Compared to austerity measures taken by other economies around the world.
TORONTO:The restraint in Canada’s federal budget is “modest” compared to the austerity measures taken in Europe and puts the country on track to join emerging economies in the race for growth, Finance Minister Jim Flaherty said Friday.
“As many countries have learned, Greece and others, if we do not have our fiscal house in order, if we do not have balanced budgets, if we do not run surpluses then when the next crisis comes—which it inevitably will—we will not be in a position to react,” Flaherty said Friday during a speech in Toronto.
“So I say it’s relatively modest. It gets our house in order and it confirms that we will get to a balanced budget in the medium term,” Flaherty told the Toronto Canadian Club.”
The Conservative government’s 2012 budget, tabled Thursday, aims to trim the country’s deficit by $8.5 billion to $24.9 billion for 2011-12 and eliminate it by 2015.
Flaherty said Canada should not be comparing itself to recessionary economies of Europe, but rather the strong emerging economies like Asia and South America. In its quest to tie itself to rapid growth, Canada has recently targeted countries like China and India for free trade discussions.
“Those are the countries with whom we are comparing ourselves looking forward over the next decade,” Flaherty said.
To keep pace with those economies, the budget makes changes to increase innovation, job growth and immigration, while engaging in regulatory and pension reform.
It also calls for more than $5 billion in cuts to the federal government’s annual discretionary spending by 2014-15, although overall spending will continue to rise. About 19,200 federal jobs, or 4.8 per cent of the total, will be eliminated.
As a further cost-cutting measure, eligibility for Old Age Security and the Guaranteed Income Supplement will gradually move to age 67 from 65, beginning in 2023.
Flaherty said Canadians consulted ahead of the budget had asked the government to spend tax money more responsibly and to use every available means to secure the country’s long-term prosperity.
“So we had to reduce our government expenditures,” Flaherty said.
Flaherty laughed off the suggestion that some critics believe the budget does not cut deeply enough.
“Well then some people say I went too far, so I guess maybe we got it right.”
The government is concerned with striking a balance during this fragile economic era that could see more shocks, he said.
“So I think it’s important that we act in a moderate way. We will balance the budget in the medium term that’s important for the good of the country overall—in the longer term as well, but in the medium term we want to incent jobs and growth, so that’s the balance that we attempted to strike.”
The minister conceded the budget will result in some net 12,000 job losses and spell the end of some government programs. But about 70 per cent of the $5.2 billion in cuts comes from within the government itself, he said.
Total spending, including debt servicing charges, will rise to $276.1 billion in 2012-13, a marginal increase of 0.11 per cent on the current $272.9 billion envelope. Program spending is projected to rise just 2.1 per cent annually for years, effectively flatlining in real terms after inflation and population growth.
The budget’s business-friendly measures include streamlining environmental assessments to speed major resource projects such as pipelines into existence; recasting research and development funds; tailoring the labour market, including immigration, to specific job shortages; and a focus on new free-trade deals.
Flaherty said the streamlining of the environmental assessment is not meant to sidestep environmental protection but to speed up a process that had previously seen Canada lose out on projects after delays caused companies to determine they were “uneconomic.”
The widely expected change to OAS will have a trickle-down effect on people’s financial plans. It will affect the guaranteed income supplement, veterans’ benefits, aboriginal benefits, survivors’ allowances and especially the way many companies have set up their employees’ pension plans.
Flaherty said the changes are neccessary as Canada’s population ages and are in tandem with moves made in Australia, the U.S. France and other Western countries.
Critics have said the changes provoke inter-generational conflict because it is Canadians under 50 who will feel the full force of the new policy, placing the burden of the retirement changes on the shoulders of those who are most struggling with unemployment.
But Flaherty said the OAS changes are being made so the social program will be sustainable for future generations, adding the budget also includes some initiatives to new employment for young people, and a new hire program that helps small and medium sized businesses.