Thoughts on the Federal Budget

I’m still not sure that I can honestly say that I agree with the Federal budget that was tabled last week. I can’t even say that I disagree with it. Damn, but I hate being so undecided about stuff like this.

After 11 consecutive years of budget surpluses, we’re sliding into deficits again. Is it needed? I don’t know that its ‘needed’, but it is unavoidable. The deficit for the fiscal year ending March, 2009 will be in the $1.1 billion range. The next year is projected at $33.7 billion. How the heck does that happen?

The Government has decided to continue with its Corporate income tax reductions. But it is not speeding them up… simply maintaining the schedule that it set previously. Couple the loss of revenue (yes, taxes are revenue) because of tax reductions with the anticipated drop in revenues because of a drop in taxable Corporate income (blame the Recession!) and right off the bat we’re down $6.3 billion.

Some of those losses in Corporate income/revenues will also translate into capital losses for individuals to use on their tax returns by applying those losses against capital gains earned in previous years. I’m not sure how far back an individual can go to balance current losses against past gains… not something I have ever really understood. Regardless, if you start to take those tax reductions into account, with the effects of the Recession, the Government is actually projecting a tax revenue reduction from personal income taxes of $5.6 billion.

Right then, so we’re starting off $11.9 billion in the hole… and that total hole for the 2009-2010 fiscal year is estimated at that $33.6 billion that I mentioned before. That is a slightly different number than the ‘spending package’ number, which includes tax incentives, of $34.8 billion.
Once the Recession is over, a chunk of that lost $11+ billion in revenue will return. But the tax revenue contribution from the Corporate sector will not be part of the recovering revenue because, on the Corporate side, they are tax cuts and not a reduction in earnings caused by the Recession. Think about that… who’s going to end up paying down the deficit when this is all over? Who will be giving up the majority of the benefits of renewed growth?

Another part of the tax reduction scenario that hasn’t gotten a lot of media play is the change to the ‘tax brackets’ for personal income tax. Right now, your basic personal deduction amount will increase by $720, from the $9,600 we’ve become used to, to a $10,320. Okay, every little bit helps, right? But are you going to save it and use it to pay down your personal debt, or are you going to spend it?

At least the Government is recognizing that the next generation will be shouldering the cost of recovery. There is a new First-time Home Buyers’ Tax Credit, and a fund, although fairly modest, for the Canadian Youth Business Foundation to support young Canadians who are starting new businesses.

I must admit that I am really disappointed that the Government has not recognized the opportunity to advance the place of the Canadian tech sector in the world. We should be moving strongly into research and development; we should follow RIM’s lead (Blackberry manufacturer) and dominate other areas. Hell, we’ve got the brains in this country. Let’s exploit them! Unfortunately the budget has little or no change to the Scientific Research and Experimental Development measures, and there is no broad stimulus for innovation. Innovation! Like making a better vehicle, less expensively! (Notice that I didn’t say ‘car’. And what the heck is happening to our aviation/aerospace sector?) Like new, more efficient methods to process lumber. Like more effective mining techniques. Like better refining processes for petroleum and other basic chemical building blocks used by industry. Like more ‘Star Trek’ technology, now! Sure, on a broad basis, we are an economy that thrives on its ability to exploit natural resources. But is that enough moving forward? Competition with the rest of the world and the failures in the manufacturing sector with the resultant impact on day to day life in Canada point out that it’s not enough anymore to rely on our natural resources. Why not take advantage of the current international crisis and throw some serious weight behind finding the ‘next big’ thing, and being first to market? The budget assumes that we want to move back to the status quo in manufacturing, and , quite honestly, in every other industry segment, except for projects that fall under the ecoEnergy Technology Initiative (Natural Resources Canada). And is the slight bump in funding to the National Research Council Industrial Research Assistance Program enough?

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