Tag: Federal Budget 2018

Budget 2018: Big on Spending, Short on Growth

Budget 2018 is primarily about spending—new spending initiatives and enhanced spending for programs that aim to support low-wage Canadians, address gender inequality, support First Nations development, strengthen indigenous rights and self-determination, promote skills and research, improve health and environmental stewardship and enhance justice and security.

Some of the spending initiatives announced in the budget will help business, particularly women entrepreneurs and small businesses, but they are limited in scope. There are also some important improvements in government policies—particularly with respect to the tax treatment of small business and the simplification of business support programs.

The government is intent on tightening tax rules and clamping down on tax avoidance. It should be focused even more intently on bringing its books back to balance and creating a tax and regulatory environment to support business investment and economic growth.

The budget projects the federal debt will increase by almost $80 billion over the next five years, although the government’s debt-to-GDP ratio is expected to decline slightly, thanks to continued strong economic performance. The government is counting on a buoyant economy to fund its spending initiatives and meet its fiscal targets. Its rosy economic assumptions will be put to the test by the risks it identifies itself in the budget—growing protectionism and uncertainty over NAFTA negotiations, tightening monetary policies worldwide and the risk higher interest rates pose for an already overextended household sector in Canada. Recent U.S. tax reforms are another serious risk to business investment in Canada that is missing from the budget’s calculations—we are awaiting further analysis.

Higher interest rates are certain to throw the government off its fiscal course—a 1% increase in the cost of borrowing alone translates into a $3-billion increase in the federal deficit over a period of five years. But, what is even more of a concern is that the government now has very little room to respond to an economic slowdown or any other problem affecting the Canadian economy. The leeway it has enjoyed to reduce taxes and increase spending in an era of low interest rates is quickly coming to an end.

Now, more than ever, Canada needs to undertake a comprehensive review of its tax competitiveness—and act with urgency to implement measures that will retain and attract business investment in Canada. That is the only way we can shield the Canadian economy against the headwinds that lie ahead. And, ultimately, it is the only way we will be able to pay for the government’s ambitious spending plans.

Read the full Chamber Analysis.