Finance Minister Flaherty passes the competence test

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The Gazette, Wednesday, May 3, 2006

The first budget of a new government is always an important test of its competence, as well as of its intentions.

In 1963, Walter Gordon's budget infuriated Bay St. and got the Pearson minority government off to a shaky start. In 1979, John Crosbie's gasoline tax resulted in the defeat of the Clark government and the Trudeau restoration. In 1985, Brian Mulroney miscalculated in freezing the indexation of seniors' pensions - even his mother was annoyed. In 1994, Paul Martin failed to attack the deficit, a mistake he would not repeat in 1995 when he famously pledged to balance the books "come hell or high water."

In 2006, Jim Flaherty didn't make any of those beginner's errors in a budget designed to keep the minority Harper government's promises in the last election, and move it towards majority status in the next one.

Flaherty's budget met the test of competence - the government looks like it knows what it's doing with our money. It also passed the test of good intentions, giving more of it back to us.

As for promises made: Cutting the GST from seven to six per cent might not be good policy, but it clearly proved to be good politics. Former prime minister Paul Martin defended a tax the Chretien Liberals once pledged to abolish, and won the endorsement of economists. Stephen Harper vowed to reduce it and got the attention of Christmas shoppers, who significantly outnumber economists. The second phase of the Conservative cut to five per cent won't be achieved in this minority House, since it is promised only after five years.

As for those promised child-care benefits, the cheques are practically in the mail, $100 a month for every kid under 6. It's a very different plan from the Liberal one, supported by the NDP, to fund more public daycare spaces in the provinces.

This has stirred controversy in other provinces, though not in Quebec, where space is not an issue. With only 20 per cent of the pre-schoolers in the country, Quebec has about half the spaces, and highly subsidized space at that, costing parents only $7 a day.

Harper's promised $100 a month means daycare becomes virtually free in Quebec. Quebec might complain about losing most of its $1.1 billion share of the $5 billion daycare plan negotiated by the Martin government, but as Jean Charest has also told his caucus: "Don't get between parents and child-care cheques."

Next, tax breaks for the middle class, altogether $20 billion worth, or $2 in tax relief for every new $1 of new program spending. Then, money for sports camps and school books. Money for Canada's hard-pressed farmers. Money for public-transit passes - very Kyoto friendly. Money to put more cops on the street as part of the promised crackdown on crime. Money for soldiers and equipment. And at the end of the day, the budget is still in balance and the government is still making modest payments on the debt.

The NDP will find lots of reasons to hate this budget, but not enough to defeat the government over it. As part of its better-balanced budget last year, the NDP muscled the Martin government off a promised one-percentage-point cut to corporate taxes. The corporate-tax cut is back, and Jack Layton won't like it one bit.

And while Layton won't have any problems with middle-class tax breaks, he won't like Flaherty's sleight of hand with the lowest tax bracket. Martin cut the tax rate for the lowest earners from 16 per cent to 15 per cent last fall, but didn't manage to pass the implementing legislation before his government fell. So Flaherty is technically right when he says he's dropping the rate from 16 per cent to 15.5 per cent, but Layton sure won't see it that way.

Cuts to environmental programs will not be popular with stakeholders, as interest groups and lobbyists are now politely styled, but they haven't been effective in reducing greenhouse gases and global warming.

The proof of Harper's intentions on the environment will have to await his policy in the fall and, until then, if environmental groups want to do business with him, they'll have to give him the benefit of the doubt. They'll also have to begin a new conversation, on climate change rather than Kyoto.

A budget is generally deemed to be successful if it comes and goes in a week. The less news coverage it gets, the more successful it's judged to be. If a finance minister has a good budget week, it makes his year.

Harper knew what he was doing in making two key appointments, Flaherty to Finance and Kevin Lynch as clerk of the Privy Council. Flaherty had done budgets before, as finance minister in the Harris government in Ontario. He wasn't captured by his department then, and isn't the creature of Finance now. Lynch is himself a former deputy minister of finance, who did four budgets under the Liberals.

We live in a time of plenty, of balanced books and surpluses as far as the eye can see. In such times, promises made can be transformed into promises kept.

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