Finance Minister Jim Flaherty warned that government programs will be cut in order to balance the books by 2014-2015, as he tabled a revised budget Monday.

The updated budget includes all of the measures contained in the one tabled in March, plus the two additions Flaherty identified earlier: $2.2 billion for an HST compensation deal for Quebec and a commitment to phase out the per-vote subsidy for political parties.

Written into this budget, however, is the campaign promise made by the Tories to eliminate the federal deficit a year ahead of schedule. The March budget had forecast a deficit of $300 million in 2014-2015 and a surplus in 2015-2016.

Now, the Conservatives are promising the deficit will be history by 2014-2015, once Flaherty books the savings from a government-wide operating review that will serve as the basis for the new target.

Opposition leader Jack Layton and interim Liberal leader Bob Rae criticized the latest version of the budget, including the plan to phase out the per-vote subsidy.

"We believe the financial support of our parties is important for democracy in Canada. We don't agree with the approach the government is taking," Layton said. "We'll live with it, we'll work with it, we'll go out and fundraise ... those that raise the most money will be able to have the most say when it comes to presenting their ideas and that's not very democratic."

Layton also accused the government of trying to hide where it plans to make billions of dollars in cuts.

Treasury Board President Tony Clement is leading a review of the annual $80 billion in program spending, with a goal of shaving 5 per cent from that budget, eventually resulting in $4 billion in annual savings by the time the cuts fully take effect in 2014-2015.

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Finance Minister Jim Flaherty gestures as he tables his revised budget in the House of Commons June 6, 2011. (Adrian Wyld/Canadian Press)

The government has said transfer payments to individuals and the provinces, for health and social programs, will be maintained, which has left critics wondering what is on the chopping block. 

"Governments are very good at creating programs, they're not so good at ending them," Flaherty said at a news conference shortly before tabling his seventh budget in the House of Commons. "Not every program was designed to go on forever, otherwise government would continue to grow like topsy, just get bigger and bigger and bigger."

The review was announced in the March budget and opposition parties and critics were hoping Monday's updated version of it would shed some light on where the axe will fall. 

"No, I would be presumptuous if I did that," Flaherty said when pressed to give some clues as to where the savings will be found.

The finance minister described the goal of finding $4 billion in savings a "moderate" one. He acknowledged it will be challenging but said it's "absolutely" achievable and must be done.

Flaherty also said, "it's really quite amazing, if not shocking" that the federal government hasn't done this kind of spending review in 15 years.

"It's about time we paused, we look at what it costs to run the government, we look at programs to make sure they're still useful, serving Canadians, and then make the necessary decisions," Flaherty said.  

"There will be some programs that will not continue, there's no question about that," he said.

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NDP Leader Jack Layton said the budget still doesn't do enough for seniors or job creation, in the foyer of the House of Commons June 6, 2011. (Fred Chartrand/Canadian Press)

The savings to be found through the operating review have not been "booked" in Monday's budget, Flaherty said, because it would be irresponsible to do that until they have been identified. Next year's budget, after the review is completed and the cuts made, will reflect the savings, Flaherty said.

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Layton called the budget disappointing because it doesn't address the needs of families and said that his party would try and change it.

"The first thing we're going to do is propose an amendment to the budget ... that amendment will focus on job creation and healthcare and retirement security issues, the things that Canadians told us that they wanted to see addressed here in Ottawa, but which the government has left behind."

Rae was also quick to condemn the updated budget, calling it a "groundhog budget that takes us back to March with very few changes."

Rae said the budget contains no long-term plan on healthcare and nothing to reduce poverty, also noting that a children's arts tax credit doesn't benefit people who aren't paying taxes.

"Basically, what the government is saying is that if you're poor, your kid doesn't get piano lessons."

Political subsidies on the way out

There were details on two new measures Flaherty had promised.

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Finance Minister Jim Flaherty, left, and Prime Minister Stephen Harper are all smiles on their way into the House for the tabling of the budget, June 6. (Canadian Press)

The budget revealed the per-vote subsidy for political parties will be phased out in annual increments of 51 cents, starting April 1, 2012, until it is completely eliminated by 2015-2016. The move, one long-desired by the Conservatives, is expected to generate annual savings worth $30 million when the subsidy is fully eliminated.

The budget also dedicates $2.2 billion to Quebec's coffers for the HST compensation agreement, which has yet to be signed. The Conservatives promised during the campaign to seal the deal by mid-September. Negotiations have been ongoing for months, but the money had not been set aside in the budget tabled on March 22.

None of the measures announced in the March budget were dropped Monday. Some of the key items include:

  • Increasing the amount of the Guaranteed Income Supplement for seniors; introducing a family caregiver tax credit.
  • Hiring tax credit for small businesses.
  • Enshrining the annual Gas Tax Fund in legislation.
  • Loan forgiveness for doctors and nurses in rural areas.
  • Ending subsidies for the the oilsands sector.

Reducing the deficit

The recycled budget does adjust the amount of the deficit in this current fiscal year, increasing it from $29.6 billion in the March document to $32.3 billion, mostly because of the money that will be paid out to Quebec.

Some of the savings from the upcoming spending review will start to take effect in the following fiscal year, 2012-2013, at which point the deficit is projected to stand at $18.4 billion instead of $19.4 billion. In 2013-2014, building in the continued savings expected from the operating review, the deficit is projected to be at $7.4 billion and in 2014-2015, there would be a surplus of $3.7 billion.

Flaherty said he's confident the spending review will lead the government to a balanced budget by the new target of 2014-2015.

"That assumes of course that this is a successful exercise and I fully expect it will be a successful exercise," he said.

Some sceptics are doubtful it can be done without major cuts to program spending.

Parliamentary Budget office Kevin Page said Monday the U.S. and European economy and risks in Canada mean that the economic growth will be lower than the government projects. And he said the Parliamentary Budget Office hasn't seen details to suggest the government can control spending to the level it needs to reach the deficit target.

The important thing, Page said, is that the deficit is coming down.

"We think at my office that the deficit will fall to $26.6 billion next year," he said on CBC News Network. "If you're the finance minister almost anywhere in the G20, G8 you would like to have those numbers and that trajectory."

While the contents of the budget remained largely the same, what has changed is that the Conservatives, armed with a majority, don't need the support of an opposition party to pass it.

The last time Flaherty introduced it the Liberals, NDP and Bloc Quebecois immediately rejected it, but the government fell on March 25 before they had a chance to vote on it.

Their objections to the budget this time will carry little weight. With the Conservatives also holding a majority in the Senate, the government will likely meet its goal of passing the budget before Parliament breaks for the summer.