Balanced Budget Delivered, Now for the Campaign

Canadian Finance Minister Joe Oliver rejects budget is focused on campaign, but by keeping their promises Conservatives are election-ready
April 21, 2015 Last Updated: April 21, 2015

OTTAWA—There are no big surprises in the budget Finance Minister Joe Oliver tabled Tuesday, April 21, but this was a budget about what was missing—a deficit.

“Today Canadians can rest assured that Canada’s fiscal house is in order,” declared Oliver in his budget press conference Tuesday.

“Balance promised, balance delivered.”

In comments Oliver made later to the House of Commons when formally tabling the budget, he drew on some familiar refrains.

“Global growth coming out of the Great Recession has been lackluster,” he said. “Geopolitical uncertainty continues to hobble the recovery. And, of course, the dramatic plunge in oil prices has taken its toll on our economy.”

But amid this struggle, Canada has fared well, and Tuesday’s budget was the culmination of a long plod for the Conservatives, a careful balance of tax cuts and austerity measures that both restricted government revenues and forced a careful shrinking of the federal government.

The result, the government declares, is the lowest overall federal tax burden in more than 50 years.

Prime Minister Stephen Harper made it clear in the 2013 Speech from the Throne what the priorities of his government were, and on that front, they delivered, said Sahir Khan, formerly of the Parliamentary Budget Office, now visiting senior fellow and Jean-Luc Pepin Research Chair at the University of Ottawa.

The result, the government declares, is the lowest overall federal tax burden in more than 50 years.

“That consistency is useful, at least people know where they stand.”

Those looking for social spending or money for the environment or income inequality may not like what is there, but they would have known it was coming, Khan said.

“[The Conservatives] have been determined and consistent in applying and implementing the agenda that they set out,” he said.

But Khan downplays the significance of a balanced budget, and said a few million dollars in surplus or deficit makes little difference in a $1.8 trillion economy.

“We are talking about something that has more importance as a political consideration than as one that is fiscal or economic.”

Oliver maintains that balanced budgets are crucial to Canada’s economic wellbeing and said the budget reflects what Canadians need rather than what is politically expedient.

But the consistency and the promise of balanced budgets now fulfilled are central to the Conservative brand. It lends credibility to pledges in the current budget that promise spending increases stretching out to 2020 in such areas as the military and infrastructure, like a new national transit fund.

With an election planned for October 19, those pledges have additional weight.

The budget also promises legislation to “enshrine in law its prudent approach to fiscal planning.”

“It is the sign of things to come when you frame a budget and a lot of the policy priorities from a fiscal rule, like a balanced budget,” said Khan.

For those hoping the government would intervene more in the economy, it was an expected disappointment.

“It’s a budget that is very devoted to surplus; it is not a budget that is particularly [devoted] to job creation or economic growth,” said David Macdonald, senior economist with the Canadian Centre for Policy Alternatives.

He levels what will be an inevitable criticism from the opposition parties—the suggestion that the surplus is artificial, that it came at the expense of the contingency fund or the Employment Insurance (EI) fund, and wouldn’t have been possible without asset sales like the government cashing in its shares of GM.

Oliver deflects that criticism. He says crediting any one of those initiatives, including taking $1.8 billion from the EI fund, or taking $2 billion from the contingency fund, overlooks the bigger picture.

“It is because we restrained public expenses,” he said.

“We have revenue greater than expenses so we are in a surplus situation. Now as you know, when you have a contingency that is not used, it is used to repay debt,” he said.

He also deflects criticism about using money from the EI fund by pointing to worse abuses by the Liberals in previous governments.

The budget includes plans to rebuild the contingency fund by $1 billion a year over the coming three years to get it back to $3 billion.

Budget Nuggets

But beyond the balance and how the government got there, there are some nuggets in the budget. The largest of which, from a tax perspective, is a cut to small business tax from 11 percent to 9 percent by 2019, brought in incrementally at 0.5 percent a year until 2019.

“That’s big—the average small business owner is going to like that,” said Kim Moody, a spokesperson for the Chartered Professional Accountants of Canada and Director, Canadian Tax Advisory, at Moodys Gartner Tax Law.

He also noted the measures to tighten tax reporting, including requirements for additional reporting which, in cooperation with other countries, will make it harder for Canadians to have unreported income in foreign bank accounts.

There is also an expected doubling of the Tax Free Savings Account annual contribution limit to $10,000 effective this year.

In addition, there is a 10-year accelerated capital cost allowance to encourage investment in machinery and equipment, and a boost to $1 million for the lifetime capital gains exemption for farmers and fishing businesses.

The budget also creates a $750 million fund for public transit that starts in 2017 and jumps to $1 billion per year after two years.

Also, as expected, the budget provides additional supports for veterans, including a new Retirement Income Security Benefit for disabled veterans and expanded access to the Permanent Impairment Allowance.

Employment Insurance Compassionate Care Benefits are extended from six weeks to six months for those with gravely ill or dying family members.

Overall though, it is a budget about balance and putting money back in the hands of Canadians rather than into social programs or government services.

“A typical two-earner Canadian family of four will receive tax relief and increased benefits of up to $6,600 in 2015 because of the Harper Government’s tax cuts and increased benefits,” notes a statement from the government.