Flaherty tables a cautious budget, casts ahead to next steps

Back in 2006, Finance Minister Jim Flaherty began his first budget speech by reflecting on how “budgets say something about your motivations and your goals.” Having spoken that truism, Flaherty launched straight into announcing “tax relief people can see,” meaning mainly, of course, the first of the Tories’ two one-point cuts to the GST. Motivation and goal: lay the populist groundwork for turning Stephen Harper’s minority into a majority.

Three years later, Flaherty tabled his 2009 budget during the global recession brought on by the previous fall’s financial markets meltdown. “We must do what it takes,” he said, “to keep our economy moving and to protect Canadians in this extraordinary time.” He meant a deficit-fueled stimulus-spending spree. Motivation and goal: ease the pain of a downturn so punishing that it might, come the next election, land the Conservatives back in opposition.

The budget Flaherty unveiled today is neither the hopeful blueprint of a freshly minted government nor the defensive playbook of one facing a crisis. Given the Conservatives’ experience in power, and the lack of immediate threats facing them, a calmer, bolder plan might have been expected. Yet Budget 2012 is curiously tentative. Where potentially big measures are sketched—on funding cutting-edge companies, reforming immigration, or streamlining resource-project reviews—details remain frustratingly fuzzy.

Flaherty’s most telling line today was not about what he plans to do, but what he doesn’t have to. “We have no need,” he said, “to undertake the radical austerity measures imposed by the federal government in the 1990s.”

That tone of palpable relief runs through the budget. The much-discussed review of program spending, for instance, found just $5 billion in annual spending to cut from 26 departments and agencies. Flaherty is right—that’s hardly “radical austerity,” considering Ottawa’s total program expenses 2012-13 will be $245.3 billion.

Modest as it is, though, the restraint underscores a bedrock Conservative preference. As a share of gross domestic product, direct federal spending is projected to slide from 6.5 per cent in 2012-13 to 5.5 per cent in 2016-17. Note that during the same stretch Ottawa’s transfers to individuals and the provinces are slated to hold steady.

So the budget plots a course for a federal government whose own programs shrink a bit, while it keeps contributing about the same amount, as a share of the economy, for things like health care and seniors’ pensions.

Had you heard otherwise? In fact, Flaherty’s policy on curbing the growth in health transfers is calibrated to allow those payments to keep pace with economic growth. As for pensions, he has put off any pain for many years, announcing that the age of eligibility for Old Age Security and Guaranteed Income Supplement benefits will rise from 65 to 67 only gradually and not until 2023 to 2029.

With the Conservatives moving gingerly to limit Ottawa’s direct spending, while aiming to hold steady on transfers, anyone searching for signs of a more sharply defined small-c conservative bent might look to policies affecting business.

And the budget does include a much-anticipated general promise to speed up approval for oil, mining and forest-industry projects. It’s contingent, however, on the government negotiating with the provinces to introduce a “one-project, one-review” system. Details pending.

There’s also a pledge to put $400 million into venture capital for innovative firms that show promise as future “global leaders.” But exactly how Ottawa will pick those winners is put off with a promise that “in the coming months, the government will consider how to structure its support in order to incent private-sector investments.”

A pro-business immigration reform was also expected, but, yet again, the budget is vague, saying only that “in the future” the government will work with companies and the provinces to attract “a pool of skilled workers who are ready to begin employment in Canada.”

Any of these measures might turn out to be landmarks. Based on the budget itself, however, we just can’t be sure. Against the backdrop of smallish spending cuts, a holding-pattern policy on transfer payments, and no significant tax changes, the stay-tuned-for-details feel of the economic competitiveness package adds to the overall impression that the real news isn’t quite here yet.

Meanwhile, the once-daunting challenge of balancing the books again after the post-2009 deficits has been drained of drama. The federal fiscal situation has improved nicely in recent months, as the economic recovery continues, leaving Flaherty in a position to project, with room to spare, a slim deficit of $1.3 billion by 2014-15, and a surplus the following year. Some private forecasters now expect an end to federal red ink a year or two earlier.

The pressure, in other words, is off. Thinking back to Flaherty’s 2006 budget preamble, what motivations and goals shaped this one? A prime political motivation is surely to avoid risky controversy. An overarching policy goal to is keep the federal government about as big as it is now, while taking cautious steps toward bolstering the private-sector economic competitiveness.

After the populist feel of 2006, and the crisis-control urgency of 2009, the 2012 budget feels staid. Those who feared the Conservatives might adjust to their majority by imposing politically fearless measures early on will be breathing easier. Those who hoped to see that same fearlessness, though, will have to look ahead to all those next-steps, and to next year’s budget.

Click here for all the latest news and insight on the 2012 federal budget