It has taken the federal finance minister three attempts, but Jim Flaherty finally delivered a budget that can be labeled fiscally responsible. The Conservative government got off to a rough start in 2006 when it provided tax relief with one hand by cutting the GST only to take it away with the other by raising personal income taxes. A series of small boutique tax cuts benefited some, but not all taxpayers.

If the '06 budget was disappointing, the second was worse. Mr. Flaherty loaded the 2007 budget with additional micro tax credits all the while ignoring calls for broad income tax cuts. When it came to programs he even managed to best Liberal spending levels.

When Paul Martin's Liberals left office, total program spending stood at $175-billion. Yet, after only two years of Conservative rule Ottawa's annual outlays were set to exceed the 200-billion-dollar mark. Under Mr. Flaherty, the size of the federal government has grown by an astounding 14.8%. By comparison, Mr. Martin's two-year minority government grew the federal government by 14%.

Canadians began witnessing a quiet repudiation of the Conservative's gimmicky tax policies and big government spending over the last half year. The overhaul began in October 2007 with a throne speech pledging broad-based tax relief. The Conservatives were no longer talking about targeted tax cuts.

Soon thereafter, the finance minister tabled a mini-budget and delivered a $60-billion package of sweeping tax cuts. It cut business taxes substantially, reduced the GST to 5%, and reversed the personal income tax rate increase Mr. Flaherty enacted in his first budget.

In early 2008, Mr. Flaherty downplayed budget expectations, declaring there would be no new expenditures or additional tax relief. Given looming economic uncertainly, many taxpayers concluded Mr. Flaherty's tax and spending restraint might be acceptable provided the government delivered on both sides of the ledger. He would need to match his tax relief freeze with a corresponding spending freeze.

When the budget was tabled on Feb. 26, the finance minister largely delivered. Over the next fiscal year the Conservatives have budgeted to increase program expenditures by 3.4%, a relatively modest amount in a minority Parliament. Should Mr. Flaherty hit this target, taxpayers will cheer. But given his lousy record to date, the finance minister's feet need to be held over the fire.

Canadians are already witnessing the consequences of overspending as less debt will be retired over the next two years. Although Canada's $467.3-billion debt will be cut by $10.2-billion in fiscal 2007/08 (which ends March 31), the government has only allocated $2.3-billion next year to paying down debt and a trivial $1.3-billion the following year. Until now, Mr. Flaherty had pledged to reduce debt by at least $3-billion each and every year. That vow was washed away by a tide of rising spending.

On the positive side the budget contained two unexpected gems. The first is a new tax savings plan to encourage savings, and second is an overdue reform of the Employment Insurance (EI) scheme.

Starting in 2009, the Conservative government will allow Canadians to invest after-tax dollars and investment gains will not be subject to tax. Moreover, savings will not trigger clawbacks on government entitlement programs -such as pension allowances and child tax benefits - that are income-tested. Canadians will be permitted to contribute up to $5,000 a year to this new savings vehicle. This new tax-free savings account is a pro-growth policy that will encourage Canadians to save, reward individuals and benefit the economy.

The other promising change is the creation of a Crown corporation to manage the EI fund. Ottawa has used EI surpluses as a cash cow and maintained higher EI tax rates on workers than necessary. Last year alone the EI account recorded a $3.3-billion surplus.

The proposed EI reform will limit the program's cumulative surplus to $2-billion. A new rate-setting mechanism will reduce EI taxes so payments from workers and employers only fund the program and not additional spending. Since the EI program puts a tax on job creation the reduction will be welcome news.

Of course, the finance minister has more work ahead of him. The top priority should be income tax relief. Canada's personal income tax burden is the highest of all G7 nations. Canadians pay more income tax than the French and Italians, despite being neighbours with lower-taxed United States. Income taxes in Canada are complex and punitive. They must be lowered.