No fireworks in federal budget, economist predicts

(January 21, 2004) With a federal budget expected in late February or early March, economists are offering up predictions of what the fiscal plan might contain. TD’s Don Drummond says he expects only “minimalist action”: meaning no new tax cuts and little extra spending.

In fact, Drummond says federal finance minister Ralph Goodale’s first budget will likely have more in common with a traditional fall update rather than a full-blown budget.

“I expect little in the 2004 budget because the Chretien-Manley team did worse than leave the cupboard bare,” Drummond said in a speech to accountants yesterday in Ottawa. “They slipped in a couple of major IOUs that fell out when Goodale opened the door.”

Drummond says his estimates suggest a surplus of $1.3 billion this fiscal year, but deficits of $1.5 billion in fiscal 2004 and $3 billion in each of the following two years. “So if the government wants to present a 2004 budget consistent with previous conventions, it must identify savings equal to these planning deficits before it can leave the starting blocks,” he said. “That is a tall task.”

Goodale is currently on a cross-country, pre-budget consultation tour. In a speech last week in Regina, he said Ottawa’s estimated surplus currently stands at $2.3 billion. If the feds keep their promise of an additional $2 billion in healthcare funding for the provinces, that leaves little breathing room for Goodale, who also promised to continue paying down the debt and to keep past promises of tax reductions.

To address the possible shortfall, the finance department has launched a series of cost-saving measures, including a cap on the size of the public service, a hold on new capital spending and a detailed examination of discretionary spending.

Drummond says he’s not confident that the expenditure review will lead to large savings, noting that government program spending has increased at an annual pace of 7% since 1998-99, leaving the fiscal situation “highly vulnerable” when the debt burden is added to the mix.

“That means that Canadians, and their political leaders, are going to have to live with unrealized expenditure needs and higher-than-desired taxes for many more years,” Drummond stated.

“The bottom line is that Canadian governments are going to be on a fiscal diet for many more years,” he concluded.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com