CBC In Depth
Liberal-NDP budget deal
CBC News Online | Updated June 24, 2005

Prime Minister Paul Martin reached an agreement-in-principle with the New Democrats on April 26 to earn support for his minority government's budget. The deal includes a $4.6-billion boost in social program spending over two years.

"This agreement is fiscally responsible. It is progressive. We agreed to it because we want Parliament to work," Martin told reporters.

Martin said the deal - which could enable his government to survive - will be paid for through projected budget surpluses of $9 billion.

The deal between the Liberals and the NDP included:
  • $1.6 billion for affordable housing construction, including aboriginal housing.
  • A $1.5-billion increase in transfers to provinces for tuition reduction and better training through EI.
  • $900 million for the environment, with one more cent of the federal gas tax going to public transit.
  • $500 million for foreign aid to bring Canada in line with a promise of 0.7 per cent of GDP.
  • $100 million for a pension protection fund for workers.
Promised tax cuts for small and medium-sized businesses will remain but cuts for large corporations will be deferred.

Martin said a day after the Liberal-NDP deal was announced that the business tax cuts would be withdrawn from the budget. They would be introduced later as separate legislation provided the Liberals get the backing of the Conservatives, Martin said.

When Finance Minister Ralph Goodale introduced his budget in February, he pledged to reduce the general corporate tax rate from the current 21 per cent to 20.5 per cent in 2008, 20 per cent in 2009 and 19 per cent by 2010, at a cost to Ottawa of slightly more than $3 billion.

Goodale's second budget also called for the elimination by 2008 of the corporate surtax, which was originally brought in as a deficit-cutting measure in 1987. Cutting the surtax would have been the equivalent of a 1.12-percentage-point cut in the corporate tax rate. Ottawa said eliminating the surtax would cost it $440 million in tax revenue in 2009 and $920 million in 2010.

Business groups denounced the tax-cut deferral in the Liberal-NDP agreement. The Canadian Chamber of Commerce, the Canadian Council of Chief Executives and the Canadian Federation of Independent Business all criticized the government's attempts to get the budget passed and stay alive.

The opposition Conservatives denounced the Liberal-NDP budget deal and threatened repeatedly to vote against the budget and bring down the government. But on June 23, the Liberals deployed a rarely-used procedural tactic to limit debate. In a midnight vote, the Liberal's amended budget passed third reading by a vote of 152-147.


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