Look upon our fiscally-sound nation - and despair at the reality of
yours.

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Feb 11, 2014

OTTAWA (Reuters) - Canada's Conservative government looks set to
comfortably balance its books in 2015 or even sooner, its latest budget
showed on Tuesday, with cuts in spending on the public service more than
offsetting a series of modest new expenditures.

The low-key spending plan leaves Prime Minister Stephen Harper
well-positioned to offer tax breaks and other initiatives in the runup
to an election scheduled for October next year.

"Some people will say this budget is boring," Finance Minister Jim
Flaherty told reporters ahead of the budget speech. "Boring is good."

The budget shows a deficit of C$2.9 billion ($2.63 billion) in the
2014-15 fiscal year, up from the previous estimate of C$5.5 billion.
That balance includes a C$3 billion contingency fund, which in fact
reveals an underlying surplus that year.

Flaherty acknowledged the budget would be narrowly balanced this coming
year without the contingency fund, but said he preferred to have a "nice
clean surplus next year".

The government estimates a bigger-than-expected C$6.4 billion surplus in
2015-16. In the year ending March 31 of this year, the deficit is pegged
at C$16.6 billion.

The Conservatives, in power since 2006, plunged into a deep deficit in
2008 as they pumped out stimulus money to deal with the recession after
having cut taxes earlier. Previously, the Canadian government had an
11-year string of budget surpluses.

The government's reluctance to go for a balanced budget in 2014 was seen
as preparing for an election-friendly budget the following year.

"This is a budget designed to build a bigger war chest for the next
budget," said Avery Shenfeld, chief economist at the Canadian Imperial
Bank of Commerce.

He added that the government should be in a position to "have more money
to give away" in 2015.

Germany is currently the only G7 country running a surplus, but Canada's
ratio of debt to GDP is substantially less and it is one of a handful of
countries with a triple-A rating from rating agencies.

Flaherty's budget assumes economic growth of 2.3 percent this year and
2.5 percent in 2015. It also assumes the Canadian dollar will be worth
about 94 U.S. cents this year. The Canadian dollar is already weaker, at
about 90 U.S. cents, and is projected to depreciate further in the
coming year.

That implies growth could beat the government's estimates and ultimately
improve the budget balance further.

When asked to comment on the currency's impact on the economy, Flaherty
acknowledged that it was "good for exporters", adding: "I would expect
there's a value to the dollar inherently, around which it will settle
and we'll see what that is."

MONEY FOR AUTO SECTOR

With the U.S. economy looking healthier and likely to boost Canada's
fortunes, the budget contained few measures to provide extra stimulus.
It outlined plans to help push down consumer prices on wireless roaming,
retail goods and banking services, part of a broader pro-consumer agenda
aimed at winning middle-class voters (yes, - unlike the US, Canada has a
healthy middle-class) also being wooed by the opposition.

It ensured an additional C$250 million a year in financial aid for the
automotive sector. The government has been under pressure from Fiat
Chrysler, which has asked for funding for a minivan plant, and which has
said it might have to slash jobs in Canada if it doesn't get help.

The budget also provides C$28 million over two years to the National
Energy Board to help it review projects such as TransCanada Corp's
Energy East pipeline project, within legislated timelines.

But the fiscal cost of these initiatives is minimal compared with the
cost-cutting steps announced.