Jim Flaherty's budget of contradictions - Macleans.ca

Jim Flaherty’s budget of contradictions

Can the government be a “benign and silent partner” and still take major action? John Geddes evaluates.

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Sean Kilpatrick/CP

The trick Finance Minister Jim Flaherty tried to pull off in his eighth federal budget was to convey the sense he is taking action while, at the same time, brushing off his old claim to being a non-interventionist Conservative who trusts the economy to do its thing.

In other words, Flaherty set out to send two messages that don’t coexist comfortably in the same budget speech. In the closest thing he attempted at a rhetorical flourish, he asserted that government should be “a benign and silent partner” to Canadians going about their economic lives “and not an overbearing behemoth squeezing them at every turn.”

Yet he also said his plan “takes action” with three major thrusts—introducing a jobs grant that he boasted will “transform the way we provide skills training,” mapping out an infrastructure program that he touted as “the largest and longest” in the country’s history, and a stitching together a new strategy for boosting business innovation.

So he announced action on those three fronts, but returned repeatedly to avowals of old-school fiscal Conservatism, all punctuated by a repeat of his key pledge to balance the books by 2015.

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The reception of the budget depends on the willingness of Canadians taxpayers and voters—not to mention lobby groups—to buy the notion that a budget can simultaneously be about a “benign and silent” approach and put a trio of big items in the Tory policy window.

Arguably the boldest move Flaherty announced is his new Canada Job Grant. His starting point hardly sounded like he was identifying a problem: he touted Canada’s job-creation record as the best of the major industrialized economies, adding 950,000 jobs since the depths of the 2009 recession. Yet he went on to claim that training isn’t now giving Canadians the skills employers demand.

His solution amounts to taking greater control over billions Ottawa transfers to the provinces for skills training. When the main so-called Labour Market Agreements with the provinces come up for renegotiation in 2014, Flaherty said they will be changed so that much of the federal money goes directly to businesses.

Under the new Canada Job Grant scheme, Ottawa would pay up to $5,000 for every employee being trained, requiring matching funds from the employer and the province, for up to $15,000 per person. The federal government will funnel $300 million a year into the grants, while still providing provinces with $200 million a year that they can spend directly on services like job counseling.

The on-the-job training plan amounts to a significant federal strategic push into what has been largely a provincial domain. By contrast, Flaherty’s infrastructure plan, even though he described it as historic, looks closer to a confirmation of the recent status quo.

The plan will see the combined federal contribution toward infrastructure projects carried out by municipalities or provinces run at an average of $5.35 billion a year from 2014-15 to 2023-24, edging up only slightly from this year’s level. In other words, Flaherty guarantees something close to what federal investment levels rose to the Building Canada Plan, which began in 2007 and expires in 2014.

Flaherty’s third major push—helping companies, especially manufacturers, compete—is also built around entrenching familiar measures, rather than unveiling new ideas.

For instance, he again extended the tax break that allows manufacturers to more quickly write off the cost of buying new machinery and equipment—a move he first announced in 2007, then repeated in 2008 and 2009 and 2011. Budget 2013’s repeat of this “temporary” accelerated capital cost allowance is estimated to be worth $1.4 billion in tax relief over two years.

Another familiar measure Flaherty packaged under the heading “Helping Manufacturers and Business Succeed in the Global Economy” was to extend the life of the Federal Economic Development Agency for Southern Ontario—a new regional economic agency launched by the Harper government—to the tune of $920 million for five years. And he offered more details about the government’s new Venture Capital Action Plan, a $400-million pool of federal money meant to lure private investors into pumping more into Canadian start-ups.

Keeping on subsidizing southern Ontario businesses and wading into the venture capital game do not exactly square with Flaherty’s small-c conservative description of government’s proper economic role as “benign and silent.

But he might be counting on his deficit-elimination message to shore up his credentials as a small-government guy at heart. “Our government is committed to balancing the budget in 2015—period,” he said, adding that “maintaining a sound fiscal position” is the most important thing this government, or any, can do to help the economy.

His cannot rely only on fiscal rectitude, though, to slay the deficit by 2015. He’s counting on a healthy economy, too. The steady shrinking of  the federal deficit that Flaherty projects—from $25.9 billion in 2012-13, to $18.7 billion in 2013-14, to $6.6 billion in 2014-15, to a small surplus in 2015-16—depends on no more unpleasant surprises.

Recent history isn’t reassuring on that score. A year ago, Flaherty’s 2012 budget relied on private sector forecasts to project 2.4 per cent gross domestic product growth, after inflation, for 2013. That was then: Budget 2013’s forecast is for only 1.6 per cent GDP growth.

After this year, however, Flaherty’s new budget assumes the economy will rebound back onto roughly a 2.5-per-cent a year expansion track for several years to come. By historic standards, that’s modest. But by the new norms of a world economy that features instability in Europe and uncertainty in Washington, it’s almost upbeat.

If the global climate again turns stormy, Budget 2013’s three-pronged action plan will seem inconsequential, and Flaherty’s pledge for a balanced budget by 2015 will look vulnerable. The government might aspire to being “benign and silent,” but factors beyond its control will determine if that is possible.