax loopholes it actually all adds up to less than a $1 billion of net impact," he added. "Not even 1/10 of a per cent of GDP. It really is a stay the course budget with just some minor modifications."
Porter and some other stakeholders were generally satisfied with the budget's target to balance the budget, but warned any drastic changes in the global economy could result in more extreme austerity measures. Ottawa sees growth coming in at roughly 1.6 per cent in 2013.
Finance Minister Jim Flaherty reportedly told journalists in Ottawa he could've cut spending more drastically, but wanted Canada to be in a rock-solid fiscal position in case of another crisis.
"History tells us that crises - economic crises, credit crises - are inevitable from time to time. So the best thing we can do for Canada, it seems to me, is to make sure we have a solid foundation," Reuters reported Flaherty as saying.
"We do not need to slash and burn, we can be sensible over time."
Focus on tax loopholes
With limited new spending, part of Ottawa's strategy was to target the closing of numerous tax loopholes.
Jamie Golombek, managing director of tax and estate planning at CIBC Private Wealth Management, said one change of note involves a dividend tax credit change, which will primarily impact small business owners and raise over $2-billion over the five years.
"The main theme from a tax perspective is no new tax rate increases, but closing of numerous loopholes. Some of them highly sophisticated strategies that wealthy and sophisticated Canadians were engaged in," he said.
"Never have I seen in the history of following budgets for 15 years or so, so many specifically targeted closure of loopholes. Clearly the government has been reviewing transactions carefully," he added.
Leading up to Thursday, the government's public-relations campaign centered on juggling the challenges of getting fiscal house given the sluggish economic outlook. Pre-budget spin stressed budget themes of skills training, infrastructure and manufacturing.
The government emphasized jobs with its Canada Job Grant program, which will be negotiated with provinces by next year to replace existing $500-million labour market agreements. It also pledged infrastructure spending of $47 billion over 10 years. The manufacturing sector also got a nod with tax relief by extending the temporary accelerated capital cost allowance for new investment in machinery and equipment for an additional two years.