Flaherty Bets on Oil in Budget as Canada Cuts 12,000 Jobs
Flaherty released a 2012 fiscal plan yesterday that pledges to expedite the environmental review of Enbridge’s Northern Gateway pipeline, which would move crude from Alberta’s oil sands to Asia, capitalizing on demand for natural resources. The measure comes in a budget that includes the firing of 12,000 government workers and defers defense spending to eliminate a deficit by 2015.
“ We want to be with the emerging economies,” Flaherty told reporters in Ottawa. “We want to be with the economies of Asia and South America that are growing.”
Since winning a parliamentary majority in last year’s elections, Prime Minister Stephen Harper’s Conservative government has pledged to bolster Canada’s long-term finances and take steps to support economic growth, in part by developing the country’s resource wealth and encouraging business investment.
Flaherty’s budget forecasts Canada’s growth will slow to 2.1 percent this year from 2.5 percent in 2011, before accelerating to 2.4 percent in the next three years. Canada averaged annual growth of 3.1 percent in the decade before the global recession.
Policy makers, including Bank of Canada Governor Mark Carney, have urged Canadian businesses to take over from indebted households and boost investment to sustain the economic expansion. Yesterday’s budget includes measures to encourage research and innovation and speed immigration for skilled workers.
Flaherty, in his seventh fiscal plan, announced spending cuts totaling C$21 billion ($21 billion) over the next five years that will help reduce the country’s deficits by a cumulative C$18.4 billion. The budget released in Ottawa kept Flaherty’s 2015-16 timetable for a return to surplus.
Recent data have shown weakening jobs growth, prompting Flaherty to boost employment insurance benefits in regions with high unemployment rates. More generous jobless payments will cost the government C$2.7 billion over six years, according to the budget.
To encourage investments in resources, Flaherty’s plan seeks to expedite energy projects by consolidating the agencies that conduct environmental reviews, setting hard deadlines on the process and allowing provincial agencies to study smaller projects in a bid to reduce duplication.
Alberta, home to the world’s third largest pool of oil reserves and Canada’s lowest unemployment rate, is working to increase capacity to transport crude amid opposition from environmental groups as companies such as Exxon Mobil Corp. (XOM) and Suncor invest about C$20 billion annually in the oil sands.
The government began hearings in January on Enbridge’s proposed Northern Gateway pipeline, which has become a flashpoint between environmentalists and Harper’s government. Regulators have received more than 4,000 requests by individuals to testify at public hearings.
Environmental and aboriginal groups say the project will increase the risk of an oil spill off the coast of British Columbia. The regulatory panel has said it plans to complete the review by the end of 2013.
An improving fiscal outlook allowed the federal government to limit cuts to federal government spending. Canada’s deficit in the fiscal year ending this month will come in at C$24.9 billion, less than the C$31 billion projected in Flaherty’s last update in November, because of faster-than-projected growth.
Departmental spending cuts, which don’t include transfers to individuals or provinces, will total C$5.2 billion annually when fully implemented. The departments of defense and health and public safety face the biggest reductions. The government had said it was considering cuts of as much as C$8 billion.
Federal employment will fall by 19,200, or 4.8 percent of the total, including 7,200 positions to be cut by expected attrition.
Growth in program spending, projected at C$245.3 billion next year, will average 2.1 percent over the next five years, reducing it as a share of GDP to 12.8 percent by 2016, its lowest since 2005. Total spending, including public debt charges, is projected to grow 1.2 percent to C$276.1 billion in the 2012-13 fiscal year. The federal debt as a share of output is forecast to rise to 34.4 percent in the next fiscal year before falling 28.5 percent in 2016-17.
“This is the furthest thing from an austerity budget,” said Catherine Swift, president of the Canadian Federation of Independent Business. “Program spending continues to rise every year simply at a lower rate.”
Revenue is forecast to grow by an average 4.7 percent over the past five years.
The plan forecasts deficits of C$21.1 billion in the year starting April 1, C$10.2 billion in 2013-14, and C$1.3 billion in 2014-15. Surpluses of C$3.4 billion in 2015-16 and C$7.8 billion in 2016-17 are projected.
To secure the country’s finances into next decade, Flaherty pledged to introduce legislation raising the eligibility for the Old Age Security pension to 67 from 65. The changes start in 2023, with a six-year phase-in. The plan also gives Canadians the option to defer payments until later years in exchange for higher benefits.
Deferred defense spending will save about C$2.9 billion over the next five years, with the elimination of tax credits and what the budget calls “loopholes” raising C$1.7 billion.
Among the measures to bolster business spending, Flaherty is setting aside C$400 million for venture capital funding, increasing support for business research and providing additional cash for university infrastructure. Measures to boost employment and growth will total C$3.7 billion over five years.
Even with a shrinking deficit, the government will issue a net C$97 billion of bonds next year, up from C$94 billion. The government will add an auction of 10-year bonds while reducing the amount of Treasury Bills it sells.
The government also announced it will stop production of the penny this year, as each one-cent coin costs 1.6 cents to make. The measure will save C$11 million a year.
To contact the reporter on this story: Theophilos Argitis in Ottawa at email@example.com