Federal Finance Minister Joe Oliver reported a $1.4-billion surplus in a long-promised balanced and pre-election budget he delivered Tuesday.
Despite lower oil prices, the government projects that Ottawa will stay in the black for the next four years, with surpluses increasing to $1.7 billion next year and reaching $4.8 billion in 2019-2020.
However, the $3-billion contingency fund posted last year has been reduced to $1 billion.
At a news conference prior to delivering his budget, Oliver said the federal government would have been unable to balance its books had it not reached $18.5 million in savings for the current 2015-2016 tax year, due to cuts in departmental spending and closing tax loopholes.
Meanwhile, falling crude oil prices have negatively impacted Canada’s economy.
Before the price declines, the value of Canadian crude-oil exports in the second quarter of 2014 was $100 billion, or 5.1% of nominal GDP, according to the government’s 2015 Economic Action Plan.
But the drop in export prices has since reduced nominal GDP by almost $40 billion, or 2% of GDP, as of February 2015. Still, the budget noted the estimated 25% drop in prices at the pumps between mid-2014 and the first quarter of 2015 freed up about $12 billion – or more than 1% of total spending for Canadian consumers.
Although the budget gives no money to Alberta’s now-embattled oil patch, it lets the emerging liquefied natural gas (LNG) sector defer taxes through accelerated capital cost allowance (CCA) treatment for production facilities and equipment. The government has also extended the maximum limit of natural gas export licenses from 25 to 40 years, to both improve regulatory certainty and reflect the significant investments required for LNG projects.
Meanwhile, small businesses will get to keep more of their earnings. This year’s budget proposes to reduce the small business tax rate to 9% by 2019, a two-percentage-point reduction and the largest tax rate cut for small businesses in more than 25 years. Phase-in would begin January 1, 2016, when the tax rate will decrease from 11% to 10.5%. The reduction generally applies to the first $500,000 of business income.
“When fully implemented four years from now, the savings to businesses will represent as much as $10,000 annually,” said Keith MacIntyre, national tax service line leader with Grant Thornton LLP, who was in the budget lock-up with Advisor.ca. “It’s a positive direction, but businesses were hoping for either an increased small-business tax limit beyond $500,000 or a lower tax rate more consistent with provincial rates.”
The 518-page document contained few surprises, but confirmed the long-ago leaked benefits targeted at seniors and families: increasing the TFSA contribution limit from $5,500 to $10,000 effective the 2015 taxation year, and expanding compassionate care benefits from six weeks to six months starting in January.
Oliver also reiterated the government’s intention to introduce balanced-budget legislation that would only permit the federal government to post a deficit in response to a recession or “an extraordinary circumstance – such as a war or natural disaster.”
Within 30 days of delivering an unbalanced budget, the Finance Minister would be required to appear before the House of Commons Standing Committee on Finance and present a concrete timeline for returning the budget to balance. If the deficit was due to a recession, operating budgets would be automatically frozen and salaries of ministers and deputy ministers would be reduced by 5% shortly after a recession was declared.
The budget also provided a progress report on the establishment of a national securities regulator.
This summer, the federal government – along with British Columbia, Ontario, Saskatchewan, New Brunswick, Prince Edward Island and Yukon – will release draft legislation and initial regulations for the Cooperative Capital Markets Regulatory System. Ministers responsible for the regulator from the participating jurisdictions will also soon appoint an initial board of directors for the new Capital Markets Regulatory Authority.
Carleton University business professor Ian Lee says he believes the document will serve as the playbook for the Tories in a year when Canadians heads to the polls. “This will serve as their 2015 election platform and their economic plan for the next four years.”