While budget 2013 didn’t feature many goodies for the personal finances and portfolios of Canadians, there was good news in the commitment to balance the budget by 2015. If achieved, it will enable Prime Minister Harper to deliver on his promise of two big tax breaks: a doubling of the TFSA contribution limit and income-splitting for parents.
Are the Conservatives committed enough to their fiscal goal to see it through no matter what slings and arrows come their way? And is it actually feasible to erase all the red ink by 2015? If you’re among the many looking forward to the tax breaks these are the two most important questions.
How serious is the commitment to balance the books by 2015?
Quite serious. A tell-tale sign came in November when Harper reversed Finance Minister Flaherty’s announcement that the deficit target would be pushed back to 2016. The target would remain at 2015, Harper said.
Harper not only overruled his Finance Minister but all the Department of Finance officials who no doubt influenced Flaherty into believing that 2015 was too soon. It shows just how strongly Harper feels about staying the course.
Why might he be so determined? It’s likely because a balanced budget will give the Conservatives a leg up in the general election due October 2015. If the deficit is by this time slain, he will be in a position to say the Conservatives not only displayed good financial management but can then unleash the substantial tax breaks for TFSAs and income-splitting.
How feasible is the commitment to balance the books by 2015?
The Conservatives are expecting to reach their 2015 milestone mostly through an economic rebound that generates an estimated $25 billion in additional tax revenues. This looks like a stretch to many observers, but the assumptions in the budget don’t seem overly optimistic.
For the next three years, economic expansion is assumed to progress at a pace of 2.5%-2.6% a year, up from 2% in 2012 and 1.6% in 2013. Nevertheless, forecasts for no more than 2.7% annual growth hardly bring performance back to the historical norm. It doesn’t look like much of a rebound is required for replenishing government coffers.
This is doubly so given the U.S. economy is gathering steam and entering a self-sustaining recovery. The U.S. housing sector, typically a harbinger of solid upturns, is going gangbusters: dwelling prices have risen for more than nine straight months and housing starts are climbing strongly. There should be strong spill-over effects into Canada.
Keep in mind, as well, that in Canada billions in new taxes are expected from measures proposed in the 2013 budget, notably the closing of tax loopholes, imposition of new tariffs on goods from emerging countries, and bumping up of the tax rate on non-eligible dividends. Plus, as a result of previously passed measures, automatic tax increases are scheduled in the years ahead—such as an extra $5 billion in Employment Insurance premiums to be collected annually until 2015.
If the government does come up short, it has fall-back options. Of note is a $3-billion reserve fund set aside for covering such shortfalls.Then there is the option that governments all over the world rely on: using flexibility in accounting rules to buff up the financial picture.
Recall that just days before the budget was tabled there was a surprise announcement that costs for cleaning up Atomic Energy of Canada Ltd.’s nuclear program were going to be $2.4 billion higher than expected. All of the costs were added to the 2013 budget even though they will not be incurred until subsequent years.
This step moved future costs into the current year, giving the latter a larger deficit for the sake of downsizing future deficits. While not exactly an admirable practice, such creative accounting shows how far the Conservatives are willing to go.
All in all, a balanced budget is quite possible by 2015. The Conservatives have the motivation and wherewithal to pull it off. Good news if you want a break come tax time.
Investing
Budget lays foundation to boost personal finances and portfolios
By Larry MacDonald
While budget 2013 didn’t feature many goodies for the personal finances and portfolios of Canadians, there was good news in the commitment to balance the budget by 2015. If achieved, it will enable Prime Minister Harper to deliver on his promise of two big tax breaks: a doubling of the TFSA contribution limit and income-splitting for parents.
Are the Conservatives committed enough to their fiscal goal to see it through no matter what slings and arrows come their way? And is it actually feasible to erase all the red ink by 2015? If you’re among the many looking forward to the tax breaks these are the two most important questions.
How serious is the commitment to balance the books by 2015?
Quite serious. A tell-tale sign came in November when Harper reversed Finance Minister Flaherty’s announcement that the deficit target would be pushed back to 2016. The target would remain at 2015, Harper said.
Harper not only overruled his Finance Minister but all the Department of Finance officials who no doubt influenced Flaherty into believing that 2015 was too soon. It shows just how strongly Harper feels about staying the course.
Why might he be so determined? It’s likely because a balanced budget will give the Conservatives a leg up in the general election due October 2015. If the deficit is by this time slain, he will be in a position to say the Conservatives not only displayed good financial management but can then unleash the substantial tax breaks for TFSAs and income-splitting.
How feasible is the commitment to balance the books by 2015?
The Conservatives are expecting to reach their 2015 milestone mostly through an economic rebound that generates an estimated $25 billion in additional tax revenues. This looks like a stretch to many observers, but the assumptions in the budget don’t seem overly optimistic.
For the next three years, economic expansion is assumed to progress at a pace of 2.5%-2.6% a year, up from 2% in 2012 and 1.6% in 2013. Nevertheless, forecasts for no more than 2.7% annual growth hardly bring performance back to the historical norm. It doesn’t look like much of a rebound is required for replenishing government coffers.
This is doubly so given the U.S. economy is gathering steam and entering a self-sustaining recovery. The U.S. housing sector, typically a harbinger of solid upturns, is going gangbusters: dwelling prices have risen for more than nine straight months and housing starts are climbing strongly. There should be strong spill-over effects into Canada.
Keep in mind, as well, that in Canada billions in new taxes are expected from measures proposed in the 2013 budget, notably the closing of tax loopholes, imposition of new tariffs on goods from emerging countries, and bumping up of the tax rate on non-eligible dividends. Plus, as a result of previously passed measures, automatic tax increases are scheduled in the years ahead—such as an extra $5 billion in Employment Insurance premiums to be collected annually until 2015.
If the government does come up short, it has fall-back options. Of note is a $3-billion reserve fund set aside for covering such shortfalls.Then there is the option that governments all over the world rely on: using flexibility in accounting rules to buff up the financial picture.
Recall that just days before the budget was tabled there was a surprise announcement that costs for cleaning up Atomic Energy of Canada Ltd.’s nuclear program were going to be $2.4 billion higher than expected. All of the costs were added to the 2013 budget even though they will not be incurred until subsequent years.
This step moved future costs into the current year, giving the latter a larger deficit for the sake of downsizing future deficits. While not exactly an admirable practice, such creative accounting shows how far the Conservatives are willing to go.
All in all, a balanced budget is quite possible by 2015. The Conservatives have the motivation and wherewithal to pull it off. Good news if you want a break come tax time.