Fleishman Hillard Budget Note

Transcription

Fleishman Hillard Budget Note
FEDERA L BUD GET 20 15
REPORT & ANALYSIS
FH OTTAWA
APRIL 2 1, 201 5
FEDERAL BUDGET 2015
The Conservative Government tables first balanced Budget in eight years
Context: The Road to E-Day
The Harper Government unveiled the final Budget of its majority government mandate today in advance of the
fixed election date of October 19, 2015.
Serving essentially as a Conservative campaign platform, and peppered with announcements intended to have
wide appeal, Budget 2015 represents a politically bold and strategic attempt to bolster long-standing populist
themes which, taken together, have been their hallmark since taking office in 2006. These include:
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Convey strong financial stewardship, competence, and leadership
Continue to position the party as a trusted, steady hand at Canada’s economic till
Target and directly appeal to loosely defined “middle class” voters and Canadian families
Offer politically savvy and popular “retail” measures
Amplify the party’s appeal in vote-rich areas and battleground ridings, such as Ontario, where the next
election will fundamentally be won or lost
And all the while, highlight the experience of the Prime Minister, while simultaneously conveying the risks
of opposition party positions and leaders (notably the Justin Trudeau-led Liberals) and the possibility of
another team taking the reins in what the government often describes as “uncertain times.”
Budget 2015, void of a single narrative yet loaded with micro-targeted moves, is another phase of this continuum.
And previous Conservative Budgets have echoed largely the same sentiments. But with the Liberals remaining high
in the polls, and the Conservatives facing the normal wear and tear of any government holding power for almost a
full decade, there is a clear and present danger to securing another strong mandate from voters. It is by no means
an overstatement that there is much on the line.
Political storm clouds, such as the criminal trial surrounding former Conservative Senator Mike Duffy, have moved
in. Numerous Conservative Ministers and MPs have announced they won’t run again. Sinking oil prices have
dented government coffers. And polls show a close horse race.
But through Budget 2015, and through various key announcements in recent months (e.g. income splitting), the
party has positioned itself for further political success, providing a balanced Budget and putting the country’s
books into the black, and all the while offering new measures which could hold significant appeal on the campaign
trail.
The promised balanced budget legislation (see below highlights section) is also a calculated step. Not only does it
attempt to reinforce some the of above-noted “fiscal stewardship” themes, it also hamstrings future governments
and their respective capacity to campaign on big ticket items in the upcoming election. The “backloading” of
numerous Budget 2015 commitments by the Harper government also plays to this approach: voting Conservative
will ensure that these promises will come to fruition.
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The Prime Minister can also display, in tangible terms through this Budget, what it will mean to voters (and their
pocketbooks) if he is provided another mandate. Viewed through a raw political lens, the power of incumbency
could therefore make a major difference moving forward.
This same advantage has been a key undercurrent to the Prime Minister’s activities on the world stage. He has
carved out this distinct advantage versus his rivals, while simultaneously helping out the party’s cause with key
domestic audiences or on key priorities. Examples include the recent visit by India’s Prime Minister Modi; his
meeting with the NATO Secretary General in March on the ISIS/Syria mission and Canada’s involvement; on-going
public support of the Ukraine and increased sanctions against Russia; and his bilateral meetings in Ottawa with G8
leaders Merkel (Germany) and Hollande (France).
With an increase in national security spending, Budget 2015 sets up another potential campaign pillar for the
Conservatives during the upcoming campaign. This is an area where the government sees a distinct political
advantage versus its main rivals.
As in years past, the government has also made a deliberate attempt to find the political middle, offering
significant tax cuts and offering programs and initiatives which could easily take the shine away from many of
Trudeau’s yet-to-be unveiled campaign platform details, including infrastructure spending.
Such moves will also likely “reduce the light” between the Conservatives, Liberals, and the NDP leading up to - and
during - the campaign. It also may chip away at any attacks the opposition parties will undoubtedly make, possibly
setting up the narrative the Conservatives have already been attempting to convey through their recent ad buy:
that moving away from the government, particularly during still tenuous economic times, is not a risk worth taking.
The above factors considered, unless the NDP and/or the Liberals can make the election about perceived
Conservative weaknesses, or substantial ethical issues related to the Duffy trial or elsewhere, it will be difficult for
either Thomas Mulcair or Justin Trudeau to make a significant dent in positioning themselves as the true heir
apparent to 24 Sussex Drive. And now that Budget 2015 has targeted cities, seniors, the manufacturing sector and
various core constituencies, that job has just been made more difficult.
It is also through this political lens where the optimal Election 2015 ballot question may boil down for the
Conservatives: in a period of slumping oil prices, military actions abroad, and global financial uncertainty, is this a
time for a change in government? Through Budget 2015, and the narratives of job growth, families, and ensuring
the security of Canadians, the Conservatives are hoping the answer from Canadians will be a resounding “no.”
Budget 2015 Highlights
In recent months leading up the release of today’s Budget, and amidst the speculation surrounding an early
election call, the Conservatives delivered on previous family-focused commitments.
Earlier this year, for example, the government announced that it will deliver approximately $27 billion over a five
year period in new tax relief and increased benefits to families, including the expansion of the Universal Care
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Benefit, introducing the Family Tax Cut (frequently referred to as income splitting), and increasing the Child Care
Expense Deduction dollar amounts.
During his address to the House of Commons today, Finance Minister Joe Oliver reiterated the above
commitments. Minister Oliver acknowledged that falling oil prices have a negative impact on the Canadian
economy, but he reinforced that Canada remains a “beacon of sound financial management.”
The 2015 Budget surplus was, in large part, reached through using $2-billion in contingency funds, and one-time
asset sales (General Motors stock). To this end, the federal contingency fund drops to $1 billion in 2015-16,
returning to $3 billion by 2019.
The Budget also includes a distinct approach to “back-loading” of new spending initiatives, meaning that many
investments/programs will not commence until 2016-2017. Other key highlights include the following:
General:
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The promise to table balanced Budget legislation that would define actions to be taken in the event of a
deficit and require specific timelines for a return to balanced budgets. The proposed legislation would
prevent future governments from running a deficit except in response to a recession or “an extraordinary
circumstance” like a natural disaster.
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Projected surplus of $1.4 billion for 2015–16
Manufacturing:
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The previously introduced temporary capital cost allowance will be extended to 2025 – this cost
allowance allows companies to write-off costs of machinery faster
Providing an additional $1.33 billion over six years, starting in 2017–18, to the Canada Foundation for
Innovation to support advanced research infrastructure at universities, colleges and research hospitals
Increasing access to venture capital financing to help innovative, high-growth companies grow and create
jobs
Natural Resources:
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Affirms the government’s intent to provide accelerated capital cost allowance (CCA) treatment for assets
used in facilities that liquefy natural gas
Provides $34 million over five years, starting in 2015–16, to continue consultations with Canadians related
to projects assessed under the Canadian Environmental Assessment Act
Dedicates $80 million over five years, starting in 2015–16, to the National Energy Board for safety and
environmental protection and public engagement
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Infrastructure:
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Commits $750 million over two years, starting in 2017–18, and $1 billion per year ongoing thereafter for a
new Public Transit Fund
Continues to provide $5.35 billion per year on average for provincial, territorial and municipal
infrastructure under the New Building Canada Plan
Security/Defence:
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Dedicates $11.8 billion over 10 years through an increase to the annual escalator for National Defence’s
budget to 3 per cent, starting in 2017–18
Provides up to $360.3 million in 2015–16 for the Canadian Armed Forces to extend its mission to counter
the Islamic State of Iraq and the Levant (ISIL)
Commitment to security agencies through $292.6 million over five years in intelligence and law
enforcement agencies and $12.5 million over five years, starting in 2015–16, and $2.5 million ongoing
thereafter, in additional funding to the Security Intelligence Review Committee to enhance its review of
the Canadian Security Intelligence Service
Provides $58 million over five years, starting in 2015–16, to further protect the Government of Canada’s
essential cyber systems
Proposes to provide $2.5 million per year starting in 2016-17 to Industry Canada to undertake research on
Canada’s defence industrial base and key industrial capabilities in support of the government’s Defence
Procurement Strategy
Personal Taxes, Consumer Measures, Small Businesses:
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A commitment to increase the annual contribution rate to Tax-Free Savings Accounts to $10,000 per year
Softening the rules for withdrawing Registered Retirement Income Funds (RRIFs). The new RRIF factors
will range from 5.28 per cent at age 71 to 18.79 per cent at age 94. The percentage that seniors will be
required to withdraw from their RRIF will remain capped at 20 per cent at age 95 and above
Reaffirming the Government’s commitment to reduce EI premiums for over 16 million Canadians in 2017
Reducing the small business tax rate from 11 per cent to 9 per cent by 2019
Increased the Lifetime Capital Gains Exemption from $500,000 to $800,000 and indexed this new limit to
inflation, bringing it to $813,600 in 2015
Healthcare and Seniors:
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Increasing the amount of time Canadians can draw on employment insurance for compassionate leave to
care for an ailing loved one. Compassionate leave will be extended to 6 months
Introducing a new Home Accessibility Tax Credit for seniors and persons with disabilities to help with the
costs of ensuring their homes remain safe, secure and accessible
Providing up to $42 million over five years, starting in 2015–16, to help improve seniors’ health through
innovation by establishing the Canadian Centre for Aging and Brain Health Innovation
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Opposition Pre-Positioning & Budget 2015 Reaction
NDP
Speaking directly after the Budget was delivered, NDP Leader Thomas Mulcair criticized the government’s use of
the contingency fund to balance the budget. He stated the current budget doesn’t reflect the “real world” and
highlighted the many measures that will take place 1-2 years in the future. Mulcair also noted that if given the
chance, he would overturn income splitting and introduce a $15 per hour minimum wage.
The NDP’s news release asserts the Budget’s transit and infrastructure proposals are limited and create red tape
that prevents funds from going to cities.
The economic policy of the NDP, heading into the election, focuses on the strength of the middle class, primarily in
the manufacturing sector and support for small businesses. NDP Leader, Thomas Mulcair, has stated that the party
would extend the accelerated capital-cost allowance for two years. This would allow businesses to quickly write off
the cost of processing equipment and machinery.
Mulcair has also trumpeted an innovation tax credit to encourage investments in machinery, equipment and
property that is used in research and development. The NDP has been a strong supporter of small businesses and
entrepreneurs in Canada. Mulcair has proposed cutting the small-business tax rate, which currently sits at 11 per
cent. The party has stated that they would cut this down to 10 per cent and then to nine per cent. (Note: this aligns
with the Conservative’s Budget commitment today).
Liberal Party
Liberal Leader Justin Trudeau commented to media that the budget only helps those who do not need it, noting
the need for additional help for the middle class. He stated that the Liberal Party’s plan for the economy would be
“fiscally responsible” and would not balance budgets on “the backs” of people who need it. When asked what in
the budget he would overturn, Trudeau noted that he would cancel income splitting and undo the doubling of the
TFSA, as these programs do not suit the needs of the middle class.
The policy focus of the Liberal Party is to promote the growth of the middle class through investing in five key
areas: infrastructure, post-secondary education, exports, entrepreneurship and investment in research and
science. Liberal Leader Trudeau has also stated his Party would reverse the Conservatives’ income splitting
program.
Trudeau has also committed to reinstating the Labour-Sponsored Venture Capital Corporation tax credit, which is
currently being phased out, to support workers and small businesses. He has also stated that the Liberal Party will
work closely with the provinces to enhance the Canada Pension Plan (CPP) to help ensure more retirement security
for all Canadians.
Recently, in response to Finance Minister Joe Oliver’s criticism towards previous Liberal governments and their
fiscal management and large deficit budgets, Deputy Leader Ralph Goodale pointed out that more than two-thirds
of all the federal debt outstanding in Canada today can be attributed to the deficits accumulated by former Prime
Ministers Mulroney and Harper.
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