What to know about budget 2014

—This story was originally posted at Macleans.ca. See here for more federal budget coverage.—

When Jim Flaherty stood to deliver his 2014 budget speech, any savvy listener would have expected the finance minister to leave something interesting out. After all, half the fun of budget day—for those eccentric enough to find the yearly ritual enjoyable—is hunting for unheralded items buried in dense documents.

Still, the truly major measures—new big-ticket spending and taxing— generally rate at least a nod in the speech. This year, though, Flaherty neglected to breathe a word in the House about arguably his most decisive single measure: $500 million injected over two years into what’s called the Automotive Innovation Fund.

His officials weren’t saying so, but that half-billion commitment is almost certainly earmarked largely for helping Chrysler upgrade a big assembly plant in Windsor, Ont. Why would Flaherty, who hails from Ontario’s auto-making heartland, fail to flag such a key move? Evidently a pledge to keep subsidizing the auto industry doesn’t fit with the themes Prime Minister Stephen Harper’s Conservatives hope to highlight ahead of a fall 2015 election.

All of the preferred messaging—and the real measures, big and not-so-big, behind the talking points—can be grouped under four headings.

Balancing the books

The 2014 budget marks the lull between a period of battling deficits and a dawning era of allocating surpluses. After world financial markets melted down in late 2008, the federal deficit ballooned to a staggering $55.6 billion in 2009-10. By 2012-13, it had subsided to $18.9 billion, and Flaherty now projects a surplus of $6.4 billion for 2015-16.

The opposition NDP and Liberals accuse the Conservatives of an unhealthy fixation on getting back in the black. Yet the numbers don’t quite support the opposition’s charge that the regime is ruthlessly austere. For comparison’s sake, cast back to when the Liberals were last running the show. In 2005-06, federal spending (not including interest payments on the public debt) amounted to 12.6 per cent of Canada’s Gross Domestic Product. After eight straight years of Flaherty budgets, that share had actually edged up to 13.5 per cent of GDP in 2013-14—hardly an indicator of relentless small-government Conservatism at work.

But Flaherty is selectively tough. He boasts about his preference for keeping up transfer payments to provinces and individuals, while curtailing direct spending by federal departments. Indeed, his 2014 budget freezes departmental operating budgets. The big question, left unanswered so far, is what the Tories will do when surpluses reappear next year. Economists at RBC Group forecast the feds will have about $36 billion to play with over the following four years—“opening the door for tax cuts, spending increases, or both.” Recently, Flaherty candidly admitted that there are divisions inside the Tory caucus between MPs who would like to spend big and those, like him, inclined to restraint. It could be the defining tension of the next year or two.

Investing in growth

Not everything is on hold until surpluses start rolling in. Along with that $500 million for the auto sector, the 2014 budget funneled $113 million to Atomic Energy of Canada Ltd., another priority Flaherty wasn’t eager to highlight. He was more enthusiastic about infrastructure spending, notably $497 million over the next two years for a new Windsor-Detroit bridge and $237 million to rehabilitate Montréal’s crumbling bridges.

Those bridges are entirely under federal control. Similarly, the feds can act alone in pouring $1.5 billion over a decade into a new Canada First Research Excellence Fund, aimed at helping universities pursue science and technology breakthroughs. The appeal of flying solo is clear, considering the Harper government’s rocky record when it comes to co-operating with other governments. Last year’s big infrastructure push, for instance, featured $14 billion for what’s called the Building Canada Fund, which pays for public works Ottawa jointly funds with the provinces and municipalities. The influential Federation of Canadian Municipalities praised that commitment at the time, but more recently complained about lack of progress toward getting the fund up and running. Griping that the feds have failed to launch promised consultations, the federation warned, “Municipal planning for the 2014 construction season is coming to a standstill.”

Even worse is the debacle of the Canada Job Grant, the biggest initiative in last year’s budget. The plan was for the federal government, the provinces and employers to each pay a third of up to $15,000 a year for every employee enrolled for training. But there was a catch: The $300-million federal share was to be subtracted from $500 million a year that Ottawa transfers to provinces under existing labour-market agreements. Provinces cried foul and refused to go along. In his 2014 budget, Flaherty announced that if provinces won’t come on board, the federal government will push ahead by somehow delivering the program alone.

Focusing on jobs

Perhaps the most emphatic line in Flaherty’s low-key budget speech was this one: “Creating jobs and opportunities remains our government’s top priority.” Just about anything the government does, including building bridges and subsidizing auto companies, fits under that sweeping assertion. But Conservatives clearly want to be seen as more directly active when it comes to helping young Canadians find their way into the workforce. Flaherty announced that apprentices in the trades will be eligible for the same sort of interest-free loans long available to students at post-secondary institutions. The loans are projected to cost $25 million over the next two years, and Flaherty allocated another $40 million to support internships in high-demand fields.

Niche measures like these don’t cost much but do signal concern with youth joblessness. The latest figures peg overall unemployment in Canada at seven per cent, but for Canadians aged 15 to 24, the rate jumps to 13.9 per cent. Tories don’t generally score well with younger voters, but they rely on doing well with their middle-aged parents. That makes young people unable to find a first job a big political worry. “You’ve got a generation coming out of post-secondary education whose parents love them dearly, and realize these kids can’t find good work,” Abacus Data pollster David Coletto observes.

Of course, the best hope for better job prospects is for sustained economic growth. The budget’s survey of private-sector forecasts has Canadian GDP growing 2.7 per cent in 2014, well up from a tepid 1.7 per cent in 2013. Behind that lies the assumption that U.S. demand for Canadian exports will strengthen. For the past couple of years, economists have been predicting what they call “rotation”—a shift from Canadian consumers driving the economy and toward sales to the U.S. Much now rests on the American economy, which has recently been flexing its muscles, finally fulfilling those expectations.

Siding with consumers

The final of Flaherty’s four key themes is a populist pitch about helping Canadians in the marketplace. A pro-consumer thrust was supposed to be the big news out of last fall’s Speech from the Throne. But that rhetoric has, so far, tended to outstrip the action. A key promise in the 2014 budget is to “introduce legislation to address the price gap between identical goods sold in Canada and the United States.” But how? Flaherty said only that “statutory power” would be given to the Competition Bureau, the federal agency that investigates companies suspected of illegal anti-competitive practices, like price-fixing.

Other steps announced in the budget include banning so-called “pay-to-pay” policies, in which consumers who prefer not to pay bills online are charged a service fee for receiving old-fashioned paper statements in the mail. As well, the budget proposes to cap roaming rates for cell phone services, by stopping wireless providers from charging other companies more than they do their own customers. For rural and northern communities, the budget earmarks $305 million over five years to expand high-speed Internet to 280,000 households, which are still lacking broadband service.

—This story was originally posted at Macleans.ca. See here for more federal budget coverage.—