Thrifty budget to prop up auto industry and fund cities

Globe and Mail – national – Tories aim to secure votes in Ontario and urban Canada with targeted spending
February 25, 2008 at 1:00 AM EST

OTTAWA — The Harper Conservatives will aid the ailing automotive sector and provide assistance for infrastructure construction in a modest budget Tuesday aimed at managing a potential economic slowdown, sources have told The Globe and Mail.

Sources said Finance Minister Jim Flaherty will address both sectors in a spending document that would shore up political weaknesses in Ontario and in urban Canada. The government would funnel close to $1-billion for infrastructure and another $200-million for the auto industry. Late last year, the auto parts sector asked for a $400-million package from the federal and Ontario governments.

The package is a clear effort to woo voters in Ontario, where the country’s automotive sector is located, and in urban Canada, where the Conservatives hold few seats.

The budget could be the precursor to an election if the Opposition defeats it in confidence motions this week and next.
Finance Minister Jim Flaherty checks out his ‘budget shoes’ on Monday after having them re-soled at a shoe repair shop in Ottawa. Chris Wattie/Reuters

The Finance Minister reiterated Monday that there will be no major pledges in the spending document. However, he did say there would be “one or two” surprises.

“We are doing spending, but we’re doing spending in a controlled way, given the economic circumstances this year and next year,” he said.

“People ought not to expect any big spending items because we have to stay within our means and be prudent and fiscally responsible, which we will be tomorrow.” In keeping with the theme, Mr. Flaherty sported a pair of resoled black brogues, eschewing the tradition of purchasing new shoes.

The minister said the budget will be balanced and suggested he will accelerate a government spending review process he put in place one year ago to find increased savings.

It’s also widely expected the Conservatives will unveil a tax measure for investors that serves as an incentive to save, possibly one to shelter capital gains. This would be an attempt to make up for the fact the Tories have so far failed to deliver on a two-year-old campaign pledge to provide some tax relief on capital gains.

The Tories are also concerned about the slowing Ontario economy, which has seen the manufacturing industry hit hard while other provinces, such as Alberta, have seen their resource-based economies roar. The Conservatives are sitting on a hefty budget surplus for the year ending March 31, one that could be as high as $13-billion instead of the $11.6-billion expected.

Other measures expected Tuesday include an extension of a temporary $565-million annual tax break for manufacturers which allows investments in equipment to be written off more quickly, and an overhaul of government support for research and development. The government currently spends $9-billion on R&D, and there could be up to another $300-million thrown into that pot.

Money will also be available for graduate students studying sciences as part of the Tories’ push to make Canada more competitive. There may also be more cash to clean up lakes, particularly in Ontario.

A focus on Ontario and on urban Canada may make it easier for the federal Liberals to swallow the budget, thereby avoiding a late winter election campaign. Liberal sources have told The Globe that the party would prefer to stay away from the election hustings for the time being. One scenario making the Liberal rounds suggests the party could bring the Conservatives down on a budget amendment after the results of four by-elections in mid-March.

But it seems the Tories may also lack ardour for an immediate election, given they appear to be loading the budget with items the opposition can support. “They do not want an election right now,” one Ottawa insider said.

The pledge for close to $1-billion in infrastructure funding echoes the Liberal playbook, as Stéphane Dion pledged to funnel surplus cash above $3-billion to infrastructure spending.

In the House of Commons, the government said it will not accept any amendments to the budget.

“Unlike the Liberals in previous years who amended their budget after it had been tabled, we will not accept any amendments that the Liberals would like to propose that will drive us into a deficit,” said Ted Menzies, Mr. Flaherty’s parliamentary secretary.

Both the NDP and the Bloc Québécois are expected to oppose the budget.

The lean budget arrives just as the International Monetary Fund served up a gloomier outlook for Canada’s economy.

The international agency yesterday chopped Canada’s 2008 economic growth target to 1.8 per cent, down from an October forecast of 2.3 per cent and last year’s estimated pace of 2.5 per cent. A growth rate of 1.8 per cent would be the slowest since 2001, when the U.S. economy fell into recession.

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