The Upcoming Federal Budget

This week the House of Commons is adjourned and will resume next week with the much anticipated budget to be delivered on Wednesday, March 22, 2017. As is often the case there are considerable rumors circulating on the content of the budget. At this point the only details we know with certainty is the budget will again run a considerable deficit while the Liberal Government refuses to disclose when the budget will again return to balance, given that the promised date of 2019 will not be met.

For the Liberals, they have created a very serious problem. Increases in program spending along with a cut to income taxes in particular for those in the $100,000 up to $199,000 threshold have essentially created a structural deficit where spending now exceeds revenue each year by a sizable margin. To further complicate this situation, as I mentioned in last week’s report, in the year 2019 Liberals will also significantly increase infrastructure spending according to their fiscal plan. All of this means that in essence the Government is now out of money and is borrowing creating a situation where increasingly more money is spent paying interest on debt leaving less money available for other programs. In fact Canada now spend more on debt servicing each year than we do on National Defence. As you may also be aware Canada has recently been singled out for not fulfilling our NATO budgetary spending commitments.

For the Liberal Government who inherited a balanced budget, the sudden change in Canada’s fiscal situation has created a serious problem. With spending only set to increase, the only alternative for the Government is to increase taxes. This was recently contemplated with the idea to make employer provided health and dental plans to be considered as taxable benefits before the Government backed off on the idea. Currently the Government is now exploring other options where taxes can be increased without causing harm to the Canadian economy. I mention this fact as the new administration in the United States is currently in the process of lowering many taxes in particular for the corporate sector. Although the USA Presidential twitter feed seems to attract most of the media attention these days lower USA corporate taxes are a real concern for Canadian competitiveness. As one example Canadian business investment declined over 2% in the most recent fiscal quarter and has declined every fiscal quarter since the Liberal Government was elected.

The decline in investment is a particular concern as new investment typically leads to more jobs and by extension citizens who are employed and paying taxes instead of being unemployed and drawing benefits. The solution? The Liberal Government has hinted they will undertake a taxation review that many have speculated will be an exercise to eliminate various tax credits in an effort to increase revenue. It has also been suggested the Government may increase the capital gains tax. In theory most support an increased capital gains tax however the downside of such a move is a term called “asset lock” where assets are not sold in order to avoid paying taxes on the capital gains. Having assets on hold does little to stimulate the economy and likewise does not produce the revenue expectations of government thus creating a no win situation.

In my opinion the Government will need to concede that it has developed a spending problem and as generation we are currently leaving bills behind for our kids and our grand kids to resolve, a situation most I believe would agree is not responsible.

My question today relates to the budget. Do you believe the Government should place a greater priority on having a plan to return to balance? I can be reached at dan.albas@parl.gc.ca or you  call toll free at 1-800-665-8711.