================================ Feb 11, 2014
OTTAWA (Reuters) - Canada's Conservative government looks set to comfortably balance its books in 2015 or even sooner, its latest budget showed on Tuesday, with cuts in spending on the public service more than offsetting a series of modest new expenditures.
The low-key spending plan leaves Prime Minister Stephen Harper well-positioned to offer tax breaks and other initiatives in the runup to an election scheduled for October next year.
"Some people will say this budget is boring," Finance Minister Jim Flaherty told reporters ahead of the budget speech. "Boring is good."
The budget shows a deficit of C$2.9 billion ($2.63 billion) in the 2014-15 fiscal year, up from the previous estimate of C$5.5 billion. That balance includes a C$3 billion contingency fund, which in fact reveals an underlying surplus that year.
Flaherty acknowledged the budget would be narrowly balanced this coming year without the contingency fund, but said he preferred to have a "nice clean surplus next year".
The government estimates a bigger-than-expected C$6.4 billion surplus in 2015-16. In the year ending March 31 of this year, the deficit is pegged at C$16.6 billion.
The Conservatives, in power since 2006, plunged into a deep deficit in 2008 as they pumped out stimulus money to deal with the recession after having cut taxes earlier. Previously, the Canadian government had an 11-year string of budget surpluses.
The government's reluctance to go for a balanced budget in 2014 was seen as preparing for an election-friendly budget the following year.
"This is a budget designed to build a bigger war chest for the next budget," said Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce.
He added that the government should be in a position to "have more money to give away" in 2015.
Germany is currently the only G7 country running a surplus, but Canada's ratio of debt to GDP is substantially less and it is one of a handful of countries with a triple-A rating from rating agencies.
Flaherty's budget assumes economic growth of 2.3 percent this year and 2.5 percent in 2015. It also assumes the Canadian dollar will be worth about 94 U.S. cents this year. The Canadian dollar is already weaker, at about 90 U.S. cents, and is projected to depreciate further in the coming year.
That implies growth could beat the government's estimates and ultimately improve the budget balance further.
When asked to comment on the currency's impact on the economy, Flaherty acknowledged that it was "good for exporters", adding: "I would expect there's a value to the dollar inherently, around which it will settle and we'll see what that is."
MONEY FOR AUTO SECTOR
With the U.S. economy looking healthier and likely to boost Canada's fortunes, the budget contained few measures to provide extra stimulus. It outlined plans to help push down consumer prices on wireless roaming, retail goods and banking services, part of a broader pro-consumer agenda aimed at winning middle-class voters (yes, - unlike the US, Canada has a healthy middle-class) also being wooed by the opposition.
It ensured an additional C$250 million a year in financial aid for the automotive sector. The government has been under pressure from Fiat Chrysler, which has asked for funding for a minivan plant, and which has said it might have to slash jobs in Canada if it doesn't get help.
The budget also provides C$28 million over two years to the National Energy Board to help it review projects such as TransCanada Corp's Energy East pipeline project, within legislated timelines.
But the fiscal cost of these initiatives is minimal compared with the cost-cutting steps announced.