Federal budget expected to highlight transit funding

Joe Oliver expected to balance books but shower Canadians with spending and tax breaks in advance of October election.

Thestar.com
April 18, 2015
By Lee Whittington

Finance Minister Joe Oliver’s pre-election juggling act takes centre stage on Tuesday with a budget highlighted by billions of dollars in new spending and tax breaks for families, business and public transit in Toronto and other big cities.

Despite its being squeezed financially, Oliver is expected to commit Ottawa to new spending on transit in the country’s largest metropolitan areas. The promise, which will probably see the federal government gradually earmark up to an extra $1 billion a year for infrastructure, is seen as popular among key voting groups around Toronto and Vancouver with elections six months away.

Oliver has been under pressure to ante up more federal cash to address the deterioration in the country’s vital infrastructure and spur improvements in roads, bridges and transit. Mayors, some premiers and federal opposition parties have complained that current federal outlays for infrastructure are inadequate.

For Toronto alone, Mayor John Tory has been pressing his Conservative allies in Ottawa to come through with $2.7 billion over eight years to pay a third of the cost of his SmartTrack rail project. For the country as a whole, the Federation of Canadian Municipalities has been urging Ottawa to add an extra $1 billion annually to its support for public transit to ease commuter woes and spark economic expansion.

The budget, Oliver’s first, will also feature measures meant to shore up the sputtering economy by helping manufacturers. Prime Minister Stephen Harper has already announced a hiring incentive for small businesses.

The most high-profile element of the budget will be goodies for individuals, including $5 billion in extra handouts and tax breaks for families that Harper’s already unveiled.

Altogether, this year’s annual economic and fiscal blueprint will be a careful balancing act. The Conservatives are committed in 2015 to ending seven years of budget deficits even though Ottawa’s financial predictions have been shaken by the unexpected slide in oil prices.

In last year’s budget, the government forecast a $6.4-billion fiscal surplus for 2015. But by November, the hit on federal revenues from lower oil prices and the tax cuts and spending for families announced by Harper had reduced the predicted surplus to $1.6 billion.

But, despite a further drop in federal revenues from the continuing slide in oil prices over the winter, Tuesday’s package is expected to play up the elimination of the $2.9-billion budget deficit. Oliver has hinged his credibility on balancing the books in 2015 and is also bringing in legislation banning budget deficits in future (except in emergencies).

Analysts say the Conservatives’ spending restraint program has put them in a position to record small budget surpluses - both for 2014 and 2015 - regardless of the negative fiscal effect of gyrations in the world oil market.

“The government has stated that the fiscal plan in Budget 2015 will be balanced,” independent Parliamentary Budget Officer Jean-Denis Frechette said in an assessment Friday. “This will be readily achievable with minor changes to tax policy or the spending plan.”

With an election on the horizon, Oliver will probably also unveil a handful of measures intended to respond to the weak state of Canada’s economy, help individual taxpayers and address other pressing national issues. But it is likely the bulk of these tax breaks and extra spending will be narrowly targeted and relatively inexpensive.

“While new spending is expected to be a part of the pre-election fiscal plan, ongoing economic uncertainty is likely to temper the breadth of stimulus as the government affirms its position as a prudent fiscal manager,” RBC economist Laura Cooper says.

Conservatives have made it clear they intend to implement two promises still unfulfilled since the 2011 election campaign. These are a doubling to $11,000 in the annual limit for contributions to a tax-free savings account and an adult fitness tax credit.

With economic conditions spiralling downward from the effect of lower oil prices on the resources sector, the government is expected to bring in special measures intended to help the manufacturing sector pick up the slack in the national economy.

Manufacturers have shed hundreds of thousands of jobs in recent years. But with the lower loonie making exports more competitive, it’s an important time for industrial producers, says Jay Myers, president of Ottawa-based Canadian Manufacturers & Exporters.

“The prospects for manufacturing look good now,” Myers said. But, he added, Ottawa needs to continue providing incentives for companies to put more money into skills training, advanced technology, product development and export promotion.

The government will also probably extend a soon-to-expire tax break for companies buying machinery and equipment. Ottawa has already committed $20 million a year to assist exporting companies explore new markets.

Other possibilities for more spending include measures aimed at environmental issues, particularly climate change, infrastructure for First Nations communities and job creation. As well, the government has to address the costs of the war in Iraq and Syria and increased budgets for the RCMP and CSIS in line with expanded security operations.

Already baked into the budget package are several costly measures announced by Harper last fall. These include an increase in the Child Care Expense Deduction and the income-splitting program called the Family Tax Cut.

In response to complaints that income splitting would help only a small fraction of the population, the government expanded the family allowance plan known as the Universal Child Care Benefit. Altogether, these programs will cost Ottawa $26 billion in new spending and forgone revenues by 2019.