The 2015 Federal Budget

 

This week’s federal budget has some new tax initiatives features that progressive businesspeople can reasonably applaud – the planned phased-in reduction of the federal corporate tax rate on the first $ 500,000 of income from an active business, from 11% to 9%; and some modest incentives to encourage manufacturing.

The budget also wastes some fiscal capacity however, on less useful changes, like the increase in allowable annual Tax Free Savings Account (TFSA) contributions from $ 5,500 to $ 10,000 – something far more useful to upper middle-class senior citizens than to anyone else. The TFSA change may perhaps also be somewhat useful to the few reasonably high-earning but also low-spending members of the “millennial” demographic cohort, who might be saving up for home ownership, and to those who, by sheer discipline, have developed the habit of saving well from modest lower incomes. The latter may find that, especially with the new more generous limits, TFSAs will work better for them than RRSPs, because their incomes in retirement, though modest, will be as high as their equally modest incomes have been while working, a scenario under which tax deferral from working years to retirement years, through RRSPs, is never really helpful.

What is clearly missing from this budget though, is any national initiative to “put a proper price” on CO2 and other green house gas emissions, any serious attempt to tackle growing social inequality, and any serious attempt to curb the pervasive waste of energy and virgin raw materials in our economic system. A long-term economic development strategy for Canada should be focused on investing in human capital (through improved education and skills training) on economic diversification and on enhancing resource productivity, across the board. This requires a significant shift in the incidence of tax off income and onto throughput of physical resources (and disposal of wastes), as well as well-targeted strategic public investment. Nothing of that sort was visible in this budget.

Although perhaps not clearly obvious, this is not a millennial-friendly budget. There is nothing wrong with a budget that attempts to relieve stress on economically-struggling senior citizens, but this budget has numerous goodies for seniors (the TFSA and Registered Retirement Income Fund (RRIF) rules changes) but nothing at all for the millennial generation, who are contributing substantially to the common good through their payroll taxes (principally CPP and EI contributions), but are not being offered much to help them in return. This demographic cohort is attempting to build careers and lives in a very challenging environment in which the generations that came before them are clinging on to strategic economic positions above them, not only in many workplaces, but also in urban housing markets, and there is no longer any “frontier” to be colonized, as a way around this disadvantage.

It would take real ingenuity to try to help the millennial cohort in a way that was socially fair generally and economically efficient, and also not unfair in a rather targeted way, to less-affluent seniors, and less-affluent citizens on the verge of retirement. But such ingenuity as went into this budget, seems instead to have been primarily political, and overtly partisan. The financial acrobatics to ensure the budget was technically “balanced”, the TFSA and RRIF changes and the enhancement of the lifetime capital gains exemption for farmers and fishers, may all have some faint merit, although fishing in particular is an already heavily-subsidized activity that needs, if anything, to be weaned of public support rather than being further indulged. But these moves seem very likely to produce some sort of an electoral reward for the governing party in October, and it is hard to believe that they weren’t designed with that in mind.

Michael Barkusky, Senior Economist, Board of Change

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