A boring, “no-news is good news” budget
Canada’s planned return to a balanced budget next year should help keep interest rates and thus homeownership costs down
Canadian federal budget speeches, such as Finance Minister Jim Flaherty’s offering earlier this week, have long had the reputation of being solemn and important events. Hundreds of media and business analysts agree to be “locked up,” in a basement conference room, prior to the presentations to get an advanced look, so they can be ready to act, the second that he begins talking.
However in recent times, Flaherty, has gradually turned budget day into a non-event. That was especially true of his latest version, in which he announced cuts to lavish public sector compensation packages, defence and a projected end to deficit spending.
These days the federal Conservatives conduct extensive pre-budget consultations and leak details of key orientations prior to the release of the actual document. So there tend to be few surprises. “I am sorry if you find it boring,” Flaherty jokingly told reporters. “But it has been a long slow climb back from the recession, and although we are not quite there yet, things are looking better.”
To be fair, Flaherty, whose latest budget update was his tenth, has racked up an impressive record during his time in office. Canada, which has created a million jobs in the last few years, is one of the few remaining places that maintains a triple-AAA credit rating. The country now has the best net-debt-to gross domestic product ratio of all G-7 nations.
Although there were no major announcements on the housing front, for home owners, no news is good news says one expert. “The government’s plan to return to a balanced budget should be good for homeowners,” says Dave Walsh, a partner at Ernst & Young LLP. “If they borrow less, it will keep downwards pressure on interest rates, which in turn will reduce home ownership costs.”
Like all Harper Government ministries, finance has been mired by obfuscation, to the point that even experts have a hard time making sense of its pronouncements. “Budget documents are not as clear as they used to be,” concedes Walsh. “In the past, they used to break down spending by departments, so it would be easier to track. Now they just show the changes.”
Of course as many observers have noted, Flaherty’s “boring” budget has one key priority in mind that was not listed on any document: his party’s future. The federal Conservatives, who were elected to a majority government in May 2011, have indicated that they want to go to the polls before May 2015, and their latest spending forecasts include key elements to help pave the way.
As Stefane Marion, an economist with National Bank Financial notes, these include a $3 billion contingency reserve that, if eliminated would have enabled Flaherty to record a balanced budget this year, one year earlier than forecast. Instead, he will delay that announcement for 12 months, and can thus deliver the good news just before voters head out to the polls.
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