INDEPTH: FEDERAL BUDGET 2006
A whole new fiscal ball game
George Hoff, Managing Editor, CBC News | May 2, 2006
With the Conservatives' first budget, Canada's fiscal policy is a "whole new ball game," according to Douglas Porter at BMO Nesbitt Burns.
That's because the government's main priority has changed from new spending initiatives to broad-based tax relief, a shift in emphasis that will be felt by every taxpayer in Canada.
Because of the strength of the Canadian economy, Porter believes this budget is affordable. That said, it gives no details about where it will find the $1 billion this year and next in program savings and cuts it needs to balance the books. It also notes that a downturn in the U.S. economy could affect its assumptions.
The budget is aimed at stimulating the economy.
To help pay for its tax program, the government will increase the lowest personal income tax rate to 15.5 per cent on July 1, cut programs and use the surplus. But it says it will still be able to pay down $3 billion in debt this year.
Here are some of the highlights:
- As promised during the election campaign, the goods and services tax will be reduced to six per cent from seven, effective July 1, 2006.
- There's a new Canada employment tax credit – a surprise announcement. It's $500 for 2006 but will take effect on July 1, so will be worth $250 this year. In 2007, the credit doubles to $1,000.
- There will be staged increases in the basic personal exemption amount. By 2010, it will reach $10,000. This is the same as the Liberals planned.
- A textbook tax credit for students and student loan programs will be extended. And there will be an apprenticeship job creation tax credit.
- A tax credit for monthly public transportation passes will be paid for by diverting funds from the Liberals' climate change program.
- Parents will get a tax credit of up to $500 for children playing sports.
- For big business, the corporate surtax will be eliminated in 2008. As well, the general corporate income tax rate will fall from to 19 per cent from 21 by 2010.
- For small businesses, the threshold for a reduced federal tax rate will increase to $400,000 from $300,000 on Jan. 1, 2007. In addition, the reduced rate will be lowered over two years to 11 per cent from 12.
- And finally on the tax side, the budget delivers on the campaign promise to eliminate the capital gains tax on donations of publicly listed securities to charities, effective immediately.
The government also announced a number of new programs to fulfill election commitments, including:
- A child-care allowance of $100 a month. The lower spousal income will be used to calculate the tax burden. As well, $250 million has been identified for new child-care spaces in 2007.
- Initiatives to deal with crime, including $282 billion to hire more RCMP, arm border guards and help communities fight youth crime.
- Plans to work with the provinces to meet guaranteed health-care wait times. This budget has no new spending for health care, but it maintains the agreements in the health-care accord.
The budget forecasts a healthy economy with rising surpluses over the next two years.
It notes that private-sector forecasters are projecting continued growth, low inflation and a strong commodity sector.
It says that all federal revenue sources have contributed to the growing surplus. Income tax, corporate tax and the GST receipts are all above the forecasts in the Liberals' economic statement in November 2005.
Economist Tim O'Neill calls this a pragmatic budget that delivers a balanced approach and says it's what you could expect from a minority government delivering its first budget.
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