A Federal Budget like No Other
By Arthur Drache
We have been watching federal Budgets from Ottawa for forty years including two (1974 and 1979) which saw the government fall on their proposals.[1] But never have we seen a situation before whether there was so little interest in the substance and “nitty gritty” of the government offering except in the context of whether it contained provisions which would effectively lure at least one of the opposition parties to support it.
And after Finance Minister Flaherty made his public presentation, little attention was paid to the substance except in the context of whether the document contained enough to get it passed.something which could not be answered for several days.
With regard to the stuff which is important, to the surprise of nobody who has been following the numbers, the Government’s plan for returning to balanced budgets is on track.or so they say. Without including any targeted savings from the Strategic and Operating Review, the Government is projected to return to balanced budgets by 2015-16 at the latest. The deficit in 2010-11 is projected to be more than 25 per cent lower than it was in 2009-10, and it is projected to shrink by more than 25 per cent again in 2011-12. The deficit is projected to continue to decline to $0.3 billion in 2014-15.
The budget was projected to achieve $6.2-billion in savings over five years, through previously announced spending reviews and by closing tax loopholes. In addition, the budget proposed a further cost-cutting exercise that – if successful – would save $4-billion annually and potentially balance the books a year ahead of schedule. No details were given.
All told, the government projects that the combination of savings, closing of tax loopholes and the expiry of crisis-era stimulus measures would mean program spending as a share of gross domestic product shrinks to about 13 per cent in 2015-16 from 16 per cent in fiscal 2009-10.
Ottawa’s total debt would drop closer to pre-recession levels by 2015-16, declining to 29.7 per cent of GDP from 34 per cent two years ago
The budget indicates that there would be a new round of cuts across government departments with plans to identify and slash overall program spending by 5 per cent for a permanent $4-billion in annual savings beginning next fiscal year
But all this was almost ignored by most commentators who spent a lot of ink on the various proposals which were supposed to attract NDP support.
The NDP wanted help for seniors and the budget did announce a top-up for the Guaranteed Income Supplement that as of July 1 would increase benefits by as much as $600 per year for single seniors and $840 for couples. This is really small potatoes but nobody would turn it down.
As is so often the case, the hundreds of pages had myriad proposals, both big and small
For example, two small budget changes will be of interest to students and their families. Full-time students will be able to earn more money without affecting their eligibility for student loans, and a higher family income threshold will be used to determine the eligibility of part-time students for loans.
The Conservatives stole a Liberal plank in its new family caregiver tax credit. The arts tax credit offers incentives to parents who enrol their children in programs like music lessons and academic tutoring, similar to the sports tax credit. Both these initiatives had been announced before March 22.
Also, the rules for registered education savings plans are to be changed so that assets in an individual RESP set up for someone who does not end up going to university or college can be transferred to a sibling.
In addition as was leaked earlier and again seen as a sop to the NDP, the ecoEnergy Retrofit Program is being extended into 2011-12 so that more people can make home improvements that improve energy efficiency.
What struck us strongly was the thrust, in the name of fairness, of course, of new anti-avoidance measures including provisions dealing with RRSPs and TFSAs. Indeed, the whole thrust of extensive proposals with regard to charities were essentially negative to the sector giving the CRA huge new administrative powers to deal with undefined “serious breaches of the law”. Some of the more sophisticated tax planning techniques used by the oil industry were also targeted. On a broader note, the government has de facto closed down the only charitable tax shelter which had the CRA’s imprimatur, the donation of flow-through shares. The proposal will have a negative effect not just on charities but on the mining sector which had a veritable boom when such shares were linked with donations to charities.
In no particular order we would note a handful or two of proposals.
- Tax credit equal to $450 a year for volunteer firefighters in rural areas;
- Forgiveness of student loans of up to $40,000 for new doctors and $20,000 for nurses in remote and rural areas (this too was leaked in advance);
- Legislation to enshrine as permanent the annual $2 billion Gas Tax transfer for municipal infrastructure;
- A hiring credit that provides a one-year EI break of up to $1,000 for small businesses. Roughly 525,000 small businesses will be eligible for the new temporary hiring credit that the budget says will reduce their collective 2011 payroll costs by about $165-million. The credit of up to $1,000 is applied against a small employer’s increase in its 2011 EI premiums over those paid in 2010. It is available to employers whose total EI premiums were at or below $10,000 in 2010;
- Continuation of the temporary accelerated capital cost allowance on machinery and equipment;
- A “Helmets to Hardhats” program to help ex-military members to find work in the construction industry (Leaked in advance);
- Elimination of mandatory retirement for federally regulated employees;
- Creation of 10 new Canada Excellence Research Chairs at universities and 30 industrial research chairs at colleges and polytechniques; and
- Renewal of the $22-million Own the Podium program to support elite Olympic athletes.
As we said at the outset, the contents of this budget seemed in many respects to be almost beside the point given the political climate. In fact, within an hour, all three opposition parties said that they could not live with it. But in politics, a day’s reflection may change perceptions so it is not immediately clear whether any of this will become law, or more accurately, when parts of it will be enacted.