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Spending cuts, pension reform make 2012 budget difficult to complete

Where is the budget?

Jim Flaherty said recently that he still hopes to present the federal budget before the end of March, the traditional deadline. The betting in Ottawa is that he'll rise in the House next week to announce March 27 as the day.

But don't ink that date in. Those who know are saying that the Finance Minister may hold off until April. Budget 2012 has proven remarkably difficult to put to bed.

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Typically, the federal budget is brought down on a Tuesday in February or March to be ready for the new fiscal year, which begins April 1. If there's an exception, it's usually for an obvious reason: Budget 2006, to cite one example, didn't arrive until May because the Conservatives had only come to power that February.

But there is no compelling circumstance to delay this year's budget, other than the sheer difficulty of writing it.

The first problem is economic uncertainty, brought on mostly by the troubles in Europe. The new deal for Greece that European finance ministers ratified Tuesday may bring some short-term calm, but economic growth projection are even more unreliable this year than usual.

This forecasting uncertainty is complicating the federal government's efforts to cut departmental spending in order to balance the budget by 2016. To reach that goal, the Tories are planning to trim spending in each department by between 5 and 10 per cent.

But with the provinces also trying to rein in their deficits – Ontario's is particularly large and intractable – economists are warning that cutting government spending too severely could increase unemployment, depress profits and suppress growth. Mr. Flaherty needs to take care that in balancing the books he doesn't do a drive-by on the economy.

As if that weren't enough, the budget will also unveil the Conservatives' plans for raising the retirement age for Old Age Security. The Tories maintain that the OAS is fiscally unsustainable unless younger workers delay their retirement beyond 65. But what is the new retirement age to be, and when will the new rules kick in?

Incorporating either spending cuts or pension reforms would be a challenge for any finance minister preparing a budget. Incorporating both – well, that's why the lights are on late in Mr. Flaherty's office.

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Alberta and, on Tuesday, British Columbia have already beaten Ottawa to the punch with their own budgets. (Mr. Flaherty won't be pleased to see that B.C. has joined Ontario in abandoning the campaign to lower corporate taxes.) Saskatchewan, with a budget date of March 21, probably will also get its budget out before the feds. Partly that's because Ottawa is taking so long; but also because the Conservatives are promising no last-minute budget surprises.

And a good thing, too. There will be enough to chew over as it is, whenever the Finance Minister finally finishes his calculations.

Follow John Ibbitson on Facebook and Twitter @JohnIbbitson

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About the Author

John Ibbitson started at The Globe in 1999 and has been Queen's Park columnist and Ottawa political affairs correspondent.Most recently, he was a correspondent and columnist in Washington, where he wrote Open and Shut: Why America has Barack Obama and Canada has Stephen Harper. He returned to Ottawa as bureau chief in 2009. More

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