Stay the course, snoozer, unsurprising: Canadians hoping for more support or even excitement in Thursday’s federal budget found many words to describe the government’s 2013 fiscal plan. What they didn’t find were convincing details behind its hallmark initiatives.
Finance Minister Jim Flaherty has been vocal about his government’s priority to balance the books by 2015-2016, and this budget suggests the Conservatives are on track to go even further and post an $800-million surplus that year.
The latest projections have a razor thin margin of error, with the government shaving this year’s $18.7 billion deficit to just $6.6 billion next year before leaving the red in 2015. To get there, the government assumes lacklustre economic growth will pick up, spending will remain tight and the new plan to find nearly $7 billion from a tax system crackdown will succeed.
With little spending room as direct program expenses fall $4 billion this year, the government shifted money rather than adding more red ink to focus on deeper investment in infrastructure and jobs training. Even so, these initiatives and others will add some $400 million to the deficit this year.
Budget watchers digesting the details questioned whether the numbers behind the flagship programs, both on the spending and revenue side, will really add up to a balanced budget by 2015, even if the economy takes a positive turn.
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2013 BUDGET HIGHLIGHTS
Revenues for 2013-14 forecast at $263.9 billion, spending at $282.6 billion, deficit at $18.7 billion. Deficit projected to drop to $6.6 billion in 2014-15 and become an $800-million surplus in 2015-16. With files from Althia Raj and The Canadian Press.
Tackling The Skills Gap
The Tories plan to create a Canada Job Grant that will provide $15,000 or more per person -- up to $5,000 provided by the federal government, the rest matched by the province/territory and the employer. Nearly 130,000 Canadians are expected to benefit when the new grant is fully implemented in 2017-2018. Essentially, this is the government saying it is taking training out of the hands of provincial governments because it hasn’t worked and placing it in the hands of individuals. The Canada Job Grant will replace the Labour Market Agreements the feds signed with the provinces, which expire in 2014.
Manufacturing and small business get tax-credits introduced in past budgets extended to help spur investment and growth. There will be $1.4 billion in tax relief for manufacturers by extending the temporary accelerated capital cost allowance for new investment in machinery and equipment. And hundreds of millions for small business owners.
The government has pledged more than $53 billion in infrastructure spending, including $47 billion in new funding over 10 years. This includes $32.2 billion over 10 years for a “Community Improvement Fund” to build roads and public transit as well as recreational facilities and other community infrastructure projects. The Fund will consist of an index Gas Tax Fund and the incremental GST Rebate for Municipalities.
Military spending will be re-jigged that it is modeled on the ship building strategy and aimed at creating more jobs in Canada and key domestic capabilities with an eye towards exports.
Foreign Affairs - Aid Agency Cancelled
The budget has cancelled the Canadian International Development Agency, the primary agency responsible for foreign aid. Its duties will be merged into the Department of Foreign Affairs.
Tax Evasion Snitch Line
The government says it is aggressively going after tax avoiders/and closing tax loopholes. They are launching a “Stop International Tax Evasion Program” where the Canada Revenue Agency will pay individuals with knowledge of “major international tax non-compliance” a percentage of the tax collected as a result of information provided. The CRA will only pay a reward if the information results in total additional assessments exceeding $100,000 in federal tax.
Public Service Cuts
Two departments -- Canada Revenue Agency and the Department of Fisheries and Oceans -- will see big cuts. Departments will see a 5 per cent cut in their travel budgets. The government also says in the budget it intends to work with the public sector unions to “further align overall compensation with other public and private sector employers.”
The federal budget says new projects related to Canada's perimeter security deal with the United States will go ahead as planned, despite budget woes south of the border. The federal budget has given the green light to almost a dozen information-sharing and infrastructure projects related to the Beyond the Border initiative between the two countries. The vaunted deal was announced with fanfare by Prime Minister Stephen Harper and U.S. President Barack Obama in December 2011 at the White House. The plan aims to speed the flow of goods and people across the 49th parallel while protecting the continent from a terrorist attack.
Tobacco Prices Going Up
The government wants to reduce import tariffs on a number of goods including baby clothing, skis, snowboards and gold clubs. But it plans to offset the $76-million revenue loss from that by hiking excise taxes on chewing tobacco and other manufactured tobaccos, to bring them in line with cigarette taxes.
Finance Minister Jim Flaherty's spring budget commits Ottawa to five more years of funding through the Investment in Affordable Housing program. The level of commitment is the same as in the past: $253 million a year over five years, which needs to be matched by the provinces and territories and can be spent on new construction, renovation, home ownership assistance, rent supplements, shelters and homes for battered spouses. But there's a new twist to the funding. Home construction in the program will support the use of apprentices so that newcomers to the construction trades can build up crucial experience. The budget also commits $100 million over two years to build 250 more units of affordable housing in Nunavut, where homes are so crowded that illness spreads easily and poverty abounds.
On the spending front, one of the biggest announcements was adding another $47 billion to the Building Canada plan over 10 years, starting in 2014 and with the vast majority of that spending set to occur after 2017-2018.
As RBC chief economist Paul Ferley points out, just two years after government books are set to be balanced, “infrastructure spending balloons,” with the budget giving no explanation for how the government plans to find funds for that spending.
“In many ways,” he said, “they’re saying: ‘If we achieve surplus, then we’ve got scope to increase expenditure on infrastructure’.”
“But this document doesn’t give you any indication of how they’re going to fund it. If they’re in a surplus position, then maybe they can, but that’s relying on growth being sustained.”
The Canadian Centre for Policy Alternatives was more critical of the numbers behind the announcement, suggesting that the $14 billion Building Canada Fund to support major regional and local projects actually reduces the amount to be spent on crumbling bridges, roads and sewers.
“The Building Canada Fund has been reduced to $210 million in 2014-15 from its previous level of $1.25 billion a year and is back-end loaded, with 75 per cent of expenditures to be spent in or after 2020.”
Others are skeptical of the effectiveness of the government’s $300-million Canada Job Grant, which takes effect in April 2014 if negotiations with the provinces are successful, and which would see employers contribute to filling skills gaps. Under the plan, the federal government would contribute $5,000 toward each personal $15,000 training grant, with the assumption that the provinces and private employers will agree to match that amount.
Some provinces, most vocally Quebec, have criticized it for taking control out of their hands while also asking them to ante up one third of the costs. And premiers from the Atlantic provinces have expressed concern over a lack of details.
Whether employers are willing to contribute is also a glaring question.
Canada’s private sector has been accused by Bank of Canada Governor Mark Carney of sitting on “dead money,” cash that companies have been hoarding while waiting for the economy to improve rather than investing it.
Ken Georgetti of the Canadian Labour Congress questioned why the government would enact the program without any expectations, guarantees or requirements for employers or provinces to jump on board, a problem that could leave it dead in the water.
“They’re giving lip service to a real key problem in Canada, and that is: unemployed people are short of skills, and they have to give them skills to be employed and stay employed,” he said.
“Obviously the private sector hasn’t done their part yet. They keep saying they will, but in the meantime, there’s a lot of unemployed people out there that should be gaining skills.”
There also appears to be a lack of details on the other side of the ledger – the government’s plan to rake in billions of dollars through closing tax loopholes and cracking down on tax cheats. It anticipates that the plan will raise half a billion this year and $1.3 billion in 2014. This, while the Canada Revenue Agency also takes a $19-million budget cut this year and another $58 million next year.
David Mason, a tax partner at Deloitte, noted that Flaherty was making a big push inside the budget lock-up to sell the idea of how much closing tax loopholes will help boost government income.
“Even some things that are not really big tax loopholes, he tried to slide them in, just to give the perception they’re doing more than they actually are,” Mason said.
The government believes it can generate $4.4 billion over the next six years by closing loopholes and another $2.3 billion from cracking down on tax evasion, but Mason believes those figures are difficult to pin down.
“Coming up with those numbers has to be a bit of a juggling act,” he said, noting that Flaherty said he included only what the CRA said it could collect. “But I don’t know that CRA has a crystal ball either.”
Sometimes, he said, government attempts to close loopholes end up making Canada’s complex tax system even more complicated, adding more well-intentioned clauses to the act that can have unintended negative consequences by creating new loopholes.
RBC’s Paul Ferley was also hesitant to believe that reforming the tax system will pull in the amounts the government hopes.
“The heavy reliance on promised increased tax collection along with lower program spending to achieve the better fiscal outcome can prompt some skepticism about the government’s ability to make good on these promises,” he wrote in a report.
“However, countering this skepticism is the government’s reasonable track record in recent years of delivering on such promises.”