Moffatt: What the 2016 federal budget got right—and wrong

Ahead of the 2016 federal budget, I had a list of eight things to watch for, beyond the size of the deficit. The budget addressed six of the eight items, mostly through the announcement of new funding, and much of which did not appear in the Liberal campaign platform.

1. Realistic economic forecasts

Budget 2016 estimates for nominal GDP growth appear reasonable, with 2016 NGDP growth pegged at 2.4 per cent (1.4 per cent real GDP growth plus 1.0 per cent GDP inflation). After a 4.6 per cent NDGP growth bounceback in 2017, the NGDP growth rate is forecasted between 4.1 to 4.3 per cent per year from 2018 to 2020. If I were a betting man, I would wager that average nominal growth will be slightly lower than this, but not by much.

Last year’s budget forecasted oil at $67 per barrel (WTI) for 2016. This has been downgraded substantially to $40 a barrel in the current budget, and oil is slated to rise to $63 per barrel by 2020. Futures markets are somewhat less optimistic, projecting oil in the low $50s by the end of the decade. I put more faith in futures markets than in private sector and budgetary forecasts, but given the recent escalation of oil prices, there is a reasonable chance prices end up matching or exceeding the estimates in Budget 2016.

2. A food rebate

There was no food rebate in Budget 2016, nor any one-time cash payments using the GST credit system. There was, however, $64.5 million over five years allocated to Nutrition North Canada.

3. A commitment to selectively eliminate import tariffs

Although the government had not given any indication that they were considering changes to the Customs Tariff, a commitment to tariff input elimination appears in Budget 2016:

Budget 2016 announces that the Government will eliminate tariffs on about a dozen manufacturing inputs, providing an estimated $9 million in tariff savings over the next five years to Canadian manufacturers in the consumer goods and transportation sectors.

Budget 2016 also announces the Government’s intention to launch public consultations on eliminating tariffs on food manufacturing ingredients other than supply-managed products. These ingredients are primarily used in the agri-food processing industry, Canada’s largest manufacturing employer and an important contributor to Canada’s economy.

Although this commitment is more modest than the one advocated in Making it Simple, a report I authored for the Mowat Centre, the goal of reducing input costs for manufacturers was identified as a key priority in the paper, which suggested there was more work to be done on this front:

But this goal of eliminating tariffs on all manufacturing inputs is far from complete. Clothing manufacturers can face significant tariffs when importing raw materials, and a company wishing to use the Textile Tariff Reference for tariff relief can face a 6-8 month waiting time and legal costs of up to $75,000…Clothing manufacturing is not the only manufacturing subsector still subject to import tariffs. For instance, no tariff elimination took place on animal or vegetable raw materials, which are used as inputs by our food manufacturers.

Not specifically identified in Making it Simple was the 25% tariff on ferries, which has been eliminated in Budget 2016:

Ferry services are an integral part of Canada’s transportation network, annually carrying over 55 million passengers and 19 million vehicles in locations across the country. To support ferry operators’ plans to renew their aging fleet, Budget 2016 proposes to waive the 25 per cent tariff on ferries of all sizes imported after October 1, 2015. This will provide an estimated $118 million in duty savings over six years, allowing ferry operators, such as those from Newfoundland and Labrador, to reinvest the savings in their fleet renewal plans, enhance ferry services and reduce fares for passengers and commercial users.

Hopefully Budget 2017 will identify additional groups of products for tariff elimination.

4. A commitment to tax simplification

This commitment appears on page 211 in Budget 2016:

In addition, the Government remains committed to ensuring federal tax expenditures are fair for Canadians, efficient and fiscally responsible. Individuals and businesses have expressed concerns related to the efficiency and fairness of the tax system, and how the increasing number of tax expenditures has made the federal tax system more complex. In the coming year, the Government will undertake a review of the tax system to determine whether it works well for Canadians, with a view to eliminating poorly targeted and inefficient tax measures.

Additionally, a number of tax credits were eliminated in Budget 2016 most notably the Children’s Fitness Tax Credit and the Children’s Art Tax Credit, though others such as a Teacher and Early Childhood Educator School Supply Tax Credit were added.

5. Progress on immigration reform

Budget 2016 makes the following three commitments on immigration reform:

• An additional $245 million over five years “for the identification, overseas processing, transportation and resettlement of the additional 10,000 Syrian refugees.”
• $25 million in 2016-17 “to support faster and more predictable processing times for family sponsorship” for family reunification.
• A three-year, $56 million commitment to finance the government’s commitment for an increased number of permanent residents. This money would go towards “processing of new permanent residents and increased settlement programming.”

6. Details on a possible Guaranteed Minimum Income program

No references to “Guaranteed Minimum Income,” “Basic Income” or “Negative Income Tax” appear in Budget 2016.

7. Help to get agricultural and agri-food products to market

The budget commits $91 million for “transportation infrastructure for airports and ferries” and indicates upgrading border infrastructure as a priority. Beyond selective tariff elimination, Budget 2016 seeks to assist the agri-food sector through $30 million in funding to “support advanced research in agricultural genomics” and has committed to “additional investments in agricultural science and research, informed by the review of federal support for fundamental science to be undertaken by the Minister of Science.” Finally, $41.5 million will be provided to modernize the Canadian Food Inspection Agency and Agriculture and Agri-Food Canada research stations and laboratories.

8. More useful and timely data

Evidence-based decision making is identified as a priority area in Budget 2016:

To ensure that the Government delivers on its commitments, a new results and delivery approach will be implemented that includes the establishment of the Cabinet Committee on Agenda, Results and Communications, chaired by the Prime Minister, and a Results and Delivery Unit, housed in the Privy Council Office.

By focusing on outcomes for Canadians and making evidence-based decisions that are anchored in meaningful data and indicators, the Government is moving to a culture of measurement and impact, and is putting in place the tools to deliver on priorities, align resources to programs and activities that deliver real value for Canadians, and provide meaningful information to Canadians and Parliament.

In order to support evidence-based decision making, Budget 2016 contains a multitude of commitments, including:

• Doubling of the Treasury Board’s budget for open data and open government initiatives, providing an additional $11.5 million over five years for these activities.
• A commitment to have Infrastructure Canada and Statistics Canada “improve infrastructure-related data” along with “a new $50 million capacity-building fund to support the use of asset management best practices across Canada.”
• A four-year, $13.5 million commitment “to allow Statistics Canada to produce four new data products and fill existing data gaps to meet the International Monetary Fund’s Special Data Dissemination Standard Plus.”
• An additional $500,000 of funding to Statistics Canada to “develop methods for gathering data on purchases of Canadian housing by foreign homebuyers.”

Overall, it was a fairly successful day for my “what to watch for” list. Budget 2016 lacked a food rebate and there was no discussion of a Guaranteed Annual Income, but it did provide a tariff cut for agri-food inputs, which was absent from everyone’s radar.

MORE ON THE 2016 FEDERAL BUDGET:

• How Bill Morneau is working from Paul Martin’s old budget playbook
• Eight things to watch for in the budget (beyond the deficit’s size)
• Tax cuts won’t grow the economy if Canadians are too scared to spend