Canada Budget to Help Factories, Flaherty Says in Letter

Canadian Finance Minister Jim Flaherty said his budget this week will focus on “jobs and the economy,” including measures to support manufacturers.

In a letter to Conservative Party lawmakers released today in Ottawa, Flaherty said the fiscal plan will also include new infrastructure investments and measures to tackle job vacancies in some industries. The budget, to be presented March 21, comes as Canada faces “significant threats” from abroad, including a slow expansion in the U.S. and recession in Europe,

Flaherty has said his eighth fiscal plan will seek to eliminate the country’s deficit before the next election scheduled in 2015, without undermining the country’s already weakening recovery. Canada’s economy is growing at the slowest pace since the 2009 recession, in part due to government spending restraint.

“The manufacturing sector has started to rebound following the global recession due, in part, to measures taken by our Government,” Flaherty said in the letter dated March 18. “There is more we can and will do to support this important sector.”

Statistics Canada reported today that factory shipments fell in January, the fourth decline in five months and a drop that none of the 20 economists surveyed by Bloomberg forecast.

While Flaherty has said he plans to eliminate the deficit primarily by controlling spending, there was no mention of budget cuts in the letter.

‘Arbitrary’ Deadline

Peggy Nash, the spokeswoman for the main opposition New Democratic Party on budget issues, said the 2015 date for balancing the budget is “arbitrary” and the government doesn’t need to eliminate deficits that quickly.

“Waiting another year or two is not a big deal,” Nash said in a telephone interview. “Our debt-to-GDP ratio is a lot better than other countries.”

Canada faces “significant threats from abroad,” Flaherty said. The budget will seek to “create jobs, growth and long-term prosperity for hardworking Canadian families.”

Flaherty has warned that slower-than-expected growth is acting as a drag on revenue, making it more difficult to balance the budget. Economists surveyed by Bloomberg News this month forecast growth of 1.6 percent this year, compared with a 2 percent projection in Flaherty’s last fiscal update in November.

Narrower Balance

A one-year 1 percentage-point reduction in growth narrows the budget balance by C$3.9 billion ($3.8 billion) in the first year and C$12.8 billion over three years, according to a formula provided by the finance department in its last update.

Flaherty projected in the update that Canada would post a C$26.0 billion deficit in the year ending March 31, narrowing to a C$16.5 billion gap the following year.

Canada is the only Group of Seven country with a stable top debt rating from Standard & Poor’s, Moody’s Investors Service and Fitch Ratings.

Flaherty’s letter highlights the manufacturing industry’s “value-added” jobs and the need to do more to support the “important sector” of the economy. The government will also “do more” on infrastructure and investment, and take steps to address labor shortages of certain skilled professions, according to the letter.

In a Feb. 15 letter to Prime Minister Stephen Harper, the Canadian Manufacturing Coalition, an advocacy group, asked the government to extend a measure that allows manufacturers to accelerate write-offs from investments by five years. The measure was first introduced in 2007.

The group also advocated for the creation of a government fund to subsidize factories.

Before it's here, it's on the Bloomberg Terminal.