Harper Delivers! Will McGinty?

And will all of Toronto's problems disappear. Don't hold your breath. The only given here is that Conservatives deliver on their promises. Now let's see what the liberals, ndp and bloc do.....

Budget to bring provincial payouts, lower taxes
Updated Sun. Feb. 25 2007 11:31 AM ET
Andy Johnson, CTV.ca News Staff

The federal government has announced it will deliver the budget on March 19 -- a document that Finance Minister Jim Flaherty signalled will include more money for the provinces and lower taxes.

In November, Flaherty projected $3.5 billion in new spending for the budget; a figure that economists said meant the government could afford little in terms of real tax relief for Canadians. A number of spending promises would have to wait.

But Flaherty said last week that the government's financial picture is rosier than originally projected because the strong economy is pumping unexpectedly high revenue into federal coffers.

In fact, Flaherty boasted the government will be able to afford to fix the fiscal imbalance with the provinces -- a Tory election promise -- and go further than the $2.5 billion in tax cuts already stated to be included in the 2007 budget.

"We're in a sufficient financial situation in Canada to move from fiscal imbalance to fiscal balance and also to reduce taxes," Flaherty said.

The announcement came as speculation about a possible spring election continues to gain strength.

The Tories have already outlined plans for the following:

* a $1-billion plan to let couples split pension income for tax purposes;
* a $725-million corporate income levy cut;
* and $800-million in personal tax relief using interest savings from retired federal debt.

And Flaherty has repeatedly hinted that a Working Income Tax Benefit will be part of the budget. The policy would provide financial incentives to reward people for working, rather than going on social assistance.

That measure, economists say, could cost between $500 million and $1 billion.

Within the $3.5 billion first predicted in November, economists suggested the government would be able to afford key promises such as the Working Income Tax Benefit and measures to correct the fiscal imbalance.

With climate change and the environment at the top of Canadians' priority list according to recent polls, and the Tories striving to improve their green image, there is also a high probability that the budget will include environmental tax incentives.

Impact on the Budget

But extra measures, including broad-based tax reductions such as the promise to reduce the GST by another percentage point, are unlikely to happen, said Frances Woolley, a professor of economics at Carleton University in Ottawa.

In short, Canadians shouldn't expect major personal savings as a result of this budget.

"Perhaps the simplest observation to make is this: $3.5 billion divided by the Canadian population of 30-some million is just over $100 per person," said Woolley.

"So you're not going to see anything that will save the average person a huge amount of taxes or provide a typical Canadian with big benefits - that's just too expensive."

She predicted the budget will include measures that pay high political dividends, such as the Working Income Tax Benefit.

She says such a system would cost much less than a GST cut, would have real benefits to some of Canada's most needy, would be welcomed by the provinces that pay out social assistance and would fuel the job market -- all features the New Democratic Party is likely to support.

"Say you're giving a 1 per cent tax break to someone who's earning $200,000 a year. That costs you a lot of money, but someone who is on welfare might be getting $500 a month, if that -- it doesn't cost you much to make those people better off," Woolley said.

There will also be some creative environmental policies that will have to go beyond Liberal efforts such as subsidizing environmentally-friendly light bulbs, providing tax breaks for people who improve home efficiency, or subsidizing windmills, Woolley predicted.

She said the Tories will have to set themselves apart from the Liberals on environmental issues by doing something different, but she wouldn't predict what that might include.

Finally, Woolley said, the Tory budget can be expected to include at least one major surprise.

"There will also be something we aren't expecting. There always is."

The 1% solution

What the budget almost undoubtedly won't include, she said, is another cut to the GST.

The Tories' election platform included a promise to slash the GST to 6 per cent, then to 5 per cent. It cost roughly $6 billion to carry out the first half of the promise, and there simply isn't room in this budget, nor the will, to complete the promise in the next fiscal plan, Woolley said.

"If you look at the political mileage they got last time from cutting the GST -- in a sense it was a promise so they had to go through with it -- but for the amount of money it cost I don't think they actually got that much mileage from it."

Doug Porter, Deputy Chief Economist at BMO Capital Markets, agreed the GST cut didn't generate the kind of political traction the Tories were hoping for in return to the cost.

He agreed the budget is unlikely to include another GST cut, but pointed out that many of the Tories' election promises were goals meant to be accomplished within a four-year term.

He acknowledged that the Conservatives like to spring surprises, but suggested they will hold off the remaining GST cut as a carrot for down the road.

"They don't necessarily have to do everything in the first year. Ottawa wasn't built in a day," Porter told CTV.ca.

"They can stretch out a lot of these over time and it's quite possible this year's budget will act as an election platform, so they're likely to pledge a number of things more as goals over the next few years. That's not uncommon and it's not unreasonable."

Porter had a slightly more positive outlook on the upcoming budget than Woolley, saying it might not be as slim as it appears at first glance.

He pointed out that budget numbers have almost consistently topped expectations in terms of revenue, and "provided the economy stays on track I think there's a lot more room than the $3.5 billion in the first year."

He also noted that employment numbers and the Canadian equity market are at record high levels, adding to the likelihood that federal revenues will be higher than projected in the fall.

However, extra revenue won't necessarily translate to more programs, since tax cuts and the fiscal imbalance are deep pools that could easily swallow more money, Porter said.

Like Woolley, he said there's little doubt the environment will play a major role in the budget.

"It seems fairly obvious the environment will be another major focus, now whether there will be concrete measures in this budget that actually involve a whole lot of new spending or potential tax relief is debatable, but I think that will certainly be another key focus."

The budget is expected to have funding measures for training and education, infrastructure and science and technology.

The political fallout

This will be the minority government's second budget since winning the Jan. 23, 2006 federal election, and its future could depend on it.

Votes on budget items are considered matters of confidence. That means if the opposition parties vote against the budget, the government could fall and an election would result.

"I believe it will be a good budget, I believe Parliament should support the budget," Prime Minister Stephen Harper told CTV Newsnet's Mike Duffy Live.

The Liberals have indicated they are likely to vote against the budget, but the Bloc Quebecois and the NDP would have to join them for the budget to be defeated.

Harper has so far refused to be baited on when an election might be, maintaining that he wants to continue to govern, and if an election is forced it will be at the behest of the opposition.