Much like the previous Liberal government, the Conservatives are spending the unexpected surpluses that continue to emerge because of stronger than anticipated revenue growth.

The federal budget includes a 5.6% increase in program spending in fiscal 2008, ending Mar. 31, following a 7.9% rise in fiscal 2007. Only in fiscal 2009 does program spending rise at a more moderate 3.6%.

Revenue is expected to grow only 1.9% in fiscal 2008 vs 4.5% in fiscal 2007. Much of the decrease in the growth rate is as a result of tax cuts introduced in this budget and in the Economic and Fiscal Update issued last November. However, the federal department of finance also assumes that personal incomes won’t grow as fast as they have in the past few years.

Overall, the Conservatives plan to increase program spending by $12.7 billion in the three fiscal years ending Mar. 31, 2009, while tax cuts announced in this budget and in the Economic and Fiscal Update total $9.7 billion during that same period.

Of the $12.7 billion in additional spending, $8.2 billion is in increased transfers to the provinces and $4.5 billion is in other spending initiatives. Fixing the fiscal imbalance was a major election promise on which the Tories feel they now have delivered. There is a new equalization formula and additional funding for the Canada Social Transfer, labour market training, the environment, equal per capital funding for the Canada Health and Social Transfer, and equal per-jurisdiction funding for infrastructure.

Part of the $4.5 billion in other major spending increases include $1.1 billion in new funding for agriculture and $1.1 billion in various programs aimed at increasing Canada’s knowledge base and, thus, our productivity.

Of the $9.7 billion in tax cuts over the three years, $2.4 billion is associated with savings on debt servicing as a result of reductions in the federal debt. As announced in the November Economic and Fiscal Update, the Conservatives plan to legislate that such savings always be used for personal income tax reductions. This is to be called the “tax back guarantee.”

The biggest tax cut in the budget stems from the new $2,000 child tax credit, which will result in tax savings of $3.3 billion to Canadian taxpayers over the three fiscal years ending Mar. 31, 2009.

Businesses get $940 million in tax reductions in fiscal 2008 and fiscal 2009. Of this, $735 million goes to the manufacturing sector in the form of a 50% capital cost allowance rate for capital investments made between Mar. 20 and the end of 2008, plus an increase to 10% from 4% of the capital cost allowance rate for buildings for manufacturers and processors.

The other $205 million is earmarked for increases to CCA rates for non-manufacturing non-residential buildings to 6% from 4%, for computers to 55% from 45%, for natural gas distribution pipelines to 6% from 4% and for liquefied natural gas facilities to 8% from 4%.

These corporate measures should help increase productivity by encouraging more capital investment.

The budget also offers the provinces an incentive to eliminate their capital taxes before Jan. 1, 2011. The incentive is in the form of additional taxes that Ottawa would collect because provincial capital tax payments would no longer be deducted when they calculate the federal tax that they owe.