Federal Finance Minister Jim Flaherty’s first budget increases program expenditures by 5% in the fiscal year ending Mar. 31, 2007, and 3.4% in fiscal 2008. These mainly reflect a projected drop in inflation, to 1.8% in 2007 from 2.9% in 2006, rather than cutbacks in programs.

The Tories are focusing new spending on defence and transfers to provinces. They are also shifting the delivery of some programs to direct payments to individuals or tax breaks. That includes cancelling the Liberals’ national child-care program as of fiscal 2008 and replacing it with a $1,200 per child grant to families. They also promise $1.2 billion over five years to develop 125,000 new child-care places across the country. The budget also introduces a tax credit for public transit expenses as part of its “made in Canada” climate change program.

The Conservatives have not yet decided whether they will honour the previous Liberal government’s commitment to the Kyoto Accord. The Tories have said that they want to spend all the money in Canada, thereby rejecting the route of receiving credits for money spent on foreign projects.

Defence gets an additional $5.3 billion over five years. That’s on top of the $12.8 billion over five years ear-marked by the Liberals in the 2005 budget. The department of Defence had indicated the $12.8 billion was sufficient to bring the armed forces back to operational sustainability and add to their numbers. But the armed forces can certainly use the additional funds, especially those that are targeted at accelerating infrastructure and personnel.

The provinces get $3.3 billion to “help address immediate pressures in post-secondary education, affordable housing (including Northern and off-reserve Aboriginal housing) and public transit,” provided the surplus for fiscal 2006, projected at $8 billion, is $5.3 billion or higher.

The Conservatives are also putting additional monies into equalization programs to ensure no province will have a drop in its entitlements in 2007. The equalization program is up for renewal this year. The Conservative election platform promised to remove non-renewable resource revenue from the calculations but this has not been confirmed as policy since the Tories took power. In any event, the Tories will have to get agreements from the provinces before they can proceed.