Budget aims to build on growth

The Conservatives say job growth is a priority of their 2011 budget, during an economic period that is improving but requires a cautious approach.

Touting the economy's recovery from a global recession and Canada's relative economic strength compared to other industrialized countries, Finance Minister Jim Flaherty offered modest incentives to encourage employement in his sixth budget Tuesday.

"Since July 2009, the Canadian economy has created more than 480,000 new jobs, more than were lost during the recession," Finance Minister Jim Flaherty said during his budget speech Tuesday in the House of Commons. "Still, we remain concerned about the number of Canadians looking for work."

The budget includes a one-time hiring credit for small businesses that is worth up to $1,000 against a firm's increase in employment insurance premiums due to new hires.

"The measure will reduce payroll costs for new jobs and encourage hiring," said Flaherty.

The Tories will also continue assistance to Canada's manufacturing and processing sector by extending the temporary accelerated capital cost allowance rate for investment in machinery and equipment for two additional years.

The also budget calls for $80 million in new funding over three years through the Industrial Research Assistance Program to help small and medium-sized businesses and the establishment of 30 industrial research chairs at colleges and polytechnics across Canada.

"We're not seeing enough on innovation," said Albert Baker of Deloitte and Touche. "We would have preferred to see tax credits for research and development to be more broadly based and to be fully refundable so companies in a loss could benefit."

The budget also promises to update Canada's Customs Tariff and echoes earlier pledges to cut red tape.

An initiative that helps help older workers re-enter the workforce will be extended. And, as widely reported this week, the government will create a "Helmets to Hardhats" program to help find former members of the military work in the construction industry.

"This is just one more practical way to provide the support they deserve," said Flaherty.

Corporate tax cuts announced previously will remain in effect.

"We will not give in to Opposition demands to impose massive tax increases," Flaherty said during his speech in the House of Commons.

The Conservatives vowed to protect the "integrity and fairness" of the country's tax system by closing tax loopholes, but didn't offer details on how that will be done.

The federal stimulus spending of the last two budgets is over, but the current document contains some news on infrastructure, including a pledge to enshrine the annual $2 billion gas tax transfer for municipal infrastructure as a permanent program.

And the budget commits $150 million for construction of an "all-season" road between Inuvik and Tuktoyaktuk to complete the Dempster Highway. Imperial Oil and its partners have been looking forgovernment supportto help build the Mackenzie Valley Pipeline, which received cabinet approval earlier this month. Although the government has balked at directly investing in the project, this moneymay be an attempt to contribute to related infrastructure.

Economic outlook

The Conservatives' project nearly $2 billion in extra revenue this year along with cost savings of $400 million, money that was directed to a one per cent increase in overall spending revealed in the budget.

The government said economists on average now expect the level of nominal GDP to be $20 billion higher than was stated during the October fiscal update. However, the government adjusted that figure down by $10 billion in each year of its forecast to provide what one economist called a "prudent" cushion.

"This adjustment for risk reflects the remaining uncertainties surrounding the global economic outlook," the budget documents read.

The government expects GDP growth of 2.9 per cent in 2011, up from the 2.5 per cent projected in the fiscal update in October.

A survey of economists by the Deaprtment of Finance saw "the prospects for stronger global growth, particularly in the U.S., and the net benefits of higher commodity prices for the Canadian economy as key factors that could lead to an improvement in the outlook, particularly for nominal GDP."

The Conservatives said they are on track to return to balanced budgets, and projects that the government will return to a balanced budgets by 2015-16 "at the latest." That return will be fuelled by the 2010 round of strategic spending reviews, the closing of tax loopholes, and by the launching of a one-year review aimed at improving the efficiency of government operations and programs.

The budget sees a rapid decline in deficits, from the projected 2010-11 deficit of $40.5 billion (which is down from an earlier $45.4-billion deficit projection for the period) to a surplus of $4.2 billion in 2015-16.

The end of stimulus measures, along with savings in the budget, will allow spending to be reduced from 16 per cent of GDP in 2009-10 to 12.9 per cent in 2015-16, "broadly returning to its pre-recession level," said the government.

"We are emerging from the global recession with the lowest net debt-to-GDP ratio of any G7 economy, by far," said Flaherty.

But the Canadian Taxpayers Federation said the budget fails to control spending "and get serious about the deficit." The group's research director, Derek Fildebrandt, noted program spending will increase by an average of two per cent over the next five years, which is "not austerity. That's a permanent increase in the size of government."