The federal government’s finances are so tight that Don Drummond, chief economist for the TD Bank Financial Group, says he doesn’t expect much action in Paul Martin’s first budget as prime minister.

In a speech to the Certified General Accountants Association of Canada in Ottawa today, Drummond suggested that, given the lack of room to move within the current fiscal picture, the next budget will have more in common with the traditional fall update than a full-blown budget.

“I expect little in the 2004 budget because the Chretien-Manley team did worse than leave the cupboard bare. They slipped in a couple of major IOUs that fell out when new finance minister Ralph Goodale opened the door,” he said.

Drummond anticipates a surplus of $1.3 billion this fiscal year, but he forecasts deficits of $1.5 billion in fiscal 2004 and $3 billion in each of the following two years. “So if the Government of Canada wants to present a 2004 budget consistent with previous conventions, it must identify savings equal to these planning deficits before it can leave the starting blocks. That is a tall task,” he said.

Despite all the negative talk, Drummond noted some bright spots in the outlook. He said the Martin and Gooddale deserve high praise for recognizing that the still-high debt burden is the source of Canada’s fiscal difficulties. Another positive, is “that governments across the country seem more willing than ever to think outside the conventional fiscal box.”

Drummmond said he supports calls for greater government spending accountability. “From all levels of government we are hearing vigorous talk about the need for increased scrutiny of how taxpayers’ money is being spent. That surely is a sign of progress.”

He also argued that the tax system needs to shift away from taxing income to taking consumption. “If we are going to be paying a high tax burden for many more years, let us at least optimize the tax mix. I advocate that we shift our tax base away from income, savings and capital and more toward consumption. That could be greater use of the GST, sales taxes and excise taxes. More use of user fees could definitely be part of the strategy,” he said. He added that a broad-based energy consumption tax could be helpful fiscal tool.

Drummond said the intent of consumption taxes is not to increase the overall tax burden, but to reduce the government’s reliance on the taxes that have a more devastating impact on economic growth.

“The bottom line is that Canadian governments are going to be on a fiscal diet for many more years,” Drummond concluded.

http://www.td.com/economics/topic/dd0104_speech.html