Canada's 'austerity' budget pros and cons.

• Author: Kranc, Joel
• Position: GLOBAL GLANCE

A much-anticipated budget by the majority Conservative government in Canada has proven to be relatively underwhelming, by most accounts. The government has announced it will be cutting more than 19,000 civil servant jobs, is calling for a return to a balanced budget a year earlier than anticipated and is taking the controversial step of increasing the eligibility age--from 65 to 67--for seniors to start receiving Old Age Security (OAS).

These plans are telling for many reasons. First, and perhaps most importantly, the Canadian economic environment is such that drastic changes and cuts have not been necessary, given the pace of economic growth.

In fact, revenue has only slightly changed from C$235.6 billion in 2011 to C$255 billion in 2012. Also, expenditures have remained almost the same, at C$276 billion, and the deficit has fallen some, from C$29.6 billion in 2011 to C$21.1 billion this year. Second, the Conservative government appears interested in maintaining its grip on Parliament without taking any drastic steps that might scare off the public.

With a majority, however, Conservatives are taking measures only talked about during their years as a minority government. The shrinking of government has been a cornerstone of the government's rhetoric; only now it can be implemented fully.

ON THE ONE HAND ...

What started in the 2011 budget as a "strategic review" has culminated in the current budget, which outlines certain cuts and measures geared toward shrinking government. There are essentially two schools of thought related to the government's plans.

The first is that the budget perhaps goes further than necessary. "I think this budget is dragging the economy into austerity with declining expenditures particularly on the programs side," says David MacDonald, an economist with the Canadian Centre for Policy Alternatives in Ottawa. MacDonald says that even without cuts and austerity measures, the government would likely continue to see the gross domestic product grow at around 2.5 per cent and that stronger revenue is already built into a system that would likely balance the budget regardless of the measures taken in this year's budget.

MacDonald says the cuts are more important from a political perspective than a fiscal perspective, and that the government has now painted itself into a corner. "The corner is that the books have to be balanced before they introduce new measures," he says. "So they need to balance the books and show a...