Tuesday, March 22, 2011

Budget 2011 - A Compromise That Didn't Work

This was a typical Conservative minority budget - no significant spending cuts, no across the board tax reductions, except for the small targeted tax breaks here and there. A slightly better performance of the Canadian economy allowed the governing party to look forward for returning to balanced budgets a year earlier than originally predicted, but that's as far as it went. The government didn't rush with deficit reduction and didn't try to attach any allegedly controversial items, such as axing subsidies to political parties. In spite of the favorable public opinion polls, the Conservatives clearly weren't going to orchestrate their own defeat. The opposition, however, is planning to do that for them:
Mr. Flaherty’s failure was not due to lack of effort on his part. He took out a line of credit to buy Mr. Layton the most shiny engagement band in the shop. He seemed to think that by including a raft of new spending measures in the budget specifically geared to winning NDP support, he might persuade Mr. Layton to prop up the Conservative government. After all, the thinking went, the NDP leader is still recovering from hip surgery and public opinion polls suggest his party will lose MPs if an election were held now.

But such rational thinking discounted the NDP’s irrational hatred for the Conservative Party. In the event, no amount of cajolery or political seduction could persuade Mr. Layton that it was worth lining up alongside Mr. Flaherty and Prime Minister Stephen Harper.
The Finance Minister attempted a fine balancing act, between new spending to win the support of the opposition on one hand, and his desire to return to budgetary surplus in four years. He appears to have pulled it off — if you buy the idea that this government is capable of finding savings of $17—billion by 2015/16. The Conservatives announced that they will implement an operating review across the whole of government over the next 12 months, aimed at cutting $4—billion a year from its $80—billion direct program spending budget.
In spite of all these efforts to appease the left, it looks like the days of the 40th Parliament are numbered. Oh well... Maybe that's for the better. Maybe, after the game of big tic tac toe in May, we'll finally have a government that is more concerned about serving the nation, than about preventing the opposition from voting it down at first occasion. (Those missing 11 seats have already cost us around $10 billion each.)

Meanwhile we get to keep the upcoming final round of the business tax cuts (legislated in 2007 or '08, not without help of the very same opposition that wants it cancelled now) and, so far it looks like the Feds are not planning to match the QPP premium hike, that was recently proposed in Quebec. Yes, Quebec government is planning to gradually increase the QPP premiums - to 5.4% (10.8% for the self-employed) in 2016. (That's exactly three times the original premium rate!) Up until now, QPP had the same premium rates as the CPP, so I was worried that the budget might include the announcement of a similar CPP premium hike. This apparently won't happen. And, to make sure it won't, we better make the right choice at the polls 6 or 7 weeks from now.

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