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moneysense.ca, 26/01/09
What to Expect in Budget 2009?
Current issue:
Just like last year’s budget, which introduced the Tax-Free Savings Account and provided plenty of grist for the blogger mill, this year’s budget is promising to be an interesting affair. The budget will contain significant deficit spending; that much is clear. In fact, over $13-billion worth of specific plans have already been announced by various ministers.
However, we’ll have to await the actual budget for the interesting bits that will directly affect our pocket books. In an interview with John Ivison of The National Post, the Prime Minister strongly hinted that the budget might include broad-based tax cuts:
Q: That sounds very much like a tax cut?
A: I’m not laying out any specific– we’re looking at a range of specific spending and tax measures of all kinds. I’m not committing to you any particular measure, but the principles are clear. We have to help the vulnerable and those affected most severely by the downturn. But you can’t do that and leave the middle class to fend for itself. A program like that would not be successful.
The platform that the Conservatives ran on in the last election would be another good place to look for likely personal finance measures. But, the platform, unlike the one before it, which promised a 2% cut to the GST and the Universal Child Care Benefit, had modest promises such as a $5,000 tax credit for first-time home buyers.
It would be interesting if the Conservatives again reprise an older platform, as they did with the TFSA and completely phase out the middle tax bracket. Don’t count on it though. The Conservatives have now mastered the art of making “targeted” tax cuts — an euphemism for making our tax code more complicated than it already is. In that spirit, perhaps we will see a brand new tax credit for students learning plumbing in trade school to purchase monkey wrenches in tomorrow’s budget!
moneysense.ca, 26/01/09
I would assume that tax cuts would be the order of the day. I suspect the government wants to stimulate the economy if it can.
CC: I highly agree with you that we need a simple tax code not a complicated one.
Canada’s tax code as of now is much simpler than the US. My cousin told me that you have to have someone to do your taxes in order to not miss any deductions.
I like Canada’s tax code in general and it is good idea to further simplify it rather than “buy votes” with targeted deductions.
Correction: My cousin “in the US”
I personally wouldn’t hold my breath for the tax cuts. There may be something, but like the 2% reduction in the GST and the $5000 limit on the TFSA, it will be too little too late in terms of stimulating the economy. I am betting that it will be something symbolic that they will totally blow out of proportion in the media and in partisan advertisements.
A simple way to give a tax cut is to raise the amount of the Basic Personal Exemption once again. Simple, direct and can take immediate effect to put spending money in peoples pockets.
The Torys have it in their platform to raise the Pension Income Deduction to $2500 in 2010. They could move that ahead by a year to benefit seniors.
The rumoured tax credit for Home Renovations done by a certain date might create some immediate spending to boost the economy.
And I have a young neighbor who is in trade school working toward his plumber’s credentials. He probably would like your monkey wrench credit idea CC.
Does anyony else see the irony of a “fiscally responsible” conservative government introducing budget deficits so large that they’ll wipe out 10 years worth of “left-wing” Liberal debt reduction in less than 5 years?
Yep–I do see the irony Tony R.
The reality is that even conservative governments are not willing to face the wrath of the public. The collective public does not want to endure the pain of letting things run their course . They always want a quick fix now and we will worry about the future later. A government that does not respond with a quick fix knows that it will not be re-elected.
Keynesian economics have taken hold, and both conservative and liberal governments practice it,worldwide . (Run deficits when the economy tanks – start paying down debt when the economy soars–run deficits when the economy tanks again). Problem is we always run up debt in the hard times, faster than we can pay it down in the good times.
Of course if you are a Liberal partisan , you can always fall back on the old saw that: “Tory times are hard times.”
I would caution taking the budget proposals introduced in the speech as the final budget. Given we have a minority government, there may be amendments to certain provisions of the budget in order to obtain the consent required to pass the budget.
Typically, and this goes under the radar, a budget is introduced but not passed until months later as it goes through committee. In a majority government, 2nd and 3rd readings are really the parties going through the motions of the process.
In a minority government, there will be a lot of haggling so expect this to be more drawn out than usual.
CC- if you speak to tax lawyers, they love the minority government because the tax code has not gotten more complicated. Other than the TFSA, there has been little technical amendments to the Income Tax Act since minority governments cannot push through sweeping changes.
Tony: The Tories have been on a spending spree — the three years that they have been in government have seen significant increases in spending. But the Liberal government before it did the same thing. It’s true that both stripes paid down the debt with any surplus but they kept spending the surplus for the next year. But, unfortunately, that’s how these things go. Governments want to get re-elected, parties want to win elections and budgets are usually laden in pork, especially when they are flush with cash.
since when are tax cuts a good stimulus? their impact lags quite a bit.
if anything, they should raise the GST back to where it was before. it doesn’t make a big difference to most people, but it’s an extra twenty some billion a year. sales taxes are far more effective than income taxes. it’s also simple and scales up with consumption.
infrastructure spending is good, and necessary, but also delayed quite a bit. i’m sure there are many projects across the country that are designed and planned and waiting for the commitment, but they still would have to be tendered, reviewed, approved, material ordered. it would be a year before any of them could start.
What’s the federal NDP saying? “Life sucks” ?
Thicken: It does appear that the budget will pass, so the odds are the changes are a done deal. The Conservatives have added a lot of tax credits — child’s fitness credit, transit credit, textbook credit etc. come to mind. All this has resulted in extra paperwork… keeping receipts and bus passes around. And taxpayers should keep track of these changes so that they don’t throw out the receipts. IMO, it is far much better to provide straightforward tax cuts.