The 2012 Federal Budget - The Goldilocks Formula

The March 29 Budget presented by Finance Minister Jim Flaherty in the House of Commons had the merit of being carefully calibrated for the times: not too cold, not too hot, but just right!

With the world in the throes of a fragile recovery, and risks to the downside abounding in many economies, both advanced and developing, the Minister elected to base his projections on careful consensus assumptions about the economic future and, seeing the resultant fiscal track headed towards a surplus by 2015/16, decided not to impede this welcome and substantial progress, which is what might have happened had he wielded a more blunt cutting tool.

So, despite predictions in the media of more painful initiatives to restore fiscal balance, the measures which, combined with the expiry of stimulus programs adopted during the Global Financial Crisis, will achieve the goal of eliminating the federal deficit are essentially medium-term moderations in the rate of growth of transfers to the provinces for health care and budget reductions in the order of 10% across government departments (resulting in the elimination of some 19,200 jobs, many by attrition).

Indeed, even the most controversial item of news in the document, the gradual extension of the age of eligibility for the Old Age Security and Guaranteed Income Supplement programs from 65 to 67 over a six year phase-in between 2023 and 2029, was presented as a labour market and structural idea and not as cost cutting. This is because, while there were seven working Canadians for every OAS recipient in 1970, the numbers for 2020 are projected to fall to two for one. Canadians are living longer, healthier lives and the need to ensure the labour market does not experience shortages was as much a motivator as any savings to be derived. Canadians who choose to remain in the labour force will be able to elect to defer OAS payments for up to five years and will receive higher payouts as a result when they do retire.

For the rest, the Budget focuses on efforts to encourage the growth and development of our economy over the next decades by encouraging scientific research and innovation among Canadian businesses, particularly small and medium-sized enterprises, building a faster and more flexible immigration system to better serve Canada’s labour market needs, reforming the review process for major economic projects to establish clear timelines and reduce regulatory duplication particularly in the resource sector, intensifying Canada’s pursuit of new and closer trade relationships, improving the foreign ownership review process, enhancing job opportunities for military reservists who are called to serve abroad and reducing delays at the Canada-U.S. border by significantly increasing customs exemption limits for returning travelers, among other measures.

- Stanley Hartt


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