Budget 2015 is, surprise, primarily a political document that extolls the government’s record and highlights tax cuts, but does almost nothing to deal with rising inequality or to shape the trajectory of the struggling economy.
As expected, annual contributions to Tax Free Savings Accounts are to be almost doubled to $10,000 per year, which will cost over $300 million in lost annual revenues within five years. The increase will eventually all but eliminate taxation of investment income, to the primary benefit of the very affluent earning more than $250,000 per year who collect almost half of all capital gains and dividends subject to tax.
While there is a case for tax free savings for ordinary Canadians, a government concerned about rising income inequality would have set a cap on the total amount that can be saved in TFSAs and would certainly not have expanded the program.
Family income splitting, costing $2 billion this year in lost revenues, will proceed as planned, again primarily benefitting the most affluent while making it much more difficult to balance the budget.
The Budget for 2015-16 will be balanced in the sense that there is no fiscal deficit. However, the deficit has been eliminated by the decision to continue to run a surplus of over $3 billion per year in the Employment Insurance account until 2017. This is cold comfort for the more than 40% of unemployed workers who do not qualify for EI benefits, and for those seeking skills training funded through the EI program.
Budget balance has been achieved despite a slowing economy and new tax cuts mainly by doing almost nothing new on the spending side for the coming fiscal year of 2015-16. Almost all new initiatives other than security spending are postponed until 2016-17 or much later.
The Budget does announce some very modest public investments which could, if scaled up, have given a boost to job creation this coming year when growth and job creation are expected to slow considerably due to the collapse of oil prices. Unemployment is forecast to average 6.7% in 2015.
New funding is announced for research and development and innovation initiatives which are needed to diversify the economy. But it turns out that close to half of the new spending for 2016-17 in this area is already in the fiscal framework.
The same is true of modest new training measures. In other words, there is much less new money for the new economy than the Budget speech would have us believe.
The government has announced welcome additional support for public transit investment starting with just $250 million in 2017-18 but increasing to $1 billion per year from 2019-20. Funded projects will, however, have to involve private sector partners, which may require much higher fares and user fees to generate revenues for investors.
In fairness, the government is doing something to build a more productive economy and to create better jobs by supporting new investment in manufacturing and by boosting research spending. But the scale of these initiatives is very modest.
This is above all due to the government’s strong commitment to tax cuts tilted to the very affluent, and to balancing the budget more quickly than most experts see as necessary.
In the end we have a Budget that invests very little to create jobs now and to build a more productive and sustainable economy. That may prove to be a serious mistake if the current slowdown turns out to be more than a temporary blip.
Andrew Jackson is senior policy adviser at the Broadbent Institute and an adjunct research professor in the Institute of Political Economy at Carleton University.
This column originally appeared at globeandmail.com
Photo: DaMongMan. Used under a Creative Commons BY-2.0 license.