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Canadian Finance Minister Jim Flaherty pledged to fire 12,000 government workers and defer defense spending to secure a balanced budget as forecast in four years.
Flaherty, in his seventh fiscal plan, announced spending cuts totaling C$21 billion ($21 billion) over the next five years to help fund increased spending on jobless benefits and financing for business research while reducing the country’s deficits by a cumulative C$18.4 billion over that time. The budget released today in Ottawa kept Flaherty’s 2015-16 timetable for a return to surplus.
“This budget is all about the fiscal numbers,” said Craig Wright, chief economist of Royal Bank of Canada. “The Canadian economy is running pretty well, so they’re just fine-tuning the engine to make sure it runs well.”
Since winning a parliamentary majority in last year’s elections, Prime Minister Stephen Harper’s Conservative government has pledged to bolster Canada’s long-term finances and take steps to support economic growth, in part by developing the country’s resource wealth and encouraging business investment. The budget includes a pledge to speed up reviews of energy projects, including Enbridge Inc.’s proposed Northern Gateway pipeline.
Policymakers, including Bank of Canada Governor Mark Carney, have urged Canadian businesses to take over from indebted households and boost investment to sustain economic expansion. Today’s budget also includes measures to encourage research and innovation and expedite immigration for skilled workers.
“This is the largest budget we’ve ever done,” Flaherty told reporters, referring to the 498-page document. “It is looking at the longer-term.”
Flaherty’s budget, which surveys private sector economists for growth projections, forecast Canada’s growth will slow to 2.1 percent this year from 2.5 percent in 2011, before accelerating to 2.4 percent in the next three years. The government lowers growth projections for its fiscal planning to account for risks.
Canada’s deficit in the fiscal year ending this month will come in at C$24.9 billion, less than the C$31 billion projected in Flaherty’s last update in November because of faster-than-projected growth, according to the budget.
The plan forecasts deficits of C$21.1 billion in the year starting April 1, C$10.2 billion in 2013-14, and C$1.3 billion in 2014-15. Surpluses of C$3.4 billion in 2015-16 and C$7.8 billion in 2016-17 are projected.
Cuts in departmental spending, which doesn’t include transfers to individuals or provinces, will total C$5.2 billion annually when fully implemented. The departments of defense and health and public safety face the biggest reductions.
Federal employment will fall by 19,200, or 4.8 percent of the total, including 7,200 positions to be cut by expected attrition.
Growth in program spending, projected at C$245.3 billion next year, will average 2.1 percent over the next five years, reducing it as a share of GDP to 12.8 percent by 2016, its lowest since 2005. Total spending, including public debt charges, is projected to grow 1.2 percent to C$276.1 billion in the 2012-13 fiscal year.
“This is the furthest thing from an austerity budget,” said Catherine Swift, president of the Canadian Federation of Independent Business. “Program spending continues to rise every year simply at a lower rate.”
Revenue is forecast to grow by an average 4.7 percent over the past five years.
To secure the country’s finances into next decade, Flaherty pledged to introduce legislation raising the eligibility for the old age pension program to 67 from 65. The changes start in 2023, with a six-year phase-in. The plan also gives Canadians the option to defer payments until later years in exchange for higher benefits.
Deferred defense spending will save about C$2.9 billion over the next five years, with the elimination of tax credits and what the budget calls “loopholes” raising C$1.7 billion.
The fiscal plan also includes steps to speed environmental approvals for energy projects as the country seeks investment in the industry. Canada’s governing Conservatives plan to consolidate the number of agencies that do reviews, set hard deadlines and give authority to provincial agencies to study smaller projects in a bid to reduce duplication, according to the document.
Flaherty said today the new rules will apply to Northern Gateway, which would transport crude from Alberta to the west coast and has been a flashpoint with environmental groups.
Among the measures to bolster business spending, Flaherty is setting aside C$400 million for venture capital funding, increasing support for business research and additional cash for university infrastructure. Measures to boost employment and growth will total C$3.7 billion over five years.
Even with a shrinking deficit, the government will issue a net C$97 billion of bonds next year, up from C$94 billion. The government will add an additional auction of 10-year bonds while reducing the amount of Treasury Bills it issues.
The government also announced it will stop production of the penny this year, as each one-cent coin costs 1.6 cents to make. The measure will save C$11 million a year, the budget documents show.
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