On Tuesday, January 27, wearing new and perhaps appropriately steel-toed shoes, federal Finance Minister Jim Flaherty tabled his 2009 Budget in the House of Commons. It is his fourth budget since assuming the finance portfolio and first since the minority Conservative government was returned to office in last fall's general election and the subsequent prorogation of parliament. It is the most eagerly-anticipated and politically contentious Canadian federal budget in decades, given the current market turmoil, a deeply slumping economy and the political brinksmanship by all parties.
As was widely expected, the Budget presents a wide-ranging package of provisions to stimulate the economy through dramatically increased, although mostly time-limited, spending on infrastructure and targeted programs. It also proposes a variety of tax measures aimed at increasing consumer spending and business investment, boosting employment and providing some relief to those most affected by the current downturn.
The Budget also signals the return of federal budget deficits. The Minister forecast deficits of almost $34 billion for fiscal year 2009-10 and almost $30 billion in 2010-11, although he also predicted a small budget surplus by 2013-14.
The Minister characterized his Budget as "Canada's economic action plan." "It builds on our position of strength," he said. "It provides temporary and effective economic stimulus to help Canadian families and businesses deal with short-term challenges. Our investments will build Canada's long-term capacity, so that when the global recession eases, we emerge even stronger." Early reactions by media and other commentators have described it as "broad-ranging," "non-ideological" and "a consequence of compromise" made necessary by minority-government politics.
In a news release, the CICA gave the Budget a "B-plus" rating, as the government attempts to navigate through unsettled economic times. It welcomed the Budget's provision of economic stimulus through targeted spending and new tax initiatives along with a continued commitment to previously announced corporate tax cuts. "Canada's economy needs lifeboats now," said CICA President and Chief Executive Officer Kevin Dancey, FCA. "A flotilla of lifeboats arriving too late will help no one."
Specific tax measures praised by the CICA are the introduction of a one year Home Renovation Tax Credit, increasing the basic personal amount and raising the thresholds of the two lowest personal income tax brackets, and increasing the amount of small business income eligible for the reduced federal tax rate of 11 percent. Noting that more than 80 percent of federal government debt reduced over the last ten years will be cancelled out by the deficits projected in the Budget, Dancey said "There is an uneasiness any time a government turns to deficit financing but these are extraordinary times. For government, it is much easier to spend than it is to reduce the debt load. It will be important for the government to get back on its diet with a focus on debt reduction once times improve."
In aggregate, the Budget proposes a series of new programs and tax incentives totaling approximately $34.8 billion over two years, including $7 billion of new spending on infrastructure such as roads, bridges, public transport, college and university upgrades, social housing, broadband Internet access and renewable-energy projects. This is in addition to $33 billion already committed for longer-term projects under the Building Canada Plan. Other stimulus measures include $8 billion allocated for training and skills development, including a doubling of the Working Income Tax Benefit, and increased program spending of $160 million for culture, $302 million for heritage and tourism and $170 million for forestry programs, as well as incentives targeted at farming, media, entertainment and small businesses.
In addition, to help ease credit pressures a variety of measures including a new Extraordinary Financing Network will give individuals and businesses access to up to $200 billion in liquidity and financing. In total, spending on stimulus measures will amount to 1.9 percent of Canada's GDP for 2009-10. This approximates the recent recommendations of the International Monetary Fund and the G20 group of nations. However, it falls short of the 3-percent-of-GDP stimulus package proposed in the United States. In his Budget speech, Minister Flaherty said that despite the forecast budget deficits, by 2013 Canada's net debt as a share of the national economy will be the lowest of the G7 nations, "by a wide margin."
In summary, the 2009 Budget was clearly designed to persuade Canadians that the federal government is taking concrete action to meet the challenges of the current recession and the bleak near-term economic outlook. Whether or not it will "float" in Canada's unsettled political waters remains to be seen.
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