(February 23, 2005) The federal government opened its wallet in Wednesday’s budget, committing billions of dollars in new spending in a wide variety of areas, include defence, the environment, social programs and tax relief.

Ottawa estimates the tax measures, including an increase in the basic personal exemption and higher RRSP limits, will save Canadians $13.4 billion by 2010.

The budget includes $12 billion in new money for defence and significant increases in foreign aid, to the tune of $3.4 billion over the next five years.

For families, the government is committing $5 billion (also over five years) to start building a framework for early learning and child care, in collaboration with the provinces.

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The feds are also spending significant money on the environment, committing $1 billion to a “clean fund” to reduce greenhouse gas emissions, and hundreds of millions on a variety of projects related to alternative and renewable energy.

The budget proposes to spend $805 million over the next few years on new healthcare projects. Ottawa already announced $41.3 billion in healthcare funding over the next 10 years through transfers to the provinces.

Finance Minister Ralph Goodale partly credits the government’s ability to spend more on a wide-ranging expenditure review, which he says uncovered $11 billion in new money. “Every penny will be reinvested in core federal programs and services that truly matter to Canadians,” he said in his budget speech.

“They’re shelling out money to please all sides,” notes Dave Clarke, tax manager at Collins Barrow in Ottawa, who joined Advisor.ca in the budget lockup, referring to the current minority government situation. “They can’t run the risk of upsetting any of the other parties, so the object is to give every other party something that they want and I think they’ve done that — pretty much covered all the bases.”

There a number of measures specifically aimed at addressing the country’s aging population, with Ottawa estimating that Canada’s ratio of the elderly to the rest of the population is expected to increase by 20 percentage points over the next 25 years to 40%.

The Guaranteed Income Supplement for low-income seniors will rise by $2.7 billion over five years. That will result in monthly increases of $36 for singles and $58 for couples by January, 2007.

Ottawa estimates that about 240,000 seniors will be removed from the tax roll entirely, thanks to the increase in the amount of money Canadians can earn without paying federal income tax to $10,000, by 2009.

As well, individuals who transfer funds from locked-in RRSPs to life income funds (LIFs) will no longer be required to convert those LIFs into annuities at age 80.

Ottawa is also doubling, to $10,000, the maximum amount of medical- and disability-related expenses that caregivers can claim, starting immediately.

On fiscal issues, Ottawa is delivering its eighth consecutive balanced budget and will continue to set aside an annual contingency reserve of $3 billion. If the reserve is not needed, it will be used to pay down the debt.

The government is moving ahead in its effort to streamline the operations of the Office of the Superintendent and Financial Institutions (OFSI) and the Canada Deposit Insurance Corporation in an attempt to eliminate duplication between the two agencies. In addition, the CDIC’s coverage limit on insurable deposits will be immediately increased to $100,000 from $60,000. The limit has not been changed since 1983, Ottawa notes, and will enhance protection for consumers and help Canadians save for retirement.

And no federal budget would be complete without a mention of securities regulation. Goodale has been a proponent of some sort of harmonized, if not national, regulatory system and says a meeting with the provinces will be scheduled for March with the objective of reaching an agreement on a “new, enhanced system” of securities legislation before the end of the year.

Filed by Doug Watt, Advisor.ca, doug.watt@advisor.rogers.com

(02/23/05)

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