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Tuesday, October 28, 2008

Harper Meets First Ministers Nov 10 - Expect Budget Cuts!

As PM Harper goes into the First Minister's meeting on Nov 10 he has some serious ammunition to back a dramatic cut in government spending in response to the slowing economy. The Ipsos Reid poll out today says 82% of Canadians support government spending cuts as the most appropriate response. Only 43% support running deficits...which is just a tax on the future anyway. As for tax hikes to sustain government services in the slowdown...only 17% are on side.

The provincial breakdowns are based on such a small sample size that they should not be take seriously but they are all pretty much in the same range including Quebec. The attitude about how the provinces need to respond to slowing economic times is also to undertake spending cuts.

Harper as a fundamentalist conservative will want to reduce the size of government and the footprint of government in the lives of Canadians. He will be keen to remove the foot of government on the wallets of citizens too so tax cuts may still be in the offing.

That will mean we can expect more program cuts in what he considers non-essential services. Artists beware! I think he will not cut taxes but will scrap the silly election tinkering for subsidies on things like first-time home buyers. He will still pursue the income splitting for seniors still and may even keep the subsidy for things like piano lessons for kids. Family values stuff and in tough times that may be a very good thing.

We can expect a mini-budget in November, shortly after the November 10th First Ministers meeting. If he look like he is facing a deficit in the current year, I expect some cuts sooner than later. He will want to ensure that he lives up to the no deficit in the current year campaign promise. He can make the cuts easily, especially with what these poll numbers say about how Canadians feel about government deficits.

Alberta has done its current budget based on $78 oil. With oil at about $63 things are serious. The demise of the Loonie down to $.77 has helped adjust the impact of the commodity price decline. My sources tell me everything in Alberta's pending budget work is back on the table except for the $2B dedicated to carbon capture and sequestration. That is going forward come hell or high water.

Hunkering down and batten hatches to weather the growing economic storm seems to be the general consensus and shared sensibility of Canadians going forward. We are just at the beginning of experiencing the serious consequences of this economic meltdown. The worst is yet to come. I just hope that the social infrastructure deficit is not still ignored as it has been for the past decade or so. It is a vital role of government and community together that demands an engaged and empathetic approach.

I am off to a Bob Dylan concert tomorrow night. As he says - The Times They Are A-Changin'