Canadian Budget Highlights

March 29, 2012

The annual 2012 Canadian budget, presented late Thursday conceivably might restore a balanced budget by the fiscal year that starts in April 2014, a mere two years from now.  The deficit in fiscal 2010-11 equaled C$ 33.4 billion, by comparison.  Today’s budget projects a deficit of C$ 1.3 billion in fiscal 2014-15 but embodies a C$ 3 billion contingency reserve in case revenues fall short of expectations.  All years in the five-year budget plan have a similar safety cushion.  In the final year of fiscal 2016-17, a surplus of C$ 7.8 billion but would actually surpass C$ 10 billion if the adjustment for the risk of a revenue shortfall isn’t needed.

Virtually all of the fiscal deficit is to be eliminated from the spending side.  Program spending over the coming five years will rise 2.1% per annum compared to a 4.7% annual rate of revenue increase.  This budget embodies the conservative vision of small government.  Almost 20K civil service jobs are to be eliminated.  Program spending declines from 14.7% of GDP in fiscal 2010-11 to 12.7% of GDP by fiscal 2016-17, restoring such to its pre-recession relative size.  Tax revenue equal to 11.8% of GDP in fiscal 11-12, which ends this week, barely changes.  In fiscal 2016-17, such is projected at 12.2% of GDP. 

Canadian officials claim that Canadian debt as a result of this budget plan will slide from 33.9% of GDP in fiscal 2011-12 and 33.4% of GDP next fiscal year to 28.5% of GDP by 2016-17 at which point such too will have returned to the pre-recession ratio.  Debt of just 28.5% would moreover be the envy of the Group of Seven, lying even 20 percentage points below the German ratio.

Similarities, notably the use of the contingency reserve and heavy reliance on spending restraint, can be found between this budget plan and the one that turned Canada from possessing one of the industrialized world’s largest chronic deficits in the early 1990s to a surplus nation.  Success will be tougher to achieve now, because all countries are imposing austerity at the same time, which is likely to result in weaker than assumed aggregate demand and tax revenue growth.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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