Reaction has been decidedly mixed.
The budget will lead to $64 billion in deficits over the next two years and includes massive stimulus spending of $40 billion, a make or break condition the opposition Liberals were demanding to see.
With a projected deficit of $33.7 billion, the budget includes $18 billion in stimulus spending, $3 billion in tax cuts and monies for a variety of other projects ranging from railways to recreation centres. It also extends unemployment insurance by 5 weeks, bring it to 50 weeks.
Among the tax cuts is a raise in the basic personal amount, from $10,100 to $10,320. There is also $1,350 in tax credits for homeowners to do renovations.
Initial reaction to the budget from commentators was largely positive and few expected the Liberals, led by Michael Ignatieff who was lukewarm to the coalition idea at best, to oppose the budget.
In an announcement Wednesday morning, after slamming the Conservatives as “reckless, arrogant and short-sighted,” Ignatieff confirmed that the Liberals will let the budget stand.
"We are putting this government on probation," he said.
After describing the budget as a “flawed document,” and criticizing its lack of expanded eligibility for EI, broken transfer payment promises and tying strings to infrastructure spending, Ignatieff added that the budget also had important concessions in affordable housing, skills development, and stimulus spending.
“These measures are only in this budget because of us,” he said.
Rather than table amendments to the budget itself, Ignatieff said the Liberals will let it stand as is but add an amendment requiring the government to give three detailed updates on how budget measures are progressing in March, June and December. He said each report would be an opportunity to withdraw the Liberals’ support for the government.
Senior Tories are indicating that the government will likely accept that amendment.
Ignatieff said it was critically important that money for stimulus spending was actually spent. “We will be watching them like hawks to make sure the investments Canadians need actually reach them,” he said.
But Ignatieff’s support has raised the ire of NDP leader Jack Layton who slammed the Liberal leader for giving Harper a “get out of jail card for free.” Layton said the new Liberal leader was following in the footsteps of his predecessor, Stéphane Dion, and that this was the 45th time the Liberals have supported the Conservatives on a confidence measure.
“We have a new coalition now on Parliament Hill, it’s a coalition of Mr. Harper and Mr. Ignatieff," said Mr. Layton. “I can tell you we will be opposing this coalition each and every day."
Bloc Québécois Leader Gilles Duceppe gave his speech in French but later said in English that he expected the new Liberal leader to defer an election at each one of the three reviews of the current budget.
While leaders in the finance and business sector have lauded the budget, others at the far left and the far right of the political spectrum are voicing their disappointment. Reaction from groups across the country who were pushing the government in one direction or another was quite stark.
The Canadian Centre for Policy Alternatives (CCPA), a left-wing think tank focused on social and economic justice issues, slammed the budget for not protecting Canada’s poor.
“I think it’s amazing how much money can be spent without doing the thing we most need to do,” said the group’s alternative federal budget coordinator, David Macdonald.
Mr. Macdonald said although the budget contains “throw away parts” to help those with low incomes, they “pale in comparison” to the tax breaks for wealthier Canadians.
“You’re spending twice on much on renovations as you are on measures for the poor,” he said.
The CCPA wanted to see direct transfer of funds from Canada’s wealthy to the poor.
Mr. Macdonald also criticized the infrastructure money, saying it would have been better to deliver the funds through the gas tax mechanism and that it is tied to conditions that could keep it from being spent.
Those conditions include being reviewed by the government and matched by the recipient jurisdiction. Overall, he said the budget was an “unfocused exercise” that tried to have something for everyone.
“They clearly understand their political lives are at stake.”
Mr. Macdonald was also disappointed that while the budget contained substantial funds for EI, including $1.5 billion for EI and non-EI training, there was no change to eligibility requirements to make EI available for more out-of-work Canadians.
Layton, Ignatieff, and others also criticized this oversight.
Meanwhile, the Fraser Institute, a right-wing think tank that advocates for less taxes and smaller government, criticized the budget from the opposite direction.
“Irresponsible,” said the group’s senior economist, Niels Veldhuis.
Veldhuis pointed to the Conservatives estimate of $85 billion in deficits over the next five years, saying that spending would wipe out a decade of deficit reduction.
He said stimulus spending had a poor historical record and tended to pull money out of the private sector and funnel it through the inefficient hands of government.
While conceding that if invested properly in infrastructure, that spending could give good return on investment in the short and long term, he rejected the idea that the spending would have an immediate impact on the economy.
Veldhuis said the government will have to issue bonds to get the funds for that deficit and that those bonds will leave a debt for future generations to repay.
Kevin Gaudet, Federal Director of the Canadian Taxpayers Federation, said the Tories had no plan to get out of debt following up to five years of deficit spending. However, he praised the government for reducing taxes.
“Awesome,” he said. “It’s an important first step in the right direction…That’s starting to be modest to reasonable tax relief.”
But he raised concerns that the stimulus spending would take effect too late, possibly kicking in after the economy already started to recover. "That’s a risk, whether government can do it quickly enough."
Other economists have warned that if that happens, it could lead to inflation.
Gaudet, who opposes deficit spending, said there were only so many outfits that could do the infrastructure work anyway, so it would be hard to get that money out quickly.
Gaudet and Veldhuis both thought the spending was unnecessary and a panicked reaction given that Canada’s credit markets are still flowing and the country is weathering the economic crisis relatively well.
But Harold Chorney, a political economist at Concordia University, discounted the suggestion that stimulus funds weren’t needed.
He said those opposing the stimulus package are “very marginalized in terms of the argument.”
“This is a serious crisis,” he said.
Dr. Chorney said deficit spending makes sense during a recession and spending on infrastructure gives good returns because labour and material costs are down.
“All this stuff is very much in high demand and a good chunk of it could be swung into action very quickly.”
He points to long-term shortages in infrastructure funding across the country.
One idea Dr. Chorney would have liked to see that wasn’t put in place was using EI funds to supplement worker’s income rather than have them be unemployed. He said such a move would have saved both the government and employers money.
He also supported Harper’s tax cuts at the lower end, saying “lower income people are very likely to spend it.”
But while Dr. Chorney said Harper’s budget was a step in the right direction, it didn’t go nearly far enough in his view to stave off the impacts of a global recession. “I think they could have done a lot more than what they did.”
He suggests the stimulus portion of the budget should have been more doubled.
He said that other recessions have had higher unemployment than what the government is projecting for this one (7.7 per cent) and he expects future budgets will have to address the shortfall.
Like others, Dr. Chorney held particular scorn of the budget's EI spending, noting that it did nothing to address the increased numbers of people expected to be relying on unemployment payments.
“Lots of people get disqualified,” he said, noting that if unemployment reaches eight or nine percent, the consequences could be severe.
“They are imposing quite a bit of hardship quite unnecessarily,” he said of the Conservatives for failing to increase eligibility.
Dr. Chorney was also bewildered that the Liberals made no attempt to have further amendments made to the budget.
“I find it puzzling, I can’t understand why they aren’t trying to improve the Employment Insurance portion of the budget and the infrastructure spending.”