Prime Minister Stephen Harper says Stephane Dion's criticisms of the budget are meaningless, because the Liberal leader has said he wants to avoid an election and won't vote against the document.

"When he comes and makes ferocious attacks on a budget he has every intention to allow to pass, he simply has no credibility in those attacks," Harper said during question period Wednesday.

Dion summed up his party's uncomfortable position when speaking to reporters on Wednesday, a day after Finance Minister Jim Flaherty unveiled the budget.

"We will not defeat the government on its budget," he said. "But we will not support this budget."

Liberals have said the budget does not contain any elements worth fighting an election over, and the document includes proposals that had been pushed by Liberals, including more funding for infrastructure.

Flaherty said it's a "prudent" budget that leaves Canada well-positioned in the event of an economic slowdown.

"We're in the strongest economic position of the G-7 countries to go through a time of economic turbulence," he told Canada AM on Wednesday, a day after delivering his third federal budget.

Don Drummond, the TD Bank Financial Group's chief economist, echoed that view.

He told Canada AM that the domestic side of the economy remains very strong, but the economic weakness in the U.S. will affect the export side.

"We can't avoid the weakness south of the border, but we've done what we can do," Drummond said.

The budget tabled Tuesday commits to balanced budgets for 2008-2009 and the fiscal year after that. Modest surpluses of $2.3 billion and $1.3 billion are forecast for the next two years.

There were no major tax cuts or new programs announced. However, the budget did offer:

  • A brand new tax-free savings account;
  • Breaks for seniors;
  • $400 million to hire 2,500 new police officers; and
  • $500 million for public transit infrastructure

The NDP and Bloc Quebecois have said they oppose the document, with NDP Leader Jack Layton saying it does nothing for working families and Bloc Leader Gilles Duceppe saying it does nothing for Quebec.

Layton told Canada AM the budget "leaves so many behind."

He accused the Tories of leaving the cupboard bare through corporate tax cuts, but Layton also blasted the Liberals for supporting the Tories.

Savings plan

The tax-free savings account is a new initiative that will allow Canadians to invest up to $5,000 per year. The income earned in the account is tax free, including capital gains. People will have the freedom to make withdrawals at any time, for any purpose.

"This is a savings plan for everybody," Flaherty said, adding it fills a gap that has existed ever since Registered Retirement Savings Plans were created.

Some economists have already criticized the move, saying it will do nothing to spur investment.

But Drummond supported the idea, saying, "One of the saddest things in Canada is low-income people have no incentive to save, because whatever they save is taxed back on Old Age Security and GIFs."

However, if the Bank of Canada cuts its prime lending rate, expect short-term savings rates to fall as well, he said.

Drummond said in terms of policy, he would have preferred to see the government cut income taxes rather than the Goods and Services Tax -- something done in last fall's economic update.

Layton said many working families simply have no money left over to use this new savings plan.

A western view

Roger Gibbins of the Canada West Foundation told Canada AM that the budget is a tough one to read in terms of regional winners and losers, "and that's a positive for the country."

Most people will look at the budget in terms of what it does for them as a senior, aboriginal or urbanite rather than a westerner, he said.

Farmers get $72 million over two years, but grain farmers are currently benefiting from very high prices, he said.

The $250 million carbon capture initiative could be the start a good long-term initiative, he said.

Alberta and Saskatchewan use coal to generate a substantial portion of their electricity. Alberta's oilsands are becoming a major source of industrial greenhouse gas emissions.

"What we see is the government dipping its toe in the water, doing some work ... but I think the major initiatives will come once their own climate change policy is announced," he said.

Gibbins said if he had a criticism, more could have been done in terms of an urban agenda.

Viewers' questions

Flaherty had time to take a few emailed questions from Canada AM viewers:

  • "If we want to give our cottage to our children, we have to pay capital gains tax, even if no cash is received by us. Why won't you fix this unfair tax situation?" (Ronald Brooman)

Flaherty: Capital gains on a principal residence are exempt. "That's the big bonus for Canadian taxpayers."

  • "With the U.S.'s shaky economy and the Democrats' assertion that the U.S. should get out of NAFTA, don't you think it would be prudent to develop much closer ties with the European Union?" (Sarah C.)

Flaherty: "Sure, and we have been developing our trading relationship with the European Union and also with the Asian economies. That's very important.

"Our trading percentage with the United States used to be 85 per cent of our trade; it's now down to 75 per cent.

"That's not because we have decreasing trade. It's because because we're increasing our trade with other countries in the world."

Flaherty said Canada must do more to talk about the benefits of NAFTA for Americans, given the remarks of leading candidates for the U.S. Democratic party's presidential nomination.

  • "Could the minister comment on future plans for debt repayment?" (Scott Armour)

Flaherty: "Yes, we're going to continue repaying debt."

It's fair to the next generation and boosts Canada's economic fundamentals, he said.

The Tories have paid off about $37 billion in debt so far. Subsequent interest savings are passed on to Canadians in the form of tax cuts, he said.   

  • "I would like a real explanation on why the rebate program on vehicles will not be extended past 2008." (Darlene)

Flaherty: "We had to make a choice ... and the choice we made was to go ahead with an industry-wide innovation fund to encourage green technologies ..."

This will create environmentally-friendly vehicles more quickly, he said.

With a report by CTV's Robert Fife in Ottawa