Finance Minister Bill Morneau has put off tax hikes on wealthier Canadians, delivering a budget Wednesday that promises new money for job training, child care and social housing but offers no plan to improve the country’s debt outlook.
The revenue-strapped Trudeau government will run a $28.5-billion deficit for the coming fiscal year with no timeline to balance the books over the next five years.
As expected, the government’s second budget was largely about carving up the big spending plans announced in its first budget last year, with little new spending over and above what the Liberals had previously announced.
U.S. President Donald Trump was not mentioned by name, but Mr. Morneau’s budget highlighted the sizable amount of uncertainty facing the Canadian economy largely because of outside factors. The budget noted that any U.S. actions on trade and taxes could potentially have a negative impact on Canada.
On Wednesday, Ottawa chose to hold off on a campaign pledge to raise billions in new revenue by closing tax loopholes that benefit high-income Canadians.
Mr. Trump has promised “massive” tax cuts, but details are not expected to emerge from Washington for months.
The Liberal budget does close some corporate tax loopholes. It also hikes taxes on alcohol, tobacco and ride-sharing services such as Uber and eliminates some targeted tax credits, including one that rewarded public-transit users.
The budget does not include plans to raise taxes on investment income such as capital gains, a topic that had been of particular concern on Bay Street in recent weeks.
But Mr. Morneau is promising to present a paper later this year that will outline potential tax changes that could affect upper-income earners, particularly those who use corporate structures to pay less tax.
Having already eliminated income splitting for families with children in their first budget, the Liberals are now setting their sights on private business structures that still allow couples to split income for tax purposes.
“Going forward, we will close loopholes that result in unfair tax advantages for some at the expense of others,” Mr. Morneau told the House of Commons.
Opposition parties said Mr. Morneau’s talk of taking on the rich is contradicted by the minister’s budget decisions.
Interim Conservative Leader Rona Ambrose slammed the Liberals for failing to rein in spending while nickel and diming working Canadians.
“The Prime Minister has decided to get rid of the benefit for public-transit passes, which of course are used by most low-income Canadians – particularly young people and students,” she said. “He’s also going to tax your beer. … [The budget] even taxes Uber and it clearly demonstrates that the Prime Minister is completely out of step with the challenges that regular ordinary people have when they’re trying to pay for the cost of living.”
NDP Leader Tom Mulcair said there was little in the budget for Canadians struggling with rising costs and record household debt and questioned why the government is delaying tax hikes for the wealthy one per cent.
“It’s fair to say when you look at this budget, that the rich are getting what they want and ordinary Canadians are not getting what they need,” he said, pointing to the fact that the Liberals have not acted on a campaign promise to limit stock-option deductions.
The tax review is set to attract considerable attention over the coming year. It drew immediate concern from Canadian Federation of Small Business president Dan Kelly, who said tens of thousands of Canadians could potentially be affected.
Tax expert Kim Moody, who reviewed the budget for the Chartered Professional Accountants of Canada, said those concerns are justified.
“It’s pretty obvious that private companies and their families are under the radar and under attack,” he said.
Canada’s high levels of household debt were listed as an ongoing risk to the economy, but the budget did not announce new measures to address concerns about overheated housing markets in Toronto and Vancouver.
The budget did announce $40-million over five years for Statistics Canada to develop a Housing Statistics Framework that will create a national database of residential transactions and track foreign home-buyer activity.
The deficit is forecast to jump from $23-billion in the current fiscal year to $28.5-billion in 2017-18, before declining to about $19-billion by 2021-22. Those figures include an adjustment for risk of $3-billion a year, a cushion that has been reinstated after Mr. Morneau dropped it in his fall economic update.
The budget forecast projects that the federal debt will shrink slightly as a percentage of GDP, from 31.5 per cent this year to 30.9 per cent in 2021-22. However, economists expressed concern that the budget does not include a target for eliminating the deficit. They warn that this puts federal finances at risk in the event of a recession or slower-than-expected growth.
“The problem is when you get some sort of shock,” said Randall Bartlett, chief economist with the University of Ottawa’s Institute of Fiscal Studies and Democracy. “It throws your debt-to-GDP ratio out the window entirely.”
At a news conference with reporters, Mr. Morneau repeatedly declined to offer a timeline for erasing the deficit, pointing instead to the government’s plans to keep the debt-to-GDP ratio in check.
The budget has a special focus on improving the lives of women in the work force. Ottawa will allow women to claim maternity benefits for up to 12 weeks before their due date and extend parental benefits for up to 18 months at a lower rate. Federally regulated businesses will also be required to allow flexible work hours.
The government committed $100-million to combat sexual violence against women – a last-minute budgetary measure as a result of The Globe and Mail’s investigation that found that one in five sexual-assault allegations in Canada are deemed “unfounded” or baseless by police.
The budget breaks down previously announced funds for social infrastructure, giving $7-billion over 10 years to fund child-care spaces and $11.2-billion over 11 years for affordable housing.
As expected, the budget did not provide any spending details on planned increases to the military. Those details will be included when a defence policy review is unveiled later this year. Billions of earmarked dollars to buy new equipment and buildings over the next 20 years was deferred.
There was a sprinkling of money to many Liberal priorities, including better legal aid for asylum seekers, rehabilitating inmates, establishing an LGBTQ2 secretariat within the Privy Council office, money for the arts and free Internet for disadvantaged families.
John Manley, President and CEO of the Business Council of Canada, said in a statement that the budget represents a cautious approach as Canada braces for major change in the United States.
“Right now, the sensible approach is to wait and see what comes out of Washington,” he said. “But make no mistake: if American policy makers move to cut personal and corporate taxes, Canada must respond.”
BILL CURRY AND ROBERT FIFE
OTTAWA — The Globe and Mail
Published Wednesday, Mar. 22, 2017 4:31PM EDT
Last updated Thursday, Mar. 23, 2017 7:50AM EDT