The lame-duck budget of 2011

Strangely, the budget that set a likely election in motion is a cautious document

Jack Layton wasn’t buying it.

Finance Minister Jim Flaherty delivered a budget this afternoon that contained, not everything the NDP leader had asked for, of course, but at least one significant nod in his direction. But Layton defied expectations that he might wait until tomorrow and only pass judgment on the fiscal plan after consulting with his caucus. Instead, he came into the foyer of the House late this afternoon breathing fire.

“Mr. Harper had an opportunity to address the needs of hardworking middle-class Canadians and families, and he missed that opportunity,” Layton declared, reasserting a moment later his assessment that budget didn’t “give middle-class families a break.”

With that, he declared that his MPs would, with those of the Liberals and the Bloc Québécois, vote against the budget. That would defeat Harper’s minority and force an election. The vote could come on Friday, and might set the stage for a May 2 election. Asked if he saw any chance of negotiating a last-minute deal with the Conservatives to save their minority, Layton said, “It’s difficult to imagine that.” Moments later, Flaherty said there was “zero chance” the government would amend the budget.

Strangely, perhaps, the budget that set all this in motion is a cautious document throughout. Flaherty expended as much energy boasting about Tory management of the Canadian economy through tough times as he did laying out a blueprint for future actions. And he had credible case to present. By most measures, Canada is enjoying the fastest growth of the major developed countries. Jobs shed during the global recession came back faster here than in most industrial nations. Flaherty is able to boast that more than 480,000 jobs have been created in Canada since the economy began to recover in the summer of 2009.

But if the way he framed recent experience sounded campaign-ready, the quiet new measures he unveiled don’t seem likely to give Tories much momentum out on the hustings. The most eye-catching new spending items were those that appeared designed to coax Layton on-side—and failed utterly.

Here are some of the key budget initiatives organized by the three big themes under which Flaherty packaged them—and one that he didn’t include:

Families and communities

The Prime Minister’s pre-budget sales pitch was built around the Conservative brand’s emphasis on supporting “families and communities.” Under that heading, however, the budget’s biggest item came on a file championed by the NDP—boosting the Guaranteed Income Supplement for low-income seniors. Flaherty came across with less than Layton wanted. But at $223 million this year, enhancing the GIS stands out, in this budget at least, as serious spending. Seniors with little or no income from the Canada Pension Plan or private pensions often scape by on Old Age Security and GIS. The new measures will boost GIS benefits for what Flaherty called the “poorest of the poor older Canadians” by $600 for a single retired person, or $840 for a couple. About 680,000 seniors are expected to qualify for enhanced benefits.

Another major item for families amounts to the Conservative response to Liberal Leader Michael Ignatieff’s promise to help family caregivers if he’s elected. Ignatieff proposes a major new benefit and tax credit for Canadians who have to take time off work to care for a sick family member. His proposal is modeled partly on the Employment Insurance paternal leave benefit.

Flaherty counters with the much less expensive new Family Caregivers Tax Credit. It’s a 15 per cent, non-refundable credit for Canadians who care for their sick or infirm children, spouses, parent and other family members. For a wife caring for a dependent husband, for example, the credit would be worth up to $300 a year. Overall, paying the benefit will cost the government just $40 million in 2011-12 and $160 million the following year. By contrast, the Liberals forecast their much more ambitious caregivers package would cost $1 billion annually.

Job creation

The 2011 budget’s job-creation measures aren’t activist by any standard. Flaherty highlighted, for example, a temporary credit available to small businesses that hire new workers. It’s expected to cost Ottawa a mere $124 million in 2011-12. Extending a work-sharing program, which pays EI benefits to workers willing to accept fewer hours, will cost just $10 million this year. Continuing another existing program that gives older workers at risk of losing their jobs access to training and other help will cost $25 million next year.

When it comes to new, direct support for industry, there’s a fund to promote clean energy technology, which will get $32 million this year and $64 million in 2012-13. But it is dwarfed by the $405 million earmarked over two years for Atomic Energy of Canada Ltd.—unavoidable spending the Conservative government is hardly eager to draw attention to.

The official explanation: AECL needs money to “cover anticipated commercial losses and support the corporation’s operations, including to ensure a secure supply of medical isotopes and maintain safe and reliable operations at the Chalk River Laboratories.” The backdrop for this spending is messy. The Harper government’s plan to sell off AECL has stalled for lack of buyers. Meanwhile, the Ontario government, which needs to make hard decisions on adding new nuclear generating capacity, is pressing for clarity on the future of the federally owned nuclear technology corporation.

Innovation and education

The former Liberal governments of Jean Chrétien and Paul Martin usually put more emphasis on the innovation theme than Harper. Still, no politician wants to go into a campaign these days without some policies designed for the digital age. So Budget 2011 earmarks $100 million a year to make the existing Canada Media Fund permanent. The fund supports companies that create content, which might previously have been shown only on TV, in formats that can be distributed on the Internet, wireless devices and other new platforms.

As well, the budget provides $65 million this year for genomics research and $80 million to help smaller companies adopt new information and communications technologies. None of these are major measures, especially when contrasted with past initiatives in this area, like the 2009 budget’s $750 million for the Canada Foundation for Innovation.

But cuts ahead

Almost hidden in the budget—beneath the carefully calibrated messaging about job creation, families and communities, and innovation and learning—is a promise of future spending restraint that might appeal to Conservatives’ small-government true believers.

After posting huge deficits in the 2009 and 2010 budgets, Flaherty promises to spill 25 per cent less red ink in 2011-12, on the way to posting a surplus again in 2015-16. But with little fanfare, he also set in motion a “strategic and operating review” of $80 billion a year in direct spending by federal departments. The aim is to cut a substantial $4 billion a year out of that spending, which doesn’t include transfers to the provinces and individuals, by 2014-15.

Squeezing that much out of departmental budgets will be a tall order. Flaherty said he hopes the savings will start showing up in the 2012-13. Nothing like it has been attempted since the deficit-cutting Liberal budgets of the mid-1990s. Which suggests that if today’s was a cautious document, Flaherty still thinks he still has a landmark budget in him. Maybe next year’s.

But whether he’ll ever get his chance is now far from certain. First, it seems, the Conservatives will have to manage to get themselves reelected.

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