The 2012 Federal Budget
On March 29, 2012, Finance Minister Jim Flaherty will announce the federal budget in the House of Commons. Over the past few months, a number of cabinet ministers have hinted at deep cuts. The buildup to this year’s budget draws comparisons to that of Paul Martin’s 1995 budget, designed to tackle the federal deficit. The 1995 budget reduced federal-provincial transfers and allowed the Liberals to accumulate over a decade of federal surpluses.
The federal debt has climbed to over $500 billion, the same figure Martin and Jean Chretien faced in 1995. This year, however, the circumstances are much different. While the 1995 Liberals witnessed 36 cents of every tax dollar being spent on servicing the debt, the current cost is only 11 cents. Furthermore, only 22% of the current debt is in foreign hands, whereas in 1995, 46% of the debt was held abroad. As such, the federal debt is a much less significant issue than it was in 1995, both fiscally and politically.
While the developed world continues to ail from the consequences of the 2008 recession, Canada has remained ahead of the pack as a stable and investment-friendly nation. The global economic situation, however, remains unstable for the time being and many economists believe Canada has yet to turn the corner. The budget presentation on March 29th is much later in the year than previous announcements and likely has much to do with economic events abroad (Greece is required to make a debt repayment on March 20).
Spending cuts will be necessary to ensure that Canada maintains some fiscal latitude from the impact of international events, but a cut too deep could send the Canadian economy tumbling into stagnation. The Conservative government has been fiscally responsible over the past 5 years and there is little indication that they will risk making significant changes. Expect more of the same from the Harper government in 2012.
*Mackenzie D. Turner is a student in the Master of Public Policy program at The School of Public Policy (2011-2012 academic year)