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FACTBOX-What to watch for in Canada's budget on Thursday

Source: Thomson Reuters Foundation - Wed, 20 Mar 2013 06:23 PM
Author: Reuters
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(Adds interactive graphic on G7 debt, deficits)

March 20 (Reuters) - Finance Minister Jim Flaherty will present Canada's 2013/14 federal budget shortly after 4 p.m. EDT (2000 GMT) on Thursday. Its passage is assured since the governing Conservative Party has a majority of seats in Parliament.

Following are key points to watch for:

DEFICIT REDUCTION PLAN

The government has promised to balance the budget by 2015, an election year, but that target has become more challenging due to slow economic growth and an estimated C${esc.dollar}2.1 billion (${esc.dollar}2.0 billion) drop in revenue from the level it forecast in November.

Flaherty has signaled he may scale back spending on top of the C${esc.dollar}5.2 billion in cuts he made in the 2012/13 budget, which represented about 7 percent of the government's discretionary spending.

The government's latest fiscal projections, made in November, showed a deficit in the 2012/13 fiscal year of C${esc.dollar}26 billion (${esc.dollar}25 billion), or 1.4 percent of gross domestic product. It said it expected the gap to shrink every year until reaching a surplus of C${esc.dollar}1.7 billion in 2016/17. That plan included an annual C${esc.dollar}3 billion cushion against external shocks. Without the buffer, there would be a surplus in 2015/16.

The government estimated that the federal ratio of debt to gross domestic product stood at 33 percent in 2011/12 and would fall to 28.1 percent in 2017/18.

Alongside the budget on Thursday, the government will also release a monthly report that shows the budget balance as of January 2013.

INFRASTRUCTURE

Flaherty said the budget will "do more" on infrastructure, without giving details. Currently, Ottawa funds a seven-year C${esc.dollar}33 billion fund called the Building Canada Plan that expires in March 2014, and allocates to cities C${esc.dollar}2 billion a year raised though a gasoline tax.

The Federation of Canadian Municipalities has asked for a renewal of both funds and for them to be indexed to inflation. It also wants an extra C${esc.dollar}2.75 billion a year for infrastructure from the federal government, to be matched by municipalities and provinces.

MANUFACTURING

Flaherty has signaled the budget will provide more support to manufacturing, which has not recovered from the 2008/09 recession because of Canada's strong currency and weak export markets.

In 2007, the government introduced a temporary tax break in the form of an accelerated capital cost allowance for investment in machinery and equipment. The measure was extended in subsequent budgets and is now due to expire at the end of this year unless it is extended again.

Manufacturers want a five-year extension of the measure and have also asked for increased funding for strategic investments and product development.

SKILLS SHORTAGES

The government says a top complaint of businesses across the country is the lack of skilled workers, particularly in the resources sector in Western Canada, and that the budget will address this problem.

Ottawa transfers C${esc.dollar}2.5 billion a year to the provinces for job training. The provinces are responsible for spending the funds, but the federal government says the money has not been used effectively and that it would like better results.

Flaherty has said he won't cut the budget for training, but any attempt by the federal government to reclaim control over how the money is spent could provoke a backlash from the provinces.

Ottawa is already taking heat for reforming the employment insurance program last year in what it said was a move to fix the anomaly of higher unemployment at a time of labor shortages in certain areas. The change requires jobless workers to be willing to accept lower-pay positions or commute farther to work to be eligible for the benefit, sparking protests in regions where work is traditionally seasonal.

(${esc.dollar}1=${esc.dollar}1.03 Canadian) (Reporting by Louise Egan; Editing by Peter Galloway and James Dalgleish)

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