There is considerable speculation as to what the financial cost would be for the Harper Government (read the taxpayer) to gain opposition support for the upcoming budget.  This would not be the first time a minority government accepted opposition “demands” in order to get support for the passage of its budget and therefore avoid an election.   The New Democratic Party supported the 2005 Liberal budget only after the Liberals bowed to their demands for an additional $4.8 billion in new funding.  

What could be the cost to secure support from one or more of the opposition parties? This of course assumes that the Harper government might actually want to avoid an election this spring. If this is not the case, then this is all academic.

One-Time or Ongoing Funding 

As indicated in previous reports, we, along with others, believe that the deficit outcome for 2010-11 will be at least $7 billion lower than estimated in the October 2010 Update.  The Harper Government, therefore, has considerable financial flexibility to accommodate new one-time spending initiatives, without jeopardizing their deficit “target” for 2010-11.  Legislation seeking Parliamentary approval would need to be tabled prior to the end of this fiscal year, with passage before the summer recess.  This is tight but doable.

New initiatives that would require on-going funding would mean either a higher deficit track and no balanced budget in 2015-16 or new expenditure cuts to pay for the new initiatives.  The October 2010 Update medium-term fiscal track is not credible.  Although the Minister of Finance may use rosy economic projections to show a surplus by 2015-16, we, along with others (the International Monetary Fund and the Parliamentary Budget Officer), believe that additional fiscal actions, ranging from $5 to $11 billion will be required by 2015-16.  Introducing new ongoing initiatives to gain opposition support for the budget would only add to that amount.

Potential One-Time Initiatives 

The Bloc Quebecois has made a number of demands costing over $5 billion.  The Harper Government could acquiesce to one of their demands and kill two birds with one stone.  There is a long-standing dispute between the federal government and the province of Quebec over compensation for harmonizing the provincial sales tax with the federal Goods and Services Tax.  Other provinces received some form of compensation and Quebec argues that they should receive something as well.  The amount in question is around $2 billion.  Some media reports claim a resolution is close at hand.

If some amount, agreed to by the Quebec Government, were included in the upcoming budget, it would be extremely difficult for the Bloc Quebecois to vote against the budget.  The amount of money is significant and would resolve a long outstanding problem.  In addition, it would be an ex gratia payment, with no strings attached as to how the money could be used.  In other words, the Quebec Government could allocate part of it to finance the new arena in Quebec City.  The Harper Government would not only gain support for its budget but also put the Quebec arena issue on the back burner.

The New Democratic Party has also presented a list of demands.  These include removal of the Harmonized Sales Tax (HST) on heating, extension of the eco-Energy retrofit program, providing incentives to recruit and train more health professionals, and increased Guaranteed Income Supplement benefits, among others. 

Removing the HST on heating would undermine the integrity of the Goods and Services Tax (GST), prompting other groups to demand similar treatment and diluting the base.  However, the Harper Government could provide a one-time heating fuel rebate to those most affected by the current rise in energy prices.  This was done in the 2001, when the Liberal Government provided a heating fuel rebate to all GST low-income credit recipients ($150 per single person).  The cost of this program amounted to $1.4 billion.  The program could be targeted to GIS recipients or low-income groups.  Unless the one-time expenditure was sizeable, it would be seen as extremely “cheap” in the current environment of high energy and food prices.

The eco-Energy retrofit program was introduced in the 2009 Budget, providing grants of up to $5,000 to offset the costs of making energy-efficient improvements. It was a two-year program, costing  $150 million a year.  This program could be extended for another year (2011-12), either at its current level or reduced, without seriously compromising the bottom line in 2011-12. 

In the 2008 Budget, the federal government has established a $400 million “Police Officers Recruitment Fund”, booked at year end, to help provinces and territories recruit 2,500 new front-line police officers.  A similar trust fund (say of $2 billion) could be established in the upcoming budget to recruit and train more health professionals. The provinces could access the funds over a period of time.

On-Going Initiatives

Increasing the GIS by $500 a year for each recipient would cost about $700 million annually ongoing.  This could be scaled back, but would still represent a significant hit to the government’s bottom line and would be permanent.

Finally, there is the cost of rolling-back the corporate income tax rate to 18% from the current 16.5% and then freezing it at that level. The government has made it absolutely clear that this will not happen.  Nevertheless, for the sake of completeness we have included the amount of savings to the budget that would result. This would save the budget about $6 billion in 2015-16.

Conclusion    

With the deficit outcome for 2010-11 expected to be much lower than projected in the October 2010 Update, the Harper Government has more than enough financial room to “buy” the support one or two of the opposition parties. This could be done with one-time initiatives of $3 to $5 billion in 2011-12 and still leave the deficit lower than projected in the October 2010 Update. A credible initiative to support the elderly would have some on-going funding but, given the projected fiscal track, offsets would need to be found to claim a balanced budget by 2015-16. We have ignored rolling-back the corporate income tax cut since this is not going to happen.

The initiatives listed above might be well received by most Canadians. Quebec should be happy, the elderly should be happy, the provinces should be happy, the medical schools should be happy, and Canadians in general should be happy, because we could avoid an election that most of us don’t want.  However, this comes at a price. It would cost taxpayers an additional $3 to $5 billion to avoid an election at this time. But is this price tag too high, especially when there has to be an election by the fall of 2012?

Of course all this could be rather academic if the government and the opposition parties all want an election, whatever the reasons, even though most Canadians don’t.. We will only know the answer on March 22^nd.