* March 4 federal budget"s market impact seen limited
* Relatively strong finances appeal to global investors
* Talk of delayed corporate tax cuts, but odds low
* Long-term deficit exit strategy key
By Jeffrey Hodgson
TORONTO, Feb 28 (Reuters) - Global investors ravaged byrising sovereign risk will find welcome respite in Canada"sMarch 4 federal budget, with controlled leaks and relativelyhealthy finances making it a refreshingly low-key event formarkets.
In stark contrast to the Greek budget tragedy unfolding inEurope, Canada is expected to forecast a deficit of less than 3percent of gross domestic product, the lowest of any Group ofSeven nation.
And Finance Minister Jim Flaherty and his officials havespent weeks diligently stealing their own thunder,pre-releasing major news like mortgage rule changes andstressing there will be no significant new spending or taxmeasures.
"It doesn"t make for a great exciting story. But, guesswhat? For investors, boring is beautiful. That"s the newbeautiful," said Stewart Hall, an economist with HSBCSecurities in Toronto.
"Boring is certainly beautiful against the backdrop of whatwe"re seeing in some of the other sovereign names."
A Reuters survey found analysts expect the Conservativegovernment to forecast a deficit of C$45 billion ($43 billion)for 2010-11, down from the record C$56 billion shortfall Ottawaanticipates for the current fiscal year. [ID:nN26119942]
Analysts see the deficit shrinking further to C$27.2billion in 2011-12.
The government said in September it expects Canada"sfederal debt-to-GDP ratio will rise to 35.5 percent in March2011 from 29 percent in March 2009. While not a welcome trendfor bond investors, it"s nowhere near the triple digitdebt-to-GDP ratios of Italy and Japan.
Warren Buffett once noted that creditworthiness is likeoxygen: you don"t notice it when it"s around. With sovereigndefault fears on the rise, Canada"s superior fiscal position ispaying off handsomely for holders of its currency and bonds.
The Canadian government now pays less than the UnitedStates to borrow money for 10 years or more in local currency.And the Canadian dollar, up 15.9 percent last year against thegreenback, recently hit a two-year high against the euro.
"Canada"s generally viewed as having a reasonably soundfiscal backdrop relative to other G10 currencies. Theincremental details on the budget aren"t likely to changethat," said Dan Katzive, foreign exchange strategist at CreditSuisse in New York.
LITTLE STOCK-SPECIFIC NEWS SEEN
This year"s budget is also unlikely to contain many of thetargeted spending measures that can boost specific sectors ofthe stock market.
Shares of Montreal-based engineering firm SNC-Lavalin GroupInc (SNC.TO) have risen more than 40 percent since last year"sbudget, which contained billions in infrastructure spending.But Flaherty has pledged to let his two-year C$46 billionstimulus package wind down, providing little fodder for furtherbounces.
There is a chance that the minority government could deferplanned corporate tax cuts, which have raised the ire of theleft-leaning New Democratic Party, said Andrew Dunn, a managingpartner and with Deloitte Touche.
"I wouldn"t give much more than 50/50 odds of thathappening ... and yet it"s a relatively easy thing to do from apolicy perspective," he said.
"And if they sell it right, it actually could have a fairlymaterial impact on their ability to get their deficit down overthe next couple of years."
But he said even this would be unlikely to have asignificant stock market impact, in contrast to Flaherty"sdecision in 2006 to tax the country"s income trust sector,which wiped out billions of dollars in market capitalization.
Another potential risk for investors is that the oppositionvotes against the budget and takes down the government. Butthis is seen as unlikely given that no party commands a stronglead in the polls. [ID:nN25107702]
Analysts said that perhaps the biggest concern forinvestors is the government"s longer-term plan to return to thesurplus position that Canada enjoyed for a decade. If Ottawafails to maintain credibility on the issue, they said thiscould in time put upward pressure on bond yields.
"Most would agree that you don"t have to do this overnight.But you do have to have some sort of road map," said BobGorman, chief portfolio strategist at TD Waterhouse.
($1=$1.05 Canadian) (Editing by Rob Wilson)
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