Politics

7 things to watch for in today's federal budget

Finance Minister Bill Morneau's second federal budget Wednesday isn't expected to match last year's big-ticket, headline-grabbing spending commitments. Get ready for smaller, strategic moves this time that are on-brand for the Liberals.

After last year's big-ticket, headline plays, this budget will offer smaller, strategic moves

Finance Minister Bill Morneau tried on his new budget shoes with students at Nelson Mandela Park Public School in Toronto on Monday. He delivers his second federal budget in the House of Commons today. (Mark Blinch/Canadian Press)

Finance Minister Bill Morneau's second federal budget isn't expected to match last year's big-ticket spending commitments.

The big Liberal moves for the middle class rolled out for 2016. The 12-year infrastructure plan was the headline of the fall economic statement.

The cupboard is bare now. Liberals are borrowing for the foreseeable future.

So, what's likely in 2017? Smaller, strategic moves. Here's what to look for.

A rosier economic outlook, but ...

There's wind lifting Morneau's sails heading into this budget. It's never a bad thing to have headlines about the Canadian economy "beating expectations." 

His challenge now? Keeping things up.

Despite ambitious spending plans, Liberals said they'd keep the federal debt manageable relative to the strength of the economy, as measured by its gross domestic product. They aim to return the federal debt-to-GDP ratio to 31 per cent in five years, where it was when they took over in 2015-16.

But the global economy offers little reassurance. So one of the themes Wednesday may be "wait and see." Expect some decisions to be punted to the fall economic update, or beyond.

Morneau built a large contingency reserve ($6 billion) into the 2016 budget calculations, and then took flak for eliminating that risk amount from his deficit calculations last fall. Will a large contingency reserve return for the 2017 budget projections? 

Revised infrastructure figures

The 12-year, $180-billion infrastructure plan needs updating.

The parliamentary budget officer's recent work suggests that, so far, less money made it out the door than originally anticipated. 

There's an upside to this — a smaller deficit for 2016-17, for starters. But funding can be reallocated for future years.

Federal finance minister chooses Edmonton shoemaker for budget attire

6 years ago
Duration 1:12
Poppy Barley spokesperson Caroline Gault reacts to the news that a shoe made by the company was chosen for Finance Minister Bill Morneau's budget address.

We may also learn more about the proposed Canada Infrastructure Bank, and how it differs from the public-private partnerships in previous infrastructure plans.

Jim Leech, the high-profile adviser named to get it up and running, has suggested some projects may not even need government money.

International Trade Minister François-Philippe Champagne is pitching to investors as far away as the United Arab Emirates.

Progress with provinces

Since the last budget, Liberals have completed negotiations with the provinces on Canada Pension Plan reform and health-care funding (almost, anyway).

Up next are new labour market agreements with the provinces to renew or replace the more than $2 billion the federal government contributes to skills training.

Morneau's economic advisory council has proposed a new arm's-length organization to research and lead a new workplace skills development strategy called the FutureSkills Lab, similar to the independent Canadian Institute for Health Information. 

What role will provinces play? 

The federal government also needs provinces on board for its social infrastructure plans.

A shortage of child care, for example, can be a barrier to joining the workforce, limiting productivity and economic growth.

But the federal government can't act alone, though Social Development Minister Jean-Yves Duclos mentioned rising child-care costs during his pre-budget tour earlier this month.

'Innovation' strategy

Beyond skills training, the second report from Morneau's economic advisory council focused on promoting "innovation."

Some work is already underway. In June, a new visa system will make it easier for top talent to immigrate.

The last budget earmarked $800 million to help industries form "clusters" in specific geographic areas. Today's budget may expand on this.

Morneau met with other G20 finance ministers in Germany last Friday. Canada's in the enviable position of beating economic growth projections at the moment, but there's plenty of global uncertainty to warrant caution in his forecasts this year. (Christoph Schmidt/Associated Press)

It may also offer more venture capital, either renewing an existing program or replacing it with one that matches private sector investments for greater impact.

Capital gains, stock option changes

The capital gains inclusion rate, currently at 50 per cent, may rise to where it was in the 1980s or '90s, taxing over 60 per cent or even up to 75 per cent of investment income. A higher rate would be closer to how corporate dividends are taxed.

The Ontario government is among those urging Morneau to help cool hot housing markets by capping how much investment income is tax-free when a non-primary residence is sold.

Prior to last year's budget, the startup community deterred the Liberals from keeping an election promise to cap the tax deduction for employee stock options at $100,000, arguing that stock options help new and growing companies attract and keep top employees.

Liberals also deferred plans to lower the small business tax rate to nine per cent. Some wealthy Canadians form small businesses for their families in order to be taxed at a lower rate, so if this promise makes a comeback, watch for measures to make sure it doesn't offer a bigger tax dodge for the wealthy.

Close the boutique?

Morneau also has a tax review panel that's studied the effectiveness of various credits and deductions.

Their advice has not been made public, but several panelists are on the record as favouring an end to so-called "boutique" tax credits that make the tax system complex, less efficient and more regressive. Morneau's first budget cut some, and more may be on the way out.

Non-refundable tax credits for seniors disproportionately help the wealthy. Will this government shift to spending more on seniors' benefits that are income-tested?

Gender-based analysis

The fall economic statement promised that this year's budget will be the first to include a "rigorous analysis" to measure how the budget affects men and women differently. Spending proposals now need to show evidence these outcomes were considered. 

Will there be a noticeable policy shift as a result?


CBC coverage of budget 2017

CBC budget coverage begins at 2 p.m. ET with a special pre-budget Power & Politics on CBC News Network and with our live blog at cbcnews.ca.

Coverage continues at 4 p.m. ET with CBC News' budget special with Peter Mansbridge on CBC Television, cbcnews.ca and Facebook, and on CBC Radio with Susan Bonner and Chris Hall.

Watch post-budget analysis on Power & Politics with Rosemary Barton at 5 p.m. ET on CBC News Network and cbcnews.ca, On the Money on CBC News Network at 7 p.m. ET and The National at 10 p.m. on CBC-TV.


With files from The Canadian Press

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