No tax cuts, little new spending in federal budget

Canadians will see little new spending out of the federal government this year as it attempts to stay on target to eliminate the deficit by 2015, with even a heavily promoted focus on skills development relying on money that was previously committed. But to keep to that deficit-slaying plan the Conservative government is relying in part on booking $6.8 billion by 2018 in tax revenue now lost to tax loopholes and cheating.

The Conservatives are also leaving themselves little wiggle room if their projections are off, with next year's budget too close to the 2015 election to allow them to bring in major cuts should they need to bring the budget back into balance.

As expected, Thursday's budget emphasizes the need for skills development and getting workers qualified to fill open jobs but not for at least another year, as the government renegotiates existing agreements with all provinces and territories.

The program will shift money from existing labour market agreements, worth $500 million a year, to a more specific new program to be known as Canada Job Grants. The job grants are expected to be worth $300 million a year out of that existing fund and require businesses and the provinces to both match a $5,000 contribution from the federal government to train a worker, for a total of $15,000 per worker.

The budget projects the grant program would help provide 130,000 people a year with skills and training once the agreements are signed with all provinces and territories.

The government will also start using its contracting requirements to encourage companies to hire apprentices in order to get federal work, and commits $222 million a year to a new set of labour market agreements focusing on Canadians with disabilities, as well as a promised $70 million over three years to support 5,000 paid internships so new graduates can get job experience.

Finance Minister Jim Flaherty says the government is "trying to get to the point where training means jobs," instead of training people for jobs that don't exist.

Measures for consumers, business

Flaherty says he's "very confident" he can eliminate the deficit by 2015.

"We could have done more [to cut spending]we chose not to because it's not necessary," he told reporters Thursday. "I want our country to be in a very solid fiscal position in case we have another crisis."

For consumers, the budget eliminates import tariffs on baby clothes and most sports equipment, in an attempt to bring down prices that are visibly higher in Canada than in the U.S., giving up $76 million a year in tax revenue. But consumers will only see the savings if retailers pass them on.

At the same time, the budget includes general tariff increases for 72 countries. The countries were considered developing nations when they were added to a list of preferential tariff beneficiaries in 1974, but after years without revision, countries such as China and Korea will be removed from the list in 2015. The change shouldnt affect countries, such as Mexico, with which Canada has a trade deal.

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The budget commits $900 million in new spending in 2013-14 to"support jobs and growth," including measures to support the manufacturing sector and spur research and innovation. But overall program spending still drops by $4 billion to $76.5 billion due to last years austerity measures.

To offset that $900 million in new spending, the government intends to find $100 million through further spending restraint and an additional $400 million by closing tax loopholes and catching tax cheats, partly by offering a percentage of the money recovered to tipsters. The remaining $400 million will add to the deficit.

That will leave the projected deficit $2.2 billion higher than the Department of Finance predicted in November, at $18.7 billion. The deficit isprojected to be$6.6 billion in 2014 and down to a small surplus of $800 million in 2015, just ahead of the next federal election.

Flaherty says the prediction of how much money the government will be able to collect from tax cheats and closing loopholes are based on the Canada Revenue Agencys estimates, explaining "we dont book them" unless the CRA is satisfied the government will get them.

Opposition questions projections

NDP Leader Tom Mulcair called the budget a "shell-game con job."

"You cannot austere your way out of a crisis. This is what Mr. Flaherty is attempting to do. His predictions are consistently wrong. As we've seen again, he's running a higher deficit than he thought he would ... he's predicting even higher growth next year. When we're here together next year, we'll find out that that was also wrong," he told reporters after Flaherty delivered the budget.

Interim Liberal Leader Bob Rae said Flaherty has identified the problem with not having enough skilled workers to fill the demand for them.

"It's hard to disagree, but it's hard to say that in three years time we're going to have a $15,000 job grant and [when] $10,000 of that is going to come from somebody else, it's hard to think that that's actually going to be the solution to the problem," Rae said outside of the House of Commons.

"They created certain expectations on the part of a lot of people, but I don't see a lot of solutions on the document proposed by Minister Flaherty," he said.

Mulcair and Rae criticized the money intended for cities, pointing out it's a small amount given how much of the burden for building and repairing infrastructure that municipalities bear.

"Municipalities have onlyeight per cent of the fiscal pie in this country. They have 40 per centof the responsibility on infrastructure. It's an impossibility," Mulcair said.

Some new spending for veterans

Some of the new spending announced in the budget will provide $65 million over two years to double the reimbursement for veterans funerals and burials to $7,376 per person.

The budget also outlines some policy shifts but doesnt attach numbers to them, including wrapping the Canadian International Development Agency into a renamed Department of Foreign Affairs, Trade and Development.

Canadas aid program will continue to have its own minister, which like other ministries will be enshrined in law for the first time, and "core development assistance will remain intact," the budget says. Its not known how much money that could cost or save, or how many jobs may be eliminated because of the shift.

At the same time, new cuts are set out for CRA and the Department of Fisheries and Oceans, with $60.6 million to be cut from CRA headquarters in administrative support and IT, and $33 million to be cut from DFO by changing the organizational structure.

The government also commits to encouraging more defence equipment to be built in Canada, following on a report by business executive Tom Jenkins. The existing industrial and regional benefits obligations suppliers have to meet are seen as an opportunity to "support high-skill and high-value opportunities" in Canadian industries.

For cities, the federal government will continue to turn over $2 billion a year from the gas tax and will index the amount according to inflation. Canadas mayors had asked for $3 billion a year. There will also be a $14-billion Building Canada Fund to provide money for infrastructure starting next year, to replace the expiring Canada Builds fund.

Other items in the budget include:

• An expanded adoption tax credit to help cover the cost of home visits and mandatory courses for adoptions finalized after 2012.
• Expanded tax relief for home-care services, expected to cost $5 million a year in lost revenue.
• A commitment to work with the provinces on regulating payday loan companies, which charge exorbitant interest rates to cash cheques.
• Application of the same tariffs to tobacco used in roll-your-own cigarettes and chewing tobacco as to other tobacco products.
• Extension of a small business hiring tax credit, saving employers $1,000 on Employment Insurance premiums for qualifying workers.
• An increase in funding for processing citizenship applications.
• A continued commitment to improving foreign credential recognition for target professions.
• An increase in the capital gains tax exemption from $750,000 to $800,000 for small business corporation shares and qualified farm and fishing properties.
• Continued funding $119 million over five years to provide housing to transition mentally ill and addicted homeless Canadians from shelters and the streets to homes.

First Nations get funding

After a difficult start to the year for the governments relations with First Nations people, the budget contains some funding for on-reserve skills training and housing, but nothing for First Nations education, an issue Assembly of First Nations National Chief Shawn Atleo has called for.

Specific programs include:

• $241 million over five years for on-reserve skills training, with income assistance contingent on participating in skills training.
• A renewed commitment to draft a First Nation Education Act.
• $10 million over two years for post-secondary bursaries for First Nations and Inuit people.
• $155 million over 10 years for on-reserve infrastructure.
• $100 million over two years for housing in Nunavut .
• $54 million for resolving specific claims.
• $48 million over two years for health care on reserves.

Organizations pushing for lower taxes were cautiously positive about the budget. A spokesman for the Canadian Taxpayers Federation applauded tax relief for small businesses, while a spokesman for the National Citizens Coalition said the government should commit to eliminating import tariffs more broadly than just on baby clothes and sports equipment.